Document:

exv10w158

EXHIBIT
10.158

SECOND CASUALTY EXCESS OF LOSS

REINSURANCE CONTRACT

No. 2008159

Effective: January 1, 2008 — January 1, 2009

			
	 	 	 
	Effective: January 1, 2008
	 	2008 Second Casualty Excess of
Loss — $100m x $100m

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SECOND CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT No. 2008159

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	ARTICLE	 	CLAUSE	 	PAGE	 
	 
	 	 	 	 	 	 
	1

	 	Coverage
	 	 	3	 
	2

	 	Commencement and Termination
	 	 	6	 
	3

	 	Limit of Liability
	 	 	7	 
	4

	 	Net Retained Lines
	 	 	8	 
	5

	 	Territory
	 	 	8	 
	6

	 	Ultimate Net Loss
	 	 	8	 
	7

	 	Extra Contractual Obligations
	 	 	10	 
	8

	 	Loss in Excess of Original Policy Limits
	 	 	11	 
	9

	 	Definitions
	 	 	12	 
	10

	 	Reinsurance Premium
	 	 	15	 
	11

	 	Reinstatement
	 	 	16	 
	12

	 	Salvage and Subrogation
	 	 	16	 
	13

	 	Loss Adjustment and Settlement
	 	 	17	 
	14

	 	Structured Settlements
	 	 	18	 
	15

	 	Interest Penalty
	 	 	18	 
	16

	 	Dividends and Taxes
	 	 	20	 
	17

	 	Federal Excise Tax
	 	 	20	 
	18

	 	Currency
	 	 	20	 
	19

	 	Access to Records
	 	 	20	 
	20

	 	Insolvency
	 	 	22	 
	21

	 	Arbitration
	 	 	23	 
	22

	 	Offset
	 	 	26	 
	23

	 	Unauthorized Reinsurance
	 	 	26	 
	24

	 	Service of Suit
	 	 	28	 
	25

	 	Errors and Omissions
	 	 	29	 
	26

	 	Confidentiality
	 	 	30	 
	27

	 	Governing Law
	 	 	31	 
	28

	 	Severability
	 	 	31	 
	29

	 	Entire Agreement
	 	 	32	 
	30

	 	Special Conditions
	 	 	32	 
	31

	 	Assignment, Novation or Transfer
	 	 	36	 
	32

	 	Reinsurer Claim Obligations
	 	 	36	 

Attachments:

Nuclear Energy Risk Exclusion Clause (Reinsurance 1994 Worldwide Excluding U.S.A. & Canada)

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

Nuclear Incident Exclusion Clause — Liability — Reinsurance — Canada

Terrorism Exclusion Clause

			
	 	 	 
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Loss — $100m x $100m

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SECOND CASUALTY EXCESS OF LOSS

REINSURANCE CONTRACT

No. 2008159

(hereinafter referred to as the “Contract”)

The “Subscribing Reinsurer” whose

name appears on the Interests and Liabilities Agreement

attached to and forming a part of this Contract

(hereinafter individually referred to as the “Subscribing Reinsurer” and collectively

referred to as the “Reinsurer”)

does hereby indemnify, as herein provided and specified, the

PEERLESS INSURANCE COMPANY

(hereinafter referred to as the “Company”)

ARTICLE 1 — COVERAGE

	A.	 	The Subscribing Reinsurer hereby reinsures the Company in respect of liability which may
accrue to the Company or a Legal Entity and reinsured, directly or indirectly, by the Company
under any Policy or Policies, classified by the Company or a Legal Entity as general
liability, automobile liability, and other lines of business excluding liability in connection
with the following classes of business or contracts:
	 
	 	 	Section A

	 	1.	 	Credit Insurance and/or Financial Guarantee.
	 
	 	2.	 	Liability under any Insolvency Fund arising by contract, operation of law or otherwise,
whether voluntary or involuntary. “Insolvency Fund” includes any guaranty fund, insolvency
fund, plan, pool, association, fund or other arrangement, howsoever denominated, established
or governed; which provides for any assessment of or payment or assumption by the Company or a
Legal Entity of part or all of any claim, debt, charge, fee, or other obligation of an
insurer, or its successors, or assigns, which has been declared by any competent authority to
be insolvent, or which has been otherwise deemed unable to meet any claim, debt, charge, fee
or other obligation in whole or in part.
	 
	 	3.	 	Reinsurance Assumed except for inter-company reinsurance between the members of the Agency
Markets Group, business classified as reinsurance written by the Company or a Legal Entity for
and on behalf of a direct insured, business assumed from the Wausau Business Group, business
assumed from OneBeacon Insurance Group and reinsurance assumed by Liberty National Market —
Global Business Unit.

			
	 	 	 
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	 	4.	 	Liability as excluded by the attached clauses entitled:

	 	a.	 	Nuclear Energy Risks Exclusions Clause Reinsurance Worldwide excluding
U.S.A. and Canada — NMA 1975a;
	 
	 	b.	 	Nuclear Incident Exclusion Clause Liability Reinsurance U.S.A. — NMA1590 (amended);
	 
	 	c.	 	Nuclear Incident Exclusion Clause Liability Reinsurance Canada — NMA1979a.

	 	5.	 	Terrorism, as attached.
	 
	 	6.	 	Liability whatsoever for any claim or claims in respect of loss or losses directly or
indirectly arising out of, resulting from or in consequence of, or in any way involving
asbestos, or any materials containing asbestos in whatever form or quantity.
	 
	 	7.	 	Director’s and Officer’s Liability, and Professional Liability coverage underwritten by the
Liberty International Underwriters business unit, except coverage shall be provided for Extra
Contractual Obligations and Loss in Excess of Original Policy Limits pursuant to Articles 7
and 8 of this Contract.
	 
	 	8.	 	War, invasion, acts of foreign enemies, hostilities or warlike operations (whether war be
declared or not), civil war, mutiny, revolution, rebellion, insurrection, uprising, military
or usurped power, confiscation by order of any public authority or government de jure or de
facto, martial law;

	 	 	Section B

	 	1.	 	Workers’ Compensation insurance.
	 
	 	2.	 	Bankers’ and Brokers’ insurances or reinsurance issued by the Company or a Legal Entity
meaning contracts issued to banks, trust companies, building and loan companies, safe deposit
companies, investment companies, including investment trusts, finance companies, credit
unions, stock or security, brokers, or to similar financial institutions, insuring them
against loss from the following hazards:

	 	a.	 	Infidelity of employees and/or partners;
	 
	 	b.	 	Unfaithful performance of duties by employees and/or partners;
	 
	 	c.	 	Loss of property in transit;
	 
	 	d.	 	Forgery or alteration of negotiable or other paper;
	 
	 	e.	 	Burglary, robbery, theft, false pretenses or fraud;
	 
	 	f.	 	Mysterious disappearance or misplacement of property;
	 
	 	g.	 	Loss of property from safe deposit boxes or other depositories;
	 
	 	h.	 	Damage to or destruction of money or securities;

			
	 	 	 
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	 	i.	 	Counterfeiting of currencies or securities.

	 	3.	 	Motor Vehicle Physical Damage Insurance, but this exclusion shall not apply to Motor Vehicle
Property Damage Liability Insurance.
	 
	 	4.	 	Fire Insurance, including the coverage ordinarily written under Extended Coverage
Endorsements.
	 
	 	5.	 	Seepage and Pollution in accordance with the ISO Commercial General Liability Seepage and
Pollution Exclusion, except as otherwise restricted by State law. This exclusion shall not
apply to pollution coverage granted under the 1983 Motor Carrier Act.
	 
	 	6.	 	Group Health, Disability, Hospital or Surgical Insurance, but this exclusion shall not apply
to any loss due to two or more persons insured under one or more Group policies suffering
bodily injuries, including death resulting therefrom, as a result of one accident or series of
accidents arising out of one event.
	 
	 	7.	 	Livestock Mortality Insurance.
	 
	 	8.	 	Surety business, but this exclusion shall not apply to faithful performance bonds or public
official bonds; provided, however, that the Subscribing Reinsurer shall not be liable for any
loss resulting from the insolvency of any firm, company, corporation or bank with which a
guaranteed official has deposited funds in the course of his/her duties.
	 
	 	9.	 	Insurance covering the liability of owners or operators of aircraft carrying passengers for
hire, for injuries to such passengers.
	 
	 	10.	 	Contracts of insurance written on any cost-plus plan which provides for payment of the full
amount of all losses, however great, by the policyholder. This exclusion shall not apply to
contracts of insurance, premiums for which are determined by a retrospective rating plan which
provides for a specific maximum premium or a formula for determination of a maximum premium.
	 
	 	11.	 	Contracts of liability insurance covering injuries to persons or property arising out of the
rail operations of Class 1 railroads; but this exclusion shall not apply to railroad
Protective Liability policies issued at the request of the Company’s or Legal Entities’
policyholders doing work for or on the premises of such railroads.

	B.	 	If any risks reinsured hereunder, but falling within the scope of the above Section B
exclusions, are assigned to the Company or a Legal Entity under any assigned risk plan, the
coverage afforded by this Contract shall apply to such risks, but only for the policy limits
prescribed by said plan, and subject to the limits of this Contract.

			
	 	 	 
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	C.	 	The above Section B exclusions shall not apply when they are merely incidental to the main
operations of the insured, provided such main operations are covered by the Company or a Legal
Entity and are not themselves excluded from the scope of this Contract. For the purposes of this
paragraph, “incidental”, as used in this paragraph, is defined as operations that generate 10% or
less of the primary insured’s total revenue.
	 
	D.	 	With respect to the business excluded in Section B, coverage shall be provided for Extra
Contractual Obligations and Loss in Excess of Original Policy Limits pursuant to Articles 7
and 8 of this Contract.
	 
	E.	 	Should the Company or a Legal Entity, by reason of an inadvertent act, error, or omission, be
bound to afford coverage excluded under Section B, the Subscribing Reinsurer shall waive the
exclusion(s). The duration of said waiver shall not extend beyond the time that notice of such
coverage has been received by the responsible underwriting authority of the Company or a Legal
Entity plus the minimum time period required thereafter for the Company or a Legal Entity to
terminate such coverage.
	 
	F.	 	The Company may submit to the Subscribing Reinsurer for special acceptance hereunder,
business not covered by this Contract. If said business is accepted by the Subscribing
Reinsurer, it shall be subject to the terms of this Contract, except as such terms are
modified by such acceptance. Any special acceptance business covered under the reinsurance
agreement being replaced by this Contract shall be automatically covered hereunder. Further,
should the Subscribing Reinsurer become a party to this Contract subsequent to the acceptance
of any business not normally covered hereunder, they shall automatically accept same as being
a part of this Contract.

ARTICLE 2 — COMMENCEMENT AND TERMINATION

	A.	 	This Contract applies to claims made during its effective period, being 12:01 a.m., Local
Standard Time, January 1, 2008 to 12:01 a.m., Local Standard Time, January 1, 2009, for events
occurring between January 1, 1996 and December 31, 1997 (for losses of $50,000,000 excess of
$100,000,000) and with respect to events occurring on or after January 1, 1998 (for losses of
$100,000,000 excess of $100,000,000) and reported to the Subscribing Reinsurer within 90 days
after the expiration of this Contract.
	 
	B.	 	In the event of non-renewal, the Company shall have the sole option to purchase a further
sixty (60) months extended discovery period with a retroactive date of January 1, 1996 (for
losses of $50,000,000 excess of $100,000,000) and January 1, 1998 (for losses of $100,000,000
excess of $100,000,000). To invoke this provision, the Company must advise the Subscribing
Reinsurer within sixty (60) days after the expiration of this Contract.

			
	 	 	 
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	C.	 	In the event the Company is unable to secure the renewal of this Contract with the
Subscribing Reinsurer, the Company has the option to invoke a five (5) year discovery period within
sixty (60) days subsequent to the non-renewal date, for claims made by the Company and notified to
the Subscribing Reinsurer in respect of events prior to the effective non-renewal date, but after
the January 1, 1996 retroactive date. Activation of this provision shall be at the sole discretion
of the Company and shall be binding upon all participating Reinsurers hereon regardless of their
decision to continue or not renew. To invoke this provision, the Company must advise the
Subscribing Reinsurer within sixty (60) days following the expiration of this Contract. For this
extension of liability, the Company shall pay to the Subscribing Reinsurer an additional premium
equal to 100% of the final premium hereunder.

ARTICLE 3 — LIMIT OF LIABILITY

	A.	 	The Subscribing Reinsurer shall be liable for the Ultimate Net Loss in excess of the sum of
$100,000,000 of Ultimate Net Loss each Occurrence in respect of business the subject matter of
this Contract, subject to a limit of $100,000,000 on account of each Occurrence.
	 
	B.	 	Notwithstanding the Subscribing Reinsurer’s liability on each Occurrence as set forth above,
the Subscribing Reinsurer’s liability shall further be limited to $200,000,000 on account of
all Occurrences during the term of this Contract.
	 
	C.	 	It is hereby warranted or so deemed that the Company’s or a Legal Entity’s maximum limit of
liability per insured shall be $50,000,000 for bodily injury and property damage separately.
It is agreed, however, that this warranty shall not apply where the Company or a Legal Entity
is required by statute to provide higher limits, e.g. Michigan PIP and Ontario Accident
Benefits.
	 
	D.	 	It is also agreed that subrogation expense incurred shall be paid in addition to the
applicable limits of liability set forth above, on the basis provided in the Subrogation
Article of this Contract.
	 
	E.	 	It is agreed that the Company’s or a Legal Entity’s limit of liability under any and all
Policies of Personal Accident Insurance (individual and group) covering any one individual
shall be considered as not exceeding $300,000 subject to this Contract. Subject to the limits
set forth above, it is agreed that the Company is reinsured hereunder for the excess of the
amounts set forth above of Ultimate Net Loss each Occurrence, involving more than one person
covered under such Policies issued by the Company or a Legal Entity.
	 
	F.	 	It is also understood and agreed that the limit and retention described above applies both to
the Company and the Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company,
and all their subsidiaries (other than the Company and the Legal Entities) (hereafter referred
to as “the LMG Companies”). Any Loss Occurrence affecting both the LMG Companies on the one
hand, and the Company and the Legal Entities on the other, shall be

			
	 	 	 
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	 	 	combined with respect to the application of the limit and retention set forth herein. The
limit, retention, and reinsurance recovery will be allocated to the Company in the same ratio that
the Ultimate Net Loss bears to the total Ultimate Net Loss of the Company and the Legal Entities,
on the one hand, and the LMG Companies, on the other.

ARTICLE 4 — NET RETAINED LINES

	A.	 	This Contract applies only to such portion of any obligation of the Company as the Company
retains net for its own account, and in calculating the amount of any loss hereunder and in
computing the amount or amounts in excess of which this Contract attaches only loss or losses
in respect to that portion of any obligation which the Company retains net for its own account
shall be included.
	 
	B.	 	It is agreed that the amount or amounts of the Subscribing Reinsurer’s liability hereunder in
respect of any losses shall not be increased by reason of the inability of the Company to
collect from any other Subscribing Reinsurer whether specific or general, any amount or
amounts which may have become due from them whether such inability arises from the insolvency
of such other Subscribing Reinsurer or otherwise.
	 
	C.	 	Allocation of losses and expenses to Legal Entities other than the Company pursuant to
inter-company reinsurance among the Legal Entities shall be entirely disregarded for all
purposes of this Contract.
	 
	D.	 	The Company is hereby given permission to purchase other reinsurance on the business subject
hereunder, recoveries under which shall be disregarded in determining the Company’s net
retention under this Contract. It is warranted, however, that this Contract shall be subject
to a minimum net retention by the Company of $10,000,000 each Occurrence.

ARTICLE 5 — TERRITORY (LM-02201-2005.06.02-A)

This Contract is worldwide in scope and shall cover risks wherever located.

ARTICLE 6 — ULTIMATE NET LOSS (LM-02400-2006.11.08-A)

	A.	 	The term “Ultimate Net Loss” as used in this Contract shall mean: (1) all amounts paid or due
and payable by the Company or a Legal Entity in the investigation, appraisal, adjustment,
settlement, litigation, defense or appeal, or payment of claims or judgments arising from each
and every loss occurrence for which the Company or a Legal Entity is or may be found liable
under the Policies, less salvages and subrogation recoveries and amounts recovered or
recoverable under pooling agreements or other reinsurances, whether collectible or not.
“Ultimate Net Loss” includes, but is not limited to, the following paid or due and payable
amounts: loss adjustment expenses,

			
	 	 	 
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	 	 	defense costs, court costs, supersedeas and appeal bond costs, Post or Prejudgment Interest
and Delayed Damages, Attorneys Fees and Expenses, Claim-Specific Declaratory Judgment Expenses, a
pro rata share of salaries and expenses of the Company’s or its affiliates’ field employees
according to the time occupied in adjusting, defending, and settling such loss, and expenses of all
of the Company’s or its affiliates’ officers and employees incurred in connection with the loss;
(except that salaries of officers and employees engaged in general management and located in the
home office of the Company or its affiliates’ and any office expense of the Company or its
affiliates’ shall not be included), and all other costs of investigation or litigation, (2) Extra
Contractual Obligations (as defined in the Extra Contractual Obligations Article), and (3) Loss in
excess of original Policy limits (as described in the Loss in Excess of Original Policy Limits
Article).
	 
	B.	 	“Claim-Specific Declaratory Judgment Expenses” shall be defined as fees and expenses incurred
in actions brought to determine whether the Company or a Legal Entity has a defense and/or
indemnification obligation for individual claims presented against Policies covered under this
Contract. Any Claim-Specific Declaratory Judgment Expense shall be deemed to have been fully
incurred on the same date as the insured’s original loss (if any) giving rise to the action,
unless otherwise provided for within this Contract.
	 
	C.	 	The term “Attorneys’ Fees and Expenses” as used above, means the fees and expenses of
attorneys, including the fees and expenses of the Company’s or its affiliates’ in-house
attorneys providing legal advice on coverage questions and/or defending the Company or a Legal
Entity in coverage litigation, and fees and expenses of staff counsel in the defense of
policyholder claims. Such Attorneys’ Fees and Expenses for in-house attorneys and staff
counsel shall be calculated at the rate for such attorneys plus the expenses incurred by such
attorneys, but excluding office expenses of the Company or its affiliates’ and salaries and
expenses of their other employees.
	 
	D.	 	“Post or Prejudgment Interest or Delayed Damages” shall mean interest or damages added to a
settlement, verdict, award, or judgment based on the period of time prior to or after the
settlement, verdict, award, or judgment whether or not made part of the settlement, verdict,
award, or judgment.
	 
	E.	 	Nothing in this Article shall be construed to mean that losses under this Contract are not
recoverable until the Ultimate Net Loss has been ascertained. In the event a verdict or
judgment is reduced by an appeal or a settlement subsequent to the entry of the judgment,
thereby resulting in an ultimate saving on such verdict or judgment, or in the event a
judgment is reversed outright, the loss adjustment expense incurred in securing such final
reduction or reversal shall be prorated between the Reinsurers and the Company in the
proportion that each benefits from such reduction or reversal, and the expenses incurred up to
the time of the original verdict or judgment shall be added to the Ultimate Net Loss. In the
event there is no reduction or reversal of a verdict or judgment, the loss adjustment expense
incurred in attempting to secure such reduction or reversal shall be added to the Ultimate Net
Loss.

			
	 	 	 
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Loss — $100m x $100m

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ARTICLE 7 — EXTRA CONTRACTUAL OBLIGATIONS (LM-00900-2007.03.28-A)

	A.	 	This Contract shall protect the Company within the limits hereof for 90% of Extra
Contractual Obligations. “Extra Contractual Obligations” are defined as any actual or
potential liabilities not covered under any other provision of this Contract, arising from or
relating to any alleged or actual act, error or omission, whether intentional or otherwise, or
from any alleged or actual negligence, tortious conduct, reckless conduct, violations of
statutes or regulations governing the conduct of insurance companies and/or claims adjusters,
or bad faith in connection with: (i) the handling of any claim under the Policies covered by
this Contract, such liabilities arising because of, but not limited to, the following: failure
by the Company or a Legal Entity or by a third party claims administrator to settle within the
Policy limit, or by reason of alleged or actual negligence, fraud or bad faith of the Company
or a Legal Entity or by a third party claims administrator in rejecting an offer of
settlement, or in defending or prosecuting litigation, including appeals, arbitration, or any
alternative dispute resolution or settlement discussions involving any claim; or (ii) the
providing of or failure to provide any loss control or loss prevention services in connection
with any Policy hereunder.
	 
	B.	 	The date on which any Extra Contractual Obligation is incurred by the Company or a Legal
Entity shall be deemed, in all circumstances, to be the date of the original Occurrence, loss
occurrence, accident, casualty, disaster, or loss, as selected by the Company.
	 
	C.	 	However, this Article shall not apply where the loss has been incurred due to the fraud of a
member of the Board of Directors or a corporate officer of the Company or a Legal Entity
acting individually or collectively or in collusion with any individual or corporation or any
other organization or party involved in the presentation, defense or settlement of any claim
covered hereunder.
	 
	D.	 	This Article shall also apply to protect the Company within the limits hereof for 90% of
Extra Contractual Obligations as defined above when incurred in respect of all classes of
business written by the Company or a Legal Entity otherwise not covered under this Contract.
However, the coverage granted under this paragraph will not allow the erosion of any
deductible/excess point or the Ultimate Net Loss by anything other than the Extra Contractual
Obligations including any related expense awarded against the Company or a Legal Entity in
respect of such classes of business unless such coverage is provided under this Contract. For
the purposes of a recovery under this paragraph for such classes of business, other than
Environmental Impairment Liability, the Company shall retain a minimum net retention of
$50,000,000 each and every loss after deduction of all inuring reinsurance. For Environmental
Impairment Liability, the Company shall retain a minimum net retention of $10,000,000. For the
purposes of coverage under this paragraph, the date of loss shall be the date on which an
action is first brought against the Company or a Legal Entity.

			
	 	 	 
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	E.	 	In addition to the above, with respect to any company becoming affiliated with the Company
and becoming part of Liberty Mutual Agency Markets, this Contract shall respond to 90% of any Extra
Contractual Obligations loss on actions first brought against any acquired company after the date
of acquisition, on losses occurring prior to the date of acquisition. The Subscribing Reinsurer
shall have the benefit of any and all prior inuring reinsurances and/or Errors and Omissions cover
purchased. For the purposes of coverage under this paragraph only, the Date of Loss shall be the
date on which an action is first brought against the Company.

ARTICLE 8 — LOSS IN EXCESS OF ORIGINAL POLICY LIMITS (LM-01600-2005.08.24-A)

	A.	 	This Contract shall protect the Company within the limits hereof, for 90% of any Loss in
excess of the Company’s or a Legal Entity’s original Policy limit where Loss in excess of the
limit has been incurred because of a failure by the Company or a Legal Entity or by a
third-party claims administrator to settle within the Policy limit or by reason of alleged or
actual negligence, fraud, or bad faith in rejecting an offer of settlement or in defending or
prosecuting litigation, including appeals, arbitration, or any alternative dispute resolution
or settlement discussions involving any claim.
	 
	B.	 	However, the above paragraph shall not apply where the loss has been incurred due to the
fraud of a member of the Board of Directors or a Corporate Officer of the Company or a Legal
Entity acting individually or collectively or in collusion with any individual or corporation
or any other organization or party involved in the presentation, defense or settlement of any
claim covered hereunder.
	 
	C.	 	With regard to excess of Policy limits, the word “Loss” shall mean any amounts for which the
Company or a Legal Entity would have been contractually liable to pay had it not been for the
limit of the original Policy. The date on which any Loss in excess of the original Policy
limit is incurred by the Company or a Legal Entity shall be deemed, in all circumstances, to
be the date of the original Occurrence, accident, casualty, disaster, loss occurrence or loss,
as selected by the Company.
	 
	D.	 	This Article shall also apply to protect the Company within the limits hereof for 90% of any
Loss in excess of its or a Legal Entity’s original Policy limits when incurred in respect of
all classes of business written by the Company or a Legal Entity otherwise not covered under
this Contract. However, the coverage granted under this paragraph will not allow the erosion
of any deductible / excess point or the Ultimate Net Loss by anything other than the excess of
original Policy limits Loss (including any related expense) awarded against the Company or a
Legal Entity in respect of such classes of business unless such coverage is provided under
this Contract. For the purposes of a recovery under this paragraph for such classes of
business other than Environmental Impairment Liability, the Company shall retain a minimum net
retention of $50,000,000 each and every loss after deduction of all inuring

			
	 	 	 
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	 	 	reinsurance. For Environmental Impairment Liability, the Company shall retain a minimum net
retention of $10,000,000. For the purposes of coverage under this paragraph, the date of loss shall
be the date on which an action is first brought against the Company or a Legal Entity.
	 
	E.	 	In addition to the above, with respect to any company becoming affiliated with the Company
and becoming part of Liberty Mutual Agency Markets, this Contract shall respond to 90% of any
loss in excess of original Policy limits on actions first brought against any acquired company
after the date of acquisition, on losses occurring prior to the date of acquisition. The
Subscribing Reinsurer shall have the benefit of any and all prior inuring reinsurances and/or
Errors and Omissions cover purchased. For the purposes of coverage under this paragraph, the
date of loss shall be the date on which an action is first brought against the acquired
company.

ARTICLE 9 — DEFINITIONS

	A.	 	The term “Occurrence” as used in this Contract is defined as follows according to the class
or risk involved:

	 	1.a.  	 	All Classes or Risks Covered Hereunder (other than those defined in paragraphs B and D
below)
	 
	 	1.b.  	 	All injuries to persons and all losses of injury to or destruction of property resulting from
each accident or loss, or from each series of accidents or losses proximately arising out of
one event. An event shall mean an individual accident or happening, or singular act, error or
omission, which shall be identified as to time and place and be limited in time and place.
	 
	 	2.a.  	 	With respect to liability insurance coverage written subject to aggregate limits of liability
on a policy year basis, an Occurrence shall mean the cumulative amount of all losses
proceeding from one event. For the purposes of this paragraph, all losses having a common
origin and traceable to the same cause, omission, or mistake occurring during any one policy
year shall be considered one event. Where the Company or a Legal Entity issues more than one
such Policy to the same policyholder such policies shall together be treated as though they
were one Policy.
	 
	 	2.b.  	 	Losses under such policies shall for the purposes of this Contract be deemed to have occurred
in the calendar year in which the inception date of the Policy falls, except that as respects
such policies issued for a period in excess of twelve months, losses for the first twelve
month period shall be deemed to have occurred in the calendar year in which the inception date
of the Policy falls and losses for each succeeding twelve month period or part thereof shall
be deemed to have occurred in the calendar year in which the anniversary date of the Policy
starting such period falls.

			
	 	 	 
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	 	3.	 	Where the Company’s or a Legal Entities’ original policies provide for aggregate limits of
liability, the Company is permitted to extract from such aggregate policy (ies) Limits of Liability
the amount of loss sustained by them arising from any one event in order that such loss may be
added to the Company’s or a Legal Entities’ losses from other policies for the same event in order
to determine the Ultimate Net Loss.
	 
	 	4.a. 	 	Fidelity and Forgery
	 
	 	4.b.  	 	All losses resulting from any fraudulent or dishonest act or omission or series thereof on
the part of any one person or of several persons acting in collusion (whether employees or
not) and irrespective of the number of the Company’s or a Legal Entity’s obligations involved;
provided, that in the case of any loss involving two or more persons acting in collusion,
losses resulting from separate acts or omissions on the part of each such person shall be
included as part of such loss.

	 	(i.)  	 	It is agreed that an Occurrence commencing prior to the date of termination of this Contract
and discovered not later than three years after such termination (excluding only any loss
prior to the effective date of this Contract) shall be recoverable under this Contract.
	 
	 	(ii)	 	It is further agreed that an Occurrence resulting from a series of acts or omissions, some
prior to and some subsequent to the effective date of this Contract, shall be disregarded.

	 	(a.)  	 	As regards losses arising under policies and/or contracts covering on a “losses discovered”
or “claims made during” basis (that is to say policies and/or contracts in which the date of
discovery of the loss, or the date the claim is made against the insured or is first notified
to the Company or a Legal Entity, determines under which policy and/or contract the loss is
collectible), such losses are covered hereunder and the date of the discovery of such loss or
the date such claim is made or first notified shall be deemed to be the date of loss for the
purposes of this Contract, provided that the date of the discovery of the loss or the date the
claim is made or first notified falls within the period covered by this Contract.
	 
	 	(b.)  	 	For the purposes of the foregoing the date of first discovery of a “loss” or the date the
claim is first made against an insured or first notified to the Company or a Legal Entity
shall be the date applicable to the entire loss and/or claim and the Subscribing Reinsurer
shall be liable for their proportion of the entire loss and/or claim irrespective of the
expiry date of this Contract and provided that such first discovery date or first date such

			
	 	 	 
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	 	 	 	claim is made or notified falls within the period of this Contract.

	B.	 	The “Date of Loss” for purposes of this Contract is defined as follows:

	 	1.	 	For the purposes of this Contract when “Claims-Made” and/or “losses discovered” and/or
“occurrence” and/or “accident” policies are involved in the same loss with other “Claims-Made”
and/or “losses discovered” and/or “occurrence” and/or “accident” policies, the date of loss
shall be determined as follows:

	 	a.	 	If an “occurrence” or “accident” policy is identified as being involved then the date of loss
shall be the date as determined under the occurrence or accident policy, or
	 
	 	b.	 	If no “occurrence” or “accident” policy is identified as being involved, then the date of the
loss will be the date the first claim is made or discovered under a “Claims-Made” or “losses
discovered” policy.

	 	2.	 	If an occurrence policy is identified after date of loss is established under B. above, the
date of loss shall not be changed. Only one date of loss may be established for any event.

	C.	 	The term “Claims Made” as used in this Contract shall be defined as the date when the Company
or a Legal Entity first establishes a reserve equal to or greater than $30,000,000 or the date
when the Company reasonably concludes that a claim, or series of claims arising out of one
event may erode the retention hereon by $30,000,000 or more. The Company shall advise the
Subscribing Reinsurer of such situations within (90) days after the expiration of this
Contract.
	 
	D.	 	The term “Policy” or “Policies,” as used in this contract, shall be defined as any written or
oral binder, policy, cover note or contract of insurance or reinsurance and/or any endorsement
to any of the foregoing, issued, accepted, or held covered provisionally or otherwise, by or
on behalf of the Company or a Legal Entity listed below (each, a “Legal Entity” and,
collectively, the “Legal Entities”), and reinsured, directly or indirectly, by the Company;

American Ambassador Casualty Company

American Fire and Casualty Company

America First Insurance Company

America First Lloyd’s Insurance Company

Avomark Insurance Company

Bridgefield Employers Insurance Company

Bridgefield Casualty Insurance Company

Colorado Casualty Insurance Company

Consolidated Insurance Company

Excelsior Insurance Company

Globe American Casualty Company

Golden Eagle Insurance Corporation

			
	 	 	 
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Hawkeye-Security Insurance Company

Indiana Insurance Company

Liberty Northwest Insurance Corporation

Mid-American Fire and Casualty Company

Montgomery Mutual Insurance Company

National Insurance Association

North Pacific Insurance Company

Ohio Casualty of New Jersey Inc.

Ohio Security Insurance Company

Oregon Automobile Insurance Company

Peerless Indemnity Insurance Company

The Ohio Casualty Insurance Company

The Midwestern Indemnity Company

The Netherlands Insurance Company

West American Insurance Company, for business identified as belonging to the Agency Markets Group,

Employers Insurance Company of Wausau and

Wausau General Insurance Company and

Wausau Underwriters Insurance Company and

Wausau Business Insurance Company, for business identified as Wausau
Business Group Multi-State business or Business Solutions Group Multi-State business or Wausau Business Group, 

Liberty Mutual Insurance Company, on behalf of; The First Liberty Insurance Corporation, LM
Insurance Corporation, Liberty Insurance Corporation and Liberty Mutual Fire Insurance Company, for
business previously identified as Business Solutions Group and Business Solutions Group Multi-State
business,

Liberty County Mutual Insurance Company, for business identified as belonging to the Agency Markets
Group,

Liberty Mutual Mid-Atlantic Insurance Company, for business identified as belonging to the Agency
Markets Group,

OneBeacon Insurance Company for Policies subject to the rewritten Indemnity Reinsurance Agreement
by and between Peerless Insurance Company and OneBeacon Insurance Company.

ARTICLE 10 — REINSURANCE PREMIUM

	A.	 	The premium hereon to be paid to the Subscribing Reinsurer shall be calculated at a rate of
0.0338% of the gross net written premium income of the Company and the Legal Entities during
the term of this Contract on the class of business which is the subject matter of this
Contract.
	 
	B.	 	The term “gross net written premium income” shall mean the gross premiums written by the
Company and the Legal Entities on the business covered hereunder less return premiums for
cancellations and reductions and less premiums on reinsurance which inures to the benefit of
the Subscribing Reinsurer. No deduction shall be made for dividends declared, paid or credited
to policyholders of the Company or a Legal Entity.

			
	 	 	 
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	C.	 	The Company shall pay to the Subscribing Reinsurer a minimum and deposit premium equal to
$1,011,758 payable in quarterly installments of $252,940 on January 1st, April 1, July 1, and
October 1, 2008.
	 
	D.	 	As soon as practicable following the termination or expiration of this Contract, the Company
shall furnish the Subscribing Reinsurer a statement of its gross net written premium income as
defined herein and if the premium due calculated as provided above, exceeds the deposit
premium paid, the balance shall be due and payable to the Subscribing Reinsurer forthwith.
	 
	E.	 	The Company shall also provide the Subscribing Reinsurer as soon as possible after December
31st any reports which may be necessary for annual statement purposes.

ARTICLE 11 — REINSTATEMENT

	A.	 	In the event of the whole or any portion of the coverage hereunder being exhausted by a loss,
the amount so exhausted is automatically reinstated from the time of the loss and the Company
shall pay to the Subscribing Reinsurer for such reinstatement an additional premium calculated
at pro rata of the premium hereon being pro rata as to the fraction of the face value of this
Contract (being $100,000,000) reinstated. The additional premium shall be provisionally based
on the deposit premium and subsequently adjusted on the premium income for the term of this
Contract.
	 
	B.	 	For purposes of calculating reinstatement premium, the reinsurance premium is deemed to be
$4,750,036, multiplied by the ratio that the Company’s reinsurance recovery bears to the total
reinsurance recovery of the Company and the LMG Companies.
	 
	C.	 	In the event of a paid loss hereunder, there shall be simultaneous settlement of
reinstatement premium by the Company.
	 
	D.	 	Notwithstanding anything contained herein to the contrary, the Subscribing Reinsurer’s
liability under this Contract shall not exceed $100,000,000 for any one Occurrence nor
$200,000,000 for all Occurrences during the term of this Contract.

ARTICLE 12 — SALVAGE AND SUBROGATION (LM-01800-2006.09.12-A)

	A.	 	The Subscribing Reinsurer shall be credited with its share of salvage and/or subrogation in
respect of claims and settlements under this Contract, less its share of recovery expense.
Unless the Company or a Legal Entity agrees to waive such rights in the settlement of a
disputed claim, or the Company and the Subscribing Reinsurer agree to the contrary, the
Company or the Legal Entities shall enforce their right to salvage and/or subrogation and
shall

			
	 	 	 
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	 	 	prosecute all claims arising out of such right. Should the Company or a Legal Entity refuse or
neglect to enforce this right, the Subscribing Reinsurer is hereby empowered and authorized to
institute appropriate action in the name of the Company or a Legal Entity, as applicable.
	 
	B.	 	Amounts recovered from salvage and/or subrogation and the expense of any salvage and/or
subrogation proceedings brought by the Company or a Legal Entity or the Subscribing Reinsurer
to enforce such rights shall be apportioned between the Company and the Subscribing Reinsurer
in the ratio of their respective interests in the total salvage and/or subrogation recovery,
and shall be in addition to the limits hereon. In the event there is a failure to obtain a
salvage and/or subrogation recovery, the expense of the proceedings shall be apportioned
between the Company and the Subscribing Reinsurer in the ratio of their respective interests
in the total loss.
	 
	C.	 	All salvage and/or subrogation recoveries obtained by either party, subsequent to payments
made by the Subscribing Reinsurer under this Contract, shall be applied as if obtained prior
to said payments and all necessary adjustments shall be made between the Company and the
Subscribing Reinsurer as soon as practicable after said salvage and/or subrogation recovery is
obtained.
	 
	D.	 	The Company or a Legal Entity shall have the right, before the happening of the loss, to
waive its right of subrogation as to that loss.

ARTICLE 13 — LOSS ADJUSTMENT AND SETTLEMENT (LM-01500-2006.09.07-A)

	A.	 	The Company shall give notice, as soon as practicable, to the Subscribing Reinsurer of any
claim that it has reason to believe could involve this Contract. The Company shall keep the
Subscribing Reinsurer informed of significant developments likely to affect the cost of any
claim or claims hereunder.
	 
	B.	 	The Company or a Legal Entity may commence, continue, defend, settle, or withdraw from
actions, suits, or prosecutions and, generally, do all such things relating to any claim or
loss in which the Subscribing Reinsurer is interested as, in the Company’s or a Legal Entity’s
judgment, may be beneficial or expedient to the Company and the Subscribing Reinsurer. The
Company and the Legal Entities shall be the sole judge as to what claims are covered under
their Policies. All of the Company’s Ultimate Net Loss, as well as all loss settlements made
and judgments paid by the Company or a Legal Entity, provided they are within the terms of
this Contract either under the strict conditions of the Policies or by way of compromise,
shall be unconditionally binding upon the Subscribing Reinsurer, who agrees to pay all amounts
for which they are liable immediately upon reasonable evidence of the amount due being
furnished to the Subscribing Reinsurer by the Company. The true intent of this Contract is
that the Subscribing Reinsurer shall, in every case to which this Contract applies, follow the
settlements of the Company and the Legal Entities.

			
	 	 	 
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ARTICLE 14 — STRUCTURED SETTLEMENTS

	A.	 	In the event of a settlement of a loss by agreement of the Company or a Legal Entity to make
or fund periodic payments, the Company may, at its option:

	 	1.	 	Recover from the Subscribing Reinsurer in accordance with the terms of this Contract as
periodic payments are made by the Company.
	 
	 	2.	 	Settle the structured settlement loss with the Subscribing Reinsurer (releasing the
Subscribing Reinsurer from further liability) at an amount determined as follows:

	 	a.	 	The cost of an annuity or reinsurance cover to fund the periodic payments where such an
annuity or reinsurance cover has been purchased from an unaffiliated entity with an A+ Best
rating following competitive negotiations; or
	 
	 	b.	 	A figure agreed upon by the Subscribing Reinsurer as representative of a competitive market
price for such annuity or reinsurance cover as would be purchased from an A+ Best-rated
Company where the Company elects to make provision for funding the periodic payments through
(an affiliated entity) means other than provided in (a) above.

	B.	 	In any event, where annuities are used in settlements, and there is a return of funds to the
Company or a Legal Entity due to, for example, a reversionary trust with the demise of a
claimant, such return of funds shall be treated as recovery and subject to the Subrogation
Article of this Contract.
	 
	C.	 	Notwithstanding the above, it is agreed that the Subscribing Reinsurer shall remain liable
until all the obligations of the Company or a Legal Entity for a loss covered under this
Contract through an annuity, or otherwise, have been satisfied.

ARTICLE 15 — INTEREST PENALTY (LM-01400-2005.08.24-A)

	A.	 	The interest amounts provided for in this Article shall apply to the Subscribing Reinsurer
or to the Company in the following circumstances:

	 	1.	 	If a loss payment owed by the Subscribing Reinsurer to the Company is not received within 45
calendar days following the date of presentation to the Subscribing Reinsurer of information
necessary to approve payment of the claim, and/or
	 
	 	2.	 	If any premium payment owed by the Company to the Subscribing Reinsurer is not received
within 45 calendar days following the date on which payment is due, and/or
	 
	 	3.	 	If any premium adjustment, agreed by either Party to the other, is not received within 150 calendar days following the expiry or anniversary of this Contract, and/or

			
	 	 	 
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	 	4.	 	If any return of premiums, commissions, profit sharing, or any amounts not provided in
paragraphs A, B, and C above, are not received in accordance with the date specified in this
Contract or if no date is specified, within 90 calendar days following the date the debtor Party
received the billing.

	B.	 	Failure by the Subscribing Reinsurer or Company to comply with their respective payment
obligations within the time periods as herein provided shall, as of that date, be subject to
an interest payment computed by multiplying the amount due by a variable rate consisting of
the U.S. Prime Rate as published in the Eastern Edition of The Wall Street Journal on
the first day of the calendar month in which the amount became past due, plus 2%. The variable
rate shall be adjusted monthly thereafter to equal the U.S. Prime Rate as published in the
Eastern Edition of The Wall Street Journal on the first day of each successive month
during which the amount due remains unpaid, plus 2%. The product shall then be multiplied by
1/365 for each day after the due date that the amount due and the interest amount remain
unpaid. Any interest that occurs pursuant to this Article shall be calculated by the Party to
which it is owed.
	 
	C.	 	The validity of any claim or payment may be contested under the provisions of this Contract. If the debtor Party prevails in an arbitration or any other proceeding with respect to
the amounts in dispute, there shall be no interest penalty due. If the creditor Party wholly or
partially prevails on any of the amounts in dispute, the interest penalty shall be awarded as
outlined above. Such interest penalty shall be calculated from the date the monies were due and
owing to the date of resolution of the arbitration or proceeding, and shall be payable as of the
date of resolution of the arbitration or proceeding.
	 
	D.	 	If a Subscribing Reinsurer advances the entire or partial payment of any claim it is
contesting, and wholly or partially prevails in the contest, the Company shall promptly return
the applicable amount of such payment. The arbitrator(s) hearing such dispute shall determine
if interest shall be added to the amount returned by the Company.
	 
	E.	 	Any interest owing pursuant to this Article may be waived by the Party to which it is owed.
Further, any interest calculated pursuant to this Article that is $100 or less shall be
waived. Any waiver of any interest pursuant to this paragraph, however, shall not affect the
waiving Party’s right to claim and/or pursue interest for any other failure by the other Party
to make payment when due under this Article.

ARTICLE 16 — DIVIDENDS AND TAXES (LM-00600-2005.06.02-A)

In consideration of the terms of this Contract, the Company shall not claim any
deduction in respect of any amount paid as dividends or as reinsurance premium
when making tax returns, other than income or profits tax returns to any State or to
the District of Columbia.

			
	 	 	 
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ARTICLE 17 — FEDERAL EXCISE TAX (LM-01000-2005.08.24-A)

	A.	 	This Article is applicable to any Subscribing Reinsurer who is domiciled outside of the
United States of America, except for any Subscribing Reinsurer exempt from Federal Excise Tax.
A Subscribing Reinsurer that claims exempt status from Federal Excise Tax shall provide to the
Company, upon its request, proof that the exempt status adequately satisfies the demands of
the U.S. Internal Revenue Agency and/or other applicable U.S. government authority.
	 
	B.	 	Each Subscribing Reinsurer shall allow the applicable percentage of the premium payable
hereon (as imposed under Section 4371 of the Internal Revenue Code) for the purpose of paying
Federal Excise Tax to the extent such premium is subject to such tax.
	 
	C.	 	In the event of any return of premium, the Subscribing Reinsurer shall deduct the aforesaid
percentage from the return premium payable hereon and the Company or its agent shall recover
such tax from the United States Government.

ARTICLE 18 — CURRENCY (LM-00500-2005.08.09)

Whenever a reference to a monetary currency appears in this Contract, it shall be construed to mean
United States Dollars (“USD”). However, in those cases where the Policies are issued by the Company
using Canadian Dollars (“CAD”), it shall mean Canadian Dollars. All payments made by either party
shall be made in United States Dollars except that payments made involving Policies issued using
Canadian Dollars shall be made in Canadian Dollars. All amounts paid or received by the Company in
any other currency shall be converted into United States Dollars at the rate of exchange on the
date at which it is entered on the books of the Company.

ARTICLE 19 — ACCESS TO RECORDS (LM-00100-2007.12.26-A)

	A.	 	Except as otherwise provided in this Article, Subscribing Reinsurer, or its duly authorized
representative, may upon reasonable prior written notice to the Company, at the Subscribing
Reinsurer’s own expense, examine at the offices of the Company or its affiliates, during
normal office hours, the Company’s or the Legal Entities’ Policy, accounting, underwriting, or
claim records and files, or any such additional relevant records and files, as they exist in
the Company’s or its affiliates’ possession or reasonable control, relating to business ceded
under this Contract. The Subscribing Reinsurer’s notice shall reasonably describe the nature
of the inspection that it wishes to conduct, the persons conducting the inspection and upon
notice of available files from the Company, the files that it wishes to review. Subject to the
limitations expressed in this Article, this right of inspection shall survive termination or
expiration of this Contract and shall continue as long as either Party has any rights or
obligations under this Contract.

			
	 	 	 
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	B.	 	The Company reserves the right to deny the Subscribing Reinsurer access to records or files
concerning any particular claim(s) if the Subscribing Reinsurer has not disputed liability for
payment of such claim(s), and payment of such claim(s) is more than ninety (90) days overdue
according to the Company’s records. The Company shall, however, prior to an arbitration demand that
may be instituted by either party, continue to respond to reasonable specific requests for
information and questions raised by the Subscribing Reinsurer concerning such claims; and nothing
in this Article shall restrict the right or ability of the Subscribing Reinsurer to seek discovery
of relevant information in an arbitration proceeding pursuant to the Arbitration Article of this
Contract.
	 
	C.	 	As a condition precedent to access to records under this Article, the Subscribing Reinsurer,
its personnel and any authorized third party representative of the Subscribing Reinsurer shall
agree to the provisions of the Confidentiality Article of this Contract.
	 
	D.	 	The Company reserves the right to withhold any documents from the Subscribing Reinsurer (a)
concerning Trade Secrets of the Company or its affiliates, (b) subject to the terms of a third
party non-disclosure agreement with the Company or its affiliates requiring third party
consent to disclosure, (c) subject to the Work Product Privilege or Attorney-Client Privilege
or (d) concerning individual private information that as a matter of law cannot be disclosed
by the Company (hereinafter referred to in the Contract as “Privileged Documents”). The
Company shall reasonably try to exempt the Reinsurers from any third party non-disclosure
agreement or obtain consent from the third party to disclose to the Subscribing Reinsurer.
	 
	E.	 	Notwithstanding the foregoing, the Company shall permit and not object to the Subscribing
Reinsurer’s access to Privileged Documents falling within (c) above, in connection with the
underlying claim reinsured hereunder following final settlement or final adjudication of the
case or cases involving such claim, with prejudice against all claimants, and all parties to
such adjudications; provided that the Company, may defer release of such Privileged Documents
if there are subrogation, contribution, or other third party actions with respect to that
claim or case, which might jeopardize the Company’s or its affiliates defense by release of
such Privileged Documents. In the event that the Company shall seek to defer release of such
Privileged Documents or to withhold documents concerning Trade Secrets, it will in
consultation with the Subscribing Reinsurer take other steps as reasonably necessary to
provide the Subscribing Reinsurer with the information it reasonably requires to indemnify the
Company without causing a loss of such privileges or protections. The Subscribing Reinsurer,
however, shall not have access to Privileged Documents relating to any dispute between the
Company and the Subscribing Reinsurer.
	 
	F.	 	For purposes of this Article, “Trade Secrets” shall have the meaning provided in Section 1839
of the United States Economic Espionage Act of 1996. “Attorney-Client Privilege” shall mean
communications of a confidential nature between a) the Company or its affiliates, or anyone
retained by or in the control

			
	 	 	 
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		 	of the Company or its affiliates or their in-house or outside legal counsel, or anyone in the
control of such legal counsel, and b) any in-house or outside legal counsel which relate to legal
advice being sought by the Company or its affiliates and/or which contains legal advice being
provided to the Company. “Work Product Privilege” shall mean communications, written materials and
tangible things prepared by or for in-house or outside counsel, or prepared by or for the Company
or its affiliates, in anticipation of or in connection with litigation, arbitration, or other
dispute resolution proceedings.

ARTICLE 20 — INSOLVENCY (LM-01300-2005.08.24-A)

	A.	 	(If more than one reinsured company is referenced within the definition of “Company” in the
Preamble to this Contract, this Article shall apply severally to each such company. Further,
this Article and the laws of the domiciliary state shall apply in the event of the insolvency
of any company intended to be covered hereunder. In the event of a conflict between any
provision of this Article and the laws of the domiciliary state of any company intended to be
covered hereunder, that domiciliary state’s laws shall prevail.)
	 
	B.	 	In the event of the insolvency of the Company, reinsurance under this Contract shall be
payable on demand, with reasonable provision for verification, on the basis of claims allowed
against the insolvent Company by any court of competent jurisdiction or by any liquidator,
receiver, conservator, or statutory successor of the Company having authority to allow such
claims, without diminution because of such insolvency or because such liquidator, receiver,
conservator, or statutory successor has failed to pay all or a portion of any claims. Such
payments by the Subscribing Reinsurer shall be made directly to the Company or its liquidator,
receiver, conservator, or statutory successor, except to the extent Section 4118(a) of the New
York Insurance Law applies, or except (a) where the Contract specifically provides another
payee of such reinsurance in the event of the insolvency of the Company, or (b) where the
Subscribing Reinsurer with the consent of the direct insured or insureds has assumed such
Policy obligations of the Company as direct obligations of the Subscribing Reinsurer to the
payees under such Policies and in substitution for the obligations of the Company to such
payees.
	 
	C.	 	It is agreed, however, that the liquidator, receiver, conservator, or statutory successor of
the insolvent Company shall give written notice to the Subscribing Reinsurer of the pendency
of a claim against the insolvent Company on the Policy or Policies reinsured within a
reasonable time after such claim is filed in the insolvency proceeding and that during the
pendency of such claim the Subscribing Reinsurer may investigate such claim and interpose, at
its own expense, in the proceeding where such claim is to be adjudicated, any defense or
defenses which it may deem available to the Company or its liquidator, receiver, conservator,
or statutory successor. The expense thus incurred by the Subscribing Reinsurer shall be
chargeable, subject to court approval, against the insolvent Company as part of the expense of
liquidation to the extent of a proportionate share of the benefit,

			
	 	 	 
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	 	 	which may accrue to the Company solely as a result of the defense undertaken by the
Subscribing Reinsurer.
	 
	D.	 	Where two or more Reinsurers are involved in the same claim and a majority in interest elects
to interpose defense to such claim, the expense shall be apportioned in accordance with the
terms of this Contract as though such expense had been incurred by the insolvent Company.

ARTICLE 21 — ARBITRATION (LM-00200-2006.10.25-A)

	A.	 	Disputes to be Arbitrated. With the exception of any dispute resolution procedures
that are otherwise contained in this Contract, any and all disputes between the Company and
any Subscribing Reinsurer or Reinsurers (“Party” individually or “Parties” collectively)
arising out of, relating to, or concerning this Contract, whether sounding in contract or tort
and whether arising during or after this Contract’s formation, or after its termination,
including disputes as to whether the Contract was validly formed or is voidable, shall be
submitted to the decision of an arbitration panel (“Panel”). The Panel shall consist of an
umpire and two party-appointed arbitrators unless a Party meets the requirements of Paragraph
C of this Article and demands arbitration pursuant thereto, in which case the Panel would
consist of an umpire only.
	 
	B.	 	Procedures. Except as provided herein, any arbitration shall be based upon the
Procedures for the resolution of U.S. Insurance and Reinsurance Disputes, Regular Panel
Version, dated April 2004 (the “Procedures”), developed by the Insurance and Reinsurance
Dispute Resolution Task Force, subject to the following modifications:

	 	1.	 	Qualifications of the arbitrators and umpires shall be in accordance with Alternative section
6.2 of the Procedures.
	 
	 	2.	 	The Parties hereby designate the umpire list maintained by ARIAS (U.S.) as the list to be
used in the event that section 6.7(a) of the Procedures is invoked.
	 
	 	3.	 	Unless otherwise mutually agreed, the members of the Panel shall be impartial and
disinterested. The members of the Panel may not be: (1) in the control of any Party or its
parent, affiliate, or agent, (2) a former director or officer of any Party or its parent,
affiliate, or agent, or (3) a likely witness in the arbitration. The requirement of
impartiality means that all members of the Panel shall have the same obligation to approach
the Panel’s duties and decisions with fairness and without consideration for the fact that
Panel members may have been appointed by one of the Parties. The requirement of impartiality
does not mean that any arbitrator can have no previous knowledge of or experience with respect
to issues involved in the dispute or disputes.
	 
	 	4.	 	The first sentence of Section 10.4 of the Procedures shall be replaced by the following
sentence: “The Panel shall require that each Party submit concise written statements of
position, including summaries of

			
	 	 	 
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	 	 	 	the facts and evidence a Party intends to present, discussion of the applicable law and the
basis for the requested Award or denial of relief sought.”
	 
	 	5.	 	Once the Panel has been constituted, no Party (or anyone acting for a Party) shall have any
communications concerning the arbitration or any of the issues before the Panel with any
member of the Panel that is not also disclosed to all other Parties and all members of the
Panel. Each Panel member shall have a continuing duty to disclose promptly to all Parties and
all Panel members any violation of this prohibition and the specifics of any improper
communications that occurred. This prohibition shall remain in place until all challenges to
any arbitration awards and decisions have been either waived or finally concluded.
	 
	 	6.	 	Section 11.1 of the Procedures shall be replaced by the following provision: “The Parties may
propound discovery seeking disclosure of such information and/or documents relevant to the
dispute or necessary for the proper resolution of the dispute.”
	 
	 	7.	 	Position statements may be amended at any reasonable time, but not later than the close of
discovery without a showing to the Panel that the amending Party could not reasonably have
raised the new claim or issue at an earlier time.
	 
	 	8.	 	The Panel shall hold an evidentiary hearing, if one is necessary, within one year of the
arbitration demand, unless the Parties otherwise agree. Should a Party seek a reasonable
extension to this time frame for good cause shown, the other Party’s agreement shall not be
unreasonably withheld.
	 
	 	9.	 	To the extent permitted by the law, the Panel shall have the authority to issue subpoenas and
other orders to enforce its decisions.
	 
	 	10.	 	The Panel may award reasonable attorneys’ fees and arbitration costs to the prevailing Party,
as determined by the Panel.
	 
	 	11.	 	Section 14.3 of the Procedures shall be replaced by the following provision: “The Panel shall
make a decision and issue an award with regard to the terms expressed in this Contract, and
the custom and practice of the property and casualty insurance and reinsurance business. The
Panel shall not be obligated to follow the strict rules of law and evidence.”

	C.	 	Alternative Streamlined Procedures. Notwithstanding the foregoing provisions of this
Article, the Alternative Streamlined Procedures set forth in section 16 of the Procedures, as
modified by sections B3, B4, and B9 through B11 of this Article, shall apply in the event
that, in a consolidated proceeding or otherwise, the Party initiating arbitration is seeking
payment of a total amount that is no greater than one million dollars ($1,000,000), or the
currency equivalent thereof. Sections 16.1, 16.2, 16.3 and the second sentence of section 16.4
of the Alternative Streamlined Procedures shall not apply. The Parties agree to comply with
section 6.7 of the Procedures to appoint a single umpire, and

			
	 	 	 
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	 	 	hereby designate the umpire list maintained by ARIAS (U.S.) as the list to be used in section
6.7(a).
	 
	D.	 	Hearing Location. The hearing shall be held in Boston, Massachusetts, unless the
Parties mutually agree to a different location.
	 
	E.	 	Confirmation. Either Party may apply to a court of competent jurisdiction for an
order confirming any award of the Panel; a judgment of that court shall thereupon be entered
on any award. If such an order is issued, the Party against whom confirmation is sought shall
pay the attorneys’ fees incurred of the Party who applied for the confirmation order and all
court costs of any such proceeding.
	 
	F.	 	Equitable Relief from a Court of Law. Nothing herein shall be construed to prevent
any participating Party from applying to a court of competent jurisdiction to issue a
restraining order or other equitable relief to maintain the “status quo” of the Parties
participating in the arbitration pending the decision and award by the Panel.
	 
	G.	 	Consolidated Proceedings.

	 	1.	 	Same contract, single Subscribing Reinsurer. Both the Company and any single Subscribing
Reinsurer on this Contract have the right to combine any and all disputes between them that
concern this Contract (including any renewal of this Contract or any contract for which this
Contract is a renewal) into a single arbitration proceeding before a single Panel, except that
the standard for determining whether a Party may add a new issue, claim, or dispute to an
arbitration proceeding shall be the standard for amending a Position statement, as set forth
in Paragraph B7 of this Article.
	 
	 	2.	 	Multiple contracts, single Subscribing Reinsurer. The Company has the right to combine any
and all disputes between the Company and a single Subscribing Reinsurer into a single
arbitration proceeding before a single Panel where such disputes involve this Contract and any
additional contracts between the two Parties, except that the standard for determining whether
a Party may add a new issue, claim, or dispute to an arbitration proceeding shall be the
standard for amending a Position statement, as set forth in Paragraph B7 of this Article.
	 
	 	3.	 	Same contract, multiple Reinsurers. At the Company’s option, if more than one Subscribing
Reinsurer is involved in arbitration relating to this Contract, where there are common
questions of law or fact and a possibility of conflicting awards or inconsistent results, all
such Reinsurers shall constitute and act as one Party for purposes of this Article and
communications shall be made by the Company to each of the Subscribing Reinsurers constituting
the one Party; provided, however, that the Reinsurers shall have the right to assert several,
rather than joint defenses or claims, and to be represented by separate counsel. This
provision shall not change the liability of each of the

			
	 	 	 
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	 	 	 	Subscribing Reinsurers under the terms of this Contract from several to joint.

	 
	H.	 	Choice of Law. The law set forth in the Governing Law Article shall apply to this
Arbitration Article. In addition, to the extent the Panel (or the umpire in an Alternative
Streamlined Procedure) looks to applicable law, such Panel or umpire shall apply the law as
set forth in the Governing Law Article of this Contract.
	 
	I.	 	Survival of Article Notwithstanding the foregoing provisions of this Article, to
the extent that the Company has demanded payment of a total amount of at least twenty million
dollars ($20,000,000) or the currency equivalent thereof from any Subscribing Reinsurer or from the
Reinsurers, the Company reserves the right to initiate litigation to resolve any disputes arising
from such demand.

ARTICLE 22 — OFFSET (LM-01701-2005.06.02-A)

Each party to this Contract together with their successors or assigns shall have and may exercise,
at any time, the right to offset any balance(s) due the other (or, if more than one, any other)
under this Contract. Such offset may include balances due under this Contract regardless of whether
such balances arise from premiums, losses, or otherwise, provided however, that in the event of
insolvency of a party hereto, offsets shall only be allowed in accordance with the provisions of
the applicable law, statute, or regulation governing such offset.

ARTICLE 23 — UNAUTHORIZED REINSURANCE (LM-02500-2006.10.26-A)

	A.	 	(Applies only to a Subscribing Reinsurer who at the inception of the Contract or at any time
thereafter does not qualify for full credit with any insurance regulatory authority having
jurisdiction over the Company’s reserves.)
	 
	B.	 	As regards Policies or bonds issued by the Company coming within the scope of this Contract,
the Company agrees that when it shall file with the insurance regulatory authority or set up
on its books reserves for unearned premium and losses covered hereunder which it shall be
required by law to set up, it will forward to the Subscribing Reinsurer a statement showing
the proportion of such reserves which is applicable to the Subscribing Reinsurer. The
Subscribing Reinsurer hereby agrees to fund such reserves in respect of unearned premium,
known outstanding losses that have been reported to the Subscribing Reinsurer and allocated
loss adjustment expense relating thereto, losses and allocated loss adjustment expense paid by
the Company or the Legal Entities but not recovered from the Subscribing Reinsurer, plus
reserves for losses incurred but not reported as determined by the Company, as shown in the
statement prepared by the Company (hereinafter referred to as “ Subscribing Reinsurer
Obligations”) by funds withheld, cash advances, or Letters of Credit. Unless the Company and
the Subscribing Reinsurer otherwise agree, and/or the method of funding is determined by
applicable law,

			
	 	 	 
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	 	 	statute, or regulation, the Subscribing Reinsurer shall agree to fund such Subscribing
Reinsurer Obligations by Letters of Credit.
	 
	C.	 	When funding by Letters of Credit, the Subscribing Reinsurer agrees to apply for and secure
timely delivery to the Company of clean, irrevocable, and unconditional Letters of Credit
issued by a bank that is a qualified U.S. financial institution and containing provisions
acceptable to the insurance regulatory authorities having jurisdiction over the Company’s
reserves in an amount equal to the Subscribing Reinsurer’s proportion of said reserves. At the
Company’s request, Subscribing Reinsurer will agree to provide separate Letters of Credit for
each Legal Entity. Such Letters of Credit shall be issued for a period of not less than one
year, and shall be automatically extended for one year from their date of expiration or any
future expiration date unless 60 days prior to any expiration date the issuing bank shall
notify the Legal Entity by certified mail that the issuing bank elects not to consider the
Letters of Credit extended for any additional period.
	 
	D.	 	The Subscribing Reinsurer and Company agree that the Letters of Credit provided by the
Subscribing Reinsurer pursuant to the provisions of this Contract may be drawn upon at any
time, notwithstanding any other provision of this Contract, and be utilized by the Company, a
Legal Entity or any successor, by operation of law, of the Company or a Legal Entity,
including without limitation, any liquidator, rehabilitator, receiver, or conservator of the
Company, without diminution because of the insolvency of the Company, a Legal Entity or the
Subscribing Reinsurer for one or more of the following purposes:

	 	1.	 	To pay or reimburse the Company or a Legal Entity for:

	 	a.	 	The Subscribing Reinsurer’s share under this Contract of premiums returned, but not yet
recovered from the Subscribing Reinsurer, to the owners of Policies reinsured under this
Contract on account of cancellations of such Policies; and
	 
	 	b.	 	The Subscribing Reinsurer’s share, under this Contract, of surrenders and benefits or losses
paid by the Company or a Legal Entity, but not yet recovered from the Subscribing Reinsurer,
under the terms and provisions of the Policies reinsured under this Contract; and
	 
	 	c.	 	Any other amounts necessary to secure the credit or reduction from liability for reinsurance
taken by the Company or a Legal Entity.

	 	2.	 	Where the Letters of Credit will expire without renewal or be reduced or replaced by Letters
of Credit for a reduced amount and where the Subscribing Reinsurer’s entire obligations under
this Contract remain unliquidated and undischarged 10 days prior to the termination date, to
withdraw amounts equal to the Subscribing Reinsurer’s share of the liabilities, to the extent
that the liabilities have not yet been funded by the Subscribing Reinsurer and exceed the
amount of any reduced or

			
	 	 	 
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	 	 	 	replacement Letters of Credit, and deposit those amounts in a separate account in the name of
the Company or a Legal Entity in a qualified U.S. financial institution apart from its general
assets, in trust for such uses and purposes specified in above as may remain after withdrawal and
for any period after the termination date.

	E.	 	The issuing bank shall have no responsibility whatsoever in connection with the propriety of
withdrawals made by the Company or a Legal Entity or the disposition of funds withdrawn,
except to ensure that withdrawals are made only upon the order of properly authorized
representatives of the Company or a Legal Entity as applicable.
	 
	F.	 	At annual intervals, or at the Company’s option, on a quarterly basis, the Company shall
prepare a specific statement of the Subscribing Reinsurer’s Obligations, for the sole purpose
of amending the Letters of Credit, in the following manner:

	 	1.	 	If the statement shows that the Subscribing Reinsurer’s Obligations exceed the balance of
credit as of the statement date, the Subscribing Reinsurer shall, within 30 days after receipt
of notice of such excess, secure delivery to the Company of an amendment to the Letters of
Credit increasing the amount of credit by the amount of such difference.
	 
	 	2.	 	If, however, the statement shows that the Subscribing 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 Subscribing Reinsurer, release such excess credit by
agreeing to secure an amendment to the Letters of Credit reducing the amount of credit
available by the amount of such excess credit.

	G.	 	Any and all disputes between the Company and any Subscribing Reinsurer or Reinsurers
(“Party”, individually, or “Parties”, collectively) arising out of, relating to, or concerning
this Article shall be resolved pursuant to the ARIAS-U.S. Newer Arbitrator Program. Unless the
Parties otherwise agree, the ARIAS Newer Arbitrator Program expedited proceeding with a single
Newer Arbitrator shall be used to resolve any such disputes.

ARTICLE 24 — SERVICE OF SUIT (LM-01900-2005.08.24-A)

	A.	 	(This article applies to unauthorized Reinsurers and to Reinsurers who are domiciled outside
the United States of America.)
	 
	B.	 	This Service of Suit Article will not be read to conflict with or override the obligations of
the parties to arbitrate their disputes as provided for in the Arbitration Article. This
Article is intended as an aid to compelling arbitration or enforcing such arbitration or
arbitral award, not as an alternative to the Arbitration Article for resolving disputes
arising out of this Contract.

			
	 	 	 
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	C.	 	In the event of the failure of the Subscribing Reinsurer to pay any amount claimed to be
due hereunder, the Subscribing Reinsurer, at the request of the Company, will submit to the
jurisdiction of a Court of competent jurisdiction within the United States. Nothing in this Article
constitutes or should be understood to constitute a waiver of the Subscribing 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. The Subscribing Reinsurer, once
the appropriate Court is selected, whether such court is the one originally chosen by the Company
and accepted by the Subscribing Reinsurer or is determined by removal, transfer, or otherwise, as
provided for above, will comply with all requirements necessary to give said Court jurisdiction
and, in any suit instituted against any of them upon this Contract, will abide by the final
decision of such Court or of any Appellate Court in the event of an appeal.
	 
	D.	 	Service of process in such suit may be made upon; Mendes & Mount, LLP, 750 Seventh Avenue,
New York, NY 10019-6829.
	 
	E.	 	The above-named are authorized and directed to accept service of process on behalf of the
Subscribing Reinsurer in any such suit. Further, pursuant to any statute of any state,
territory, or district of the United States that makes provision therefore, the Subscribing
Reinsurer hereby designates the Superintendent, Commissioner, or Director of Insurance, or
other officer specified for that purpose in the statute, or their successor(s) in office, as
their true and lawful attorney upon whom may be served any lawful process in any action, suit,
or proceedings instituted by or on behalf of the Company or any beneficiary hereunder arising
out of this Contract, and hereby designate the above-named as the person to whom the said
officer is authorized to mail such process or a true copy thereof.

ARTICLE 25 — ERRORS AND OMISSIONS (LM-00800-2005.06.02-A)

	A.	 	Any inadvertent delay, omission, or error in complying with the terms and conditions of this
Contract shall not be held to relieve either party hereto from any liability, which would
attach to it hereunder if such delay, omission, or error had not been made, provided such
delay, omission, or error is rectified upon discovery.
	 
	B.	 	However, this Article shall not override the application of the loss reporting provision as
set forth in the Commencement and Termination Article.

ARTICLE 26 — CONFIDENTIALITY (LM-00400-2005.11.10-A)

	A.	 	Confidential Information. The submission materials, and any Policy, financial,
underwriting, accounting, and claims information, data statements, representations, and other
materials provided by the Company or it affiliates and

			
	 	 	 
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	 	 	received by the Subscribing Reinsurer in the course of an audit, inspection, or otherwise,
represent confidential or proprietary information (“Confidential Information”). This Confidential
Information is intended for the sole use of the Subscribing Reinsurer (and its retrocessionaires,
respective auditors, accountants, and legal counsel) as may be necessary in analyzing and/or
accepting a participation in and/ or executing its responsibilities under or related to this
Contract. The Subscribing Reinsurer acknowledges and agrees that with respect to any review of
Confidential Information by the Subscribing Reinsurer, and/or discussion of Confidential
Information, the Company and its affiliates do not waive and do not intend to waive any available
privilege or protection. The review of Confidential Information by the Subscribing Reinsurer and/or
discussion of Confidential Information with the Company or its affiliates shall not destroy, waive,
or otherwise impair the proprietary and/or protected status of any Confidential Information or any
information revealed in such discussion with the personnel of the Company or its affiliates,
whether reviewed by and/or discussed with the Subscribing Reinsurer intentionally or inadvertently,
nor does the review of the Confidential Information and/or discussion of Confidential Information
with the Company or its affiliates constitute an estoppel or waiver of the Company’s or its
affiliates’ rights to assert the attorney-client or work-product privileges, or any other
applicable privilege or protection, over certain documents contained in the Company’s or its
affiliates’ files and/or certain information.
	 
	B.	 	The Company and the Subscribing Reinsurer agree that no confidentiality obligations will
apply to Confidential Information to the extent such Confidential Information: (1) is or
becomes available to the public, other than as a result of impermissible disclosure by the
Subscribing Reinsurer, (2) was or became available lawfully to the Subscribing Reinsurer from
a source, other than the Company, its affiliates or their personnel, that is not subject to a
confidentiality obligation, (3) was developed independently by the Subscribing Reinsurer prior
to disclosure by the Company, its affiliates or their personnel, as demonstrated by the
Subscribing Reinsurer’s records, or (4) is required to be disclosed by law, regulation, court,
or regulatory agency action, subject to Paragraph E of this Article.
	 
	C.	 	The Subscribing Reinsurer agrees to preserve all confidentiality and privilege pertaining to
all Confidential Information provided by the Company and all knowledge and information gained
through its review of Confidential Information or discussions with the personnel of the
Company or its affiliates. The Subscribing Reinsurer further agrees not to disclose any such
Confidential Information to any other person or entity except as such disclosure may be
necessary to its retrocessionaires, accountants, attorneys, auditors, actuaries or third party
catastrophe modelers or as otherwise required by law. The Subscribing Reinsurer agrees that no
Confidential Information is to be copied and/or removed from the Company’s or its affiliates’
premises without the express permission of the Company.
	 
	D.	 	Non-Public Personally Identifiable Information. Additionally, any disclosure of
non-public personally identifiable information shall comply with all state and federal
statutes and regulations governing the disclosure of non-public

			
	 	 	 
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	 	 	personally identifiable information. “Non-public personally identifiable information” is
financial or medical information of or concerning a private person which either has been obtained
from sources which are not available to the general public or obtained from the person who is the
subject and which information is included in data files exchanged by the parties hereto. For the
purposes hereof, the terms shall include data elements such as names and addresses of individuals.
Disclosing or using this information for any purpose beyond the scope of this Contract, or beyond
the exceptions set forth above, is expressly forbidden without the prior consent of the Company.
	 
	E.	 	Third-Party Demand. Should the Subscribing Reinsurer receive a third-party demand
pursuant to subpoena, summons, or court or governmental order, to disclose Confidential
Information (including Non-public personally identifiable information) that has been provided
by the Company or its affiliates, the Subscribing Reinsurer shall make commercially reasonable
efforts to notify the Company promptly upon receipt of the demand and prior to disclosure of
the Confidential Information and provide the Company a reasonable opportunity to object to the
disclosure. If the Company timely objects to the release of the Confidential Information, the
Subscribing Reinsurer will comply with the reasonable requests of the Company in connection
with the Company’s efforts to resist release of the Confidential Information. The Company
shall bear the cost of resisting the release of the Confidential Information.
	 
	F.	 	Survival. The parties agree that the obligations contained in this Article shall
survive the expiration or termination of this Contract.

ARTICLE 27 — GOVERNING LAW (LM-01200-2005.06.02-A)

The validity and interpretation of this Contract shall be governed by and construed in accordance
with the law of the Commonwealth of Massachusetts.

ARTICLE 28 — SEVERABILITY (LM-02000-2005.06.02-A)

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

ARTICLE 29 — ENTIRE AGREEMENT (LM-00701-2005.08.24-A)

This Contract shall constitute the entire agreement between the Company and the Subscribing
Reinsurer with respect to the subject matter of this Contract and shall

			
	 	 	 
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supersede all prior understandings, negotiations and discussions, whether oral or written, by
or between the Company and the Subscribing Reinsurer relating to the subject matter hereof. There
are no general or specific warranties, representations or other agreements by or among the Company
and the Subscribing Reinsurer in connection with entering into this Contract except as specifically
set forth in this Contract. Notwithstanding the foregoing, this contract may be amended or modified
only by a writing signed by both the Company and the Subscribing Reinsurer.

ARTICLE 30 — SPECIAL CONDITIONS (LM02100-2007.12.05-A)

	A.	 	This Article applies only in the event that:

	 	1.	 	A State Insurance Department or other legal authority orders the Subscribing Reinsurer to
cease writing business or has imposed upon it any other restrictions on or conditions relating
to the Subscribing Reinsurer’s license or conduct of business in any jurisdiction; or
	 
	 	2.	 	The Subscribing Reinsurer has become insolvent or has been placed into liquidation or
receivership (whether voluntary or involuntary), or there have been instituted against it
proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, trustee
in bankruptcy, or other agent known by whatever name, to take possession of its assets or
control of its operations; or
	 
	 	3.	 	The Subscribing Reinsurer’s policyholders’ surplus or equity has been reduced by 25% or there
has been a 25% reduction in the Subscribing Reinsurer’s Stamp Capacity or funds at Lloyds’ at
the inception of this Contract; or
	 
	 	4.	 	The Subscribing Reinsurer has entered into a definitive agreement to become merged with,
acquired, or controlled by any unaffiliated company, corporation, or individual(s) not
controlling the Subscribing Reinsurer’s operations at the inception of this Contract; or
	 
	 	5.	 	The Subscribing Reinsurer’s A.M. Best Rating has been assigned or downgraded below A- or
Standard and Poor’s Rating has been assigned or downgraded below A-; or
	 
	 	6.	 	The Subscribing Reinsurer fails to maintain its surplus at a level of at least 200% of the
Subscribing Reinsurer’s Authorized Control Level Risk-Based Capital; or
	 
	 	7.	 	The Subscribing Reinsurer announces intentions to cease underwriting operations; or
	 
	 	8.	 	The Subscribing Reinsurer voluntarily ceases underwriting operations; or
	 
	 	9.	 	The Subscribing Reinsurer has reinsured its entire liability under this Contract, or has
entered into a novation extinguishing its entire liability under this Contract without the
Company’s prior written consent; or
	 
	 	10.	 	The Subscribing Reinsurer, directly or through the actions of a parent company or an affiliated entity, has or has attempted to assign, novate or

			
	 	 	 
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	 	 	 	transfer the Subscribing Reinsurer’s rights and/or obligations under this Contract, including
any attempted transfer of rights and/or obligations under any U.S. or foreign statute, legislation
or jurisprudence, without the Company’s prior written consent; or
	 
	 	11.	 	The Subscribing Reinsurer, directly or through the actions of a parent company or an
affiliated entity, has invoked any U.S. or foreign statute, legislation or jurisprudence which
purports to enable the Reinsurer to require the Company to settle its claims liabilities,
including but not limited to any estimated or undetermined claims liabilities under this
Contract, on an accelerated basis. This condition does not apply to any attempt to enforce a
settlement of claims liabilities under a commutation process to which the parties have agreed.

	B.	 	If one or more of the above-stated circumstances occur, the Company shall provide the
Subscribing Reinsurer with a written statement of the Subscribing Reinsurer’s share of all
paid recoverables, case reserves, loss adjustment expenses, incurred but not reported losses,
reserves for unearned premium, and ceding commissions due under this Contract (collectively
“Obligations”). Within fifteen (15) days of the Subscribing Reinsurer’s receipt of such
statement, the Subscribing Reinsurer agrees to fund all Obligations by clean, irrevocable, and
unconditional Letters of Credit payable exclusively to the Company and issued by a bank
acceptable to the Company. At the Company’s request, the Subscribing Reinsurer shall agree to
provide separate Letters of Credit for each Legal Entity. Such Letters of Credit shall be
issued for a period of not less than one year, and shall be automatically extended for one
year from their dates of expiration or any future expiration dates, unless sixty (60) days
prior to any expiration date the issuing bank shall notify the Company or a Legal Entity, as
applicable by certified mail that the issuing bank elects not to extend any Letter of Credit
for any additional period.
	 
	C.	 	The Subscribing Reinsurer and Company agree that the Letters of Credit provided by the
Subscribing Reinsurer, pursuant to the provisions of this Contract, may be drawn upon at any
time, notwithstanding any other provision of this Contract, and be utilized by the Company, a
Legal Entity, or any successor, by operation of law, of the Company or a Legal Entity,
including without limitation, any liquidator, rehabilitator, receiver, or conservator of the
Company or a Legal Entity, without diminution because of the insolvency of the Company, a
Legal Entity or the Subscribing Reinsurer for one or more of the following purposes:

	 	1.	 	To pay or reimburse the Company or a Legal Entity for:

	 	a.	 	The Subscribing Reinsurer’s share under this Contract of premiums returned, but not yet
recovered from the Subscribing Reinsurer, to the owners of Policies reinsured under this
Contract due to cancellations of such Policies; and
	 
	 	b.	 	The Subscribing Reinsurer’s share, under this Contract, of surrenders and benefits or
liabilities paid by the Company or a Legal Entity, but not yet recovered from
the Subscribing

			
	 	 	 
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	 	 	 	Reinsurer, under the terms and provisions of the Policies reinsured under this
Contract; and
	 
	 	c.	 	Any other amounts necessary to secure the credit or reduction from liability for reinsurance
taken by the Company or a Legal Entity.

	 	2.	 	Where the Letters of Credit will expire without renewal or be reduced or replaced by Letters
of Credit for a reduced amount and where the Subscribing Reinsurer’s entire obligations under
this Contract remain unliquidated and undischarged ten (10) days prior to the termination
date, to withdraw amounts equal to the Subscribing Reinsurer’s share of the liabilities, to
the extent that the liabilities have not yet been funded by the Subscribing Reinsurer and
exceed the amount of any reduced or replacement Letters of Credit, and deposit those amounts
in a separate account in the name of the Company or a Legal Entity in a qualified U.S.
financial institution apart from its general assets, in trust for such uses and purposes as
specified above as may remain after withdrawal and for any period after the termination date.

	D.	 	At annual intervals, or at the Company’s option, on a quarterly basis, the Company shall
prepare an adjusted statement of the Subscribing Reinsurer’s Obligations, for the sole purpose
of amending the Letters of Credit, in the following manner:

	 	1.	 	If the statement shows that the Subscribing Reinsurer’s Obligations exceed the balance of
credit as of the statement date, the Subscribing Reinsurer shall, within fifteen (15) days
after receipt of notice of such excess, secure delivery to the Company of an amendment to the
Letters of Credit increasing the amount of credit by the amount of such difference.
	 
	 	2.	 	If, however, the statement shows that the Subscribing Reinsurer’s Obligations are less than
the balance of credit as of the statement date, the Company shall, within fifteen (15) days
after receipt of written request from the Subscribing Reinsurer, release such excess credit by
agreeing to secure an amendment to the Letters of Credit reducing the amount of credit
available by the amount of such excess credit.

	E.	 	If the Subscribing Reinsurer fails to fund such Obligations by Letters of Credit as described
above, the Company may terminate this Contract at any time by the giving of thirty (30) days
prior written notice to the Subscribing Reinsurer.
	 
	F.	 	The coverage afforded by this Contract shall cease as of the date of termination and the
Subscribing Reinsurer shall return the unearned premium, if any. If coverage hereunder
terminates while a claim covered by this Contract is in progress, the Subscribing Reinsurer
shall be liable subject to all other conditions hereof for its proportion of the entire claim,
provided that the event giving rise to the claim started before such termination.

			
	 	 	 
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	G.	 	If the Company elects to terminate this Contract, the Company shall have the option to
commute the Subscribing Reinsurer’s liability for loss(es), whether reported or unreported,
comprising the sum total of the present value of the ceded: (1) case reserves and allocated loss
adjustment expense, (2) projected ultimate losses, (3) any unearned premium reserve, and (4)
undiscounted outstanding paid claims (hereinafter the “Commutation Losses”), on Policies covered by
this Contract as of the effective date of termination.

	 	1.	 	The Company shall submit a statement of valuation showing the elements considered reasonable
to establish the Commutation Losses, and the Subscribing Reinsurer shall pay the amount
requested. In the event the Company and the Subscribing Reinsurer cannot agree on the
statement of valuation of the Subscribing Reinsurer’s liability under such Policies, either
party may request in writing that the differences be settled by a panel of three actuaries.
Each party shall appoint an actuary to assess such liability within fifteen (15) days after
receipt of the written request for commutation. Upon such appointment, the two actuaries shall
appoint a third actuary. If the two actuaries fail to agree on the third actuary within thirty
(30) days of their appointment, each of them shall nominate three individuals, of whom the
other shall decline two, and the final decision shall be made by drawing lots. The actuaries
shall then investigate and capitalize such Commutation Loss (es) within thirty (30) days. As
used herein, “capitalize” shall mean to determine the present value of Commutation Losses,
without regard to the Subscribing Reinsurer’s ability to pay such losses. The panel shall meet
in Boston, Massachusetts, unless the Company and Subscribing Reinsurer agree otherwise.
	 
	 	2.	 	All actuaries shall be disinterested in the outcome of the commutation and shall be Fellows
of the Society of Actuaries/Fellows of the Casualty Actuarial Society. Except as stated below,
the expense of the actuaries and of the commutation shall be equally divided between the
parties of the commutation.
	 
	 	3.	 	The decision in writing of the actuaries, when filed with the parties hereto, shall be final
and binding, except that if the Company does not agree with the capitalized value of the
Commutation Loss(es), the Company shall have no obligation to commute. In the event the
Company does not agree with the capitalized value of the Commutation Loss (es) and does not
move forward with commutation, the expense of the actuaries, including reasonable expense of
the actuary appointed by the Subscribing Reinsurer, will be paid by the Company. If the
Contract is commuted, payment by the Subscribing Reinsurer to the Company or any other third
party mutually agreed upon by the Subscribing Reinsurer and the Company shall constitute a
complete and final release of the Subscribing Reinsurer in respect to its liability under this
Contract.

	H.	 	Termination under the terms of this Article can be made after the date of expiration of this
Contract.

			
	 	 	 
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ARTICLE 31 — ASSIGNMENT, NOVATION, OR TRANSFER (LM-00300-2007.10.05-A)

This Contract shall be binding upon and inure to the benefit of the Company and the
Subscribing Reinsurer and their respective successors and assigns provided, however, that this
Contract may not be assigned, novated or transferred, including any attempted transfer of rights
and/or obligations under any U.S. or foreign statute, legislation or jurisprudence, by either the
Company or the Subscribing Reinsurer, or as the result of the actions of a parent company or
affiliated entity of either, without the prior written consent of the other. In the event of any
assignment, novation or transfer, the assignor, novator or transferor shall remain liable under
this Contract, and further guarantees the performance of all obligations of any assignee, novatee
or transferee under this Contract. Notwithstanding the foregoing, the Company may assign this
Contract to an affiliated entity, without the Subscribing Reinsurer’s written consent.

ARTICLE 32 — REINSURER CLAIMS OBLIGATIONS (LM-03100-2007.10.10-A)

It is understood and agreed that the Subscribing Reinsurer will fulfill its obligations
under the Loss Adjustment and Settlement Article, until all claims have been reported and settled.
Without first obtaining the Company’s written consent, the Subscribing Reinsurer will not, either
directly or as the result of an action of a parent company or an affiliated entity, invoke any U.S.
or foreign statute, legislation, or jurisprudence that purports to enable the Subscribing Reinsurer
to require the Company to settle its claims liabilities, including but not limited to any estimated
or undetermined claims liabilities, under this Contract on an accelerated basis. It is further
expressly understood and agreed that in the event the Subscribing Reinsurer attempts to require the
Company to settle its claims liabilities on an accelerated basis, the Company shall continue to
have the right to utilize or to draw upon Letters of Credit or other collateral, under the terms of
this Contract. This Article does not prevent the Company and the Subscribing Reinsurer from
settling any claims liabilities using a commutation process that is agreeable to both parties. This
Article shall in no way affect the rights and obligations of the Company and the Subscribing
Reinsurer under the Insolvency Article.

			
	 	 	 
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NUCLEAR ENERGY RISKS EXCLUSION CLAUSE 

(REINSURANCE 1994 WORLDWIDE EXCLUDING U.S.A. & CANADA)

This Agreement shall exclude Nuclear Energy Risks whether such risks are written directly and/or by
way of reinsurance and/or via Pools and/or Associations.

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

I. All Property on the site of a nuclear power station, Nuclear Reactors, reactor buildings and
plant and equipment therein on any site other than a nuclear power station.

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

a) The generation of nuclear energy; or

b) The Production, Use or Storage of Nuclear Material.

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

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

Except as under noted, Nuclear Energy Risks shall not include:

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

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

Provided always that such insurance or reinsurance shall exclude the perils of irradiation and
contamination by Nuclear Material.

However, the above exemption shall not extend to:

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

(a) Nuclear Material;

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

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

	 	•	 	Fire, lightning, explosion;
	 
	 	•	 	Earthquake;
	 
	 	•	 	Aircraft and other aerial devices or articles dropped therefrom;
	 
	 	•	 	Irradiation and radioactive contamination;
	 
	 	•	 	Any other peril insured by the relevant local Nuclear Insurance Pool and/or Association;

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

Definitions

“Nuclear Material” means:

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

(ii) Radioactive Products or Waste.

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

“Nuclear Installation” means

(i) Any Nuclear Reactor;

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

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

“Nuclear Reactor” means any structure containing nuclear fuel in such an
arrangement that a self-sustaining chain process of nuclear fission can occur therein
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“Production, Use or Storage of Nuclear Material” means the production, manufacture,
enrichment, conditioning, processing, reprocessing, use, storage, handling and disposal of Nuclear
Material.

“Property” shall mean all land, buildings, structures, plant, equipment, vehicles, contents
(including but not limited to liquids and gases) and all materials of whatever description whether
fixed or not.

 “High Radioactivity Zone or Area” means:

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

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

N.M.A. 1975(a)

April 1, 1994

			
	NOTES:	 	Wherever used herein the terms:

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

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

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

			
	 	 	 
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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:

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

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

Broad Exclusion Provision.*

It is agreed that the policy does not apply:

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

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

	 	II.	 	Under any Medical Payments Coverage, or under any Supplementary Payments Provision relating
to (immediate medical or surgical relief, (first aid, 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

			
	 	 	 
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	 	(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 threat.

	 	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

	 	(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-

			
	 	 	 
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	 	 	 	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.

(BRMA 35A)

21/9/67

N.M.A. 1590 (amended)

			
	NOTES:	 	Wherever used herein the terms:

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

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

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

			
	 	 	 
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NUCLEAR INCIDENT EXCLUSION CLAUSE-LIABILITY-REINSURANCE-CANADA

	1.	 	This Agreement does not cover any loss or liability accruing to the Reinsured as
a member of, or subscriber to, any association of insurers or reinsurers formed
for the purpose of covering nuclear energy risks or as a direct or indirect
reinsurer of any such member, subscriber or association.
	 
	2.	 	Without in any way restricting the operation of paragraph 1 of this clause it is
agreed that for all purposes of this Agreement all the original liability contracts of
the Reinsured, whether new, renewal or replacement, of the following classes,
namely,
	 
	 	 	Personal Liability.

Farmers’ Liability.

Storekeepers’ Liability.
	 
	 	 	which become effective on or after 31st December 1992, shall be deemed to include, from their
inception dates and thereafter, the following provision:-
	 
	 	 	Limited Exclusion Provision.
	 
	 	 	This Policy does not apply to bodily injury or property damage with respect to which the
Insured is also insured under a contract of nuclear energy liability insurance (whether the
Insured is unnamed in such contract and whether or not it is legally enforceable by the
Insured) issued by the Nuclear Insurance Association of Canada or any other group or pool of
insurers or would be an Insured under any such policy but for its termination upon exhaustion
of its limits of liability.
	 
	 	 	With respect to property, loss of use of such property shall be deemed to be property damage.
	 
	3.	 	Without in any way restricting the operation of paragraph 1 of this clause it is
agreed that for all purposes of this Agreement all the original liability contracts of
the Reinsured, whether new, renewal or replacement, of any class whatsoever
(other than Personal Liability, Farmers’ Liability, Storekeepers’ Liability or
Automobile Liability contracts), which become effective on or after 31st
December 1992, shall be deemed to include from their inception dates and
thereafter, the following provision:-
	 
	 	 	Broad Exclusion Provision.
	 
	 	 	It is agreed that this Policy does not apply:

	 	(a)	 	to liability imposed by or arising from any nuclear liability act, law or statute or
any law amendatory thereof; nor
	 
	 	(b)	 	to bodily injury or property damage with respect to which an Insured under this policy
is also insured under a contract of nuclear energy liability insurance (whether the
Insured is unnamed in such contract and whether or not it is

			
	 	 	 
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	 	 	 	legally enforceable by the Insured) issued by the Nuclear Insurance Association of Canada or any
other insurer or group or pool of insurers or would be an Insured under any such policy but for its
termination upon exhaustion of its limit of liability; nor
	 
	 	(c)	 	to bodily injury or property damage resulting directly or indirectly from the nuclear energy
hazard arising from:

	 	(i)	 	the ownership, maintenance, operation or use of a nuclear facility by or on behalf of an
Insured;
	 
	 	(ii)	 	the furnishing by an Insured of services, materials, parts or equipment in connection with
the planning, construction, maintenance, operation or use of any nuclear facility; and
	 
	 	(iii)	 	the possession, consumption, use, handling, disposal or transportation of fissionable
substances, or of other radioactive material (except radioactive isotopes, away from a nuclear
facility, which have reached the final stage of fabrication so as to be usable for any
scientific, medical, agricultural, commercial or industrial purpose) used, distributed,
handled or sold by an Insured.

          As used in this Policy:

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

	 	(a)	 	any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction
or to contain a critical mass of plutonium, thorium and uranium or any one or more of them;
	 
	 	(b)	 	any equipment or device designed or used for (i) separating the isotopes of plutonium,
thorium and uranium or any one or more of them, (ii) processing or utilising spent fuel, or
(iii) handling, processing or packaging waste;
	 
	 	(c)	 	any equipment or device used for the processing, fabricating or alloying of plutonium,
thorium or uranium enriched in the isotope uranium 233 or in the isotope uranium 235, or any
one or more of them if at any time the total amount of such material in the custody of the
Insured at the premises where such equipment or device is located consists of or contains more
than 25

			
	 	 	 
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	 	 	 	grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of
uranium 235;
	 
	 	(d)	 	any structure, basin, excavation, premises or place prepared or used for the storage or
disposal of waste radioactive material;

	 	 	and includes the site on which any of the foregoing is located, together with all operations
conducted thereon and all premises used for such operations.
	 
	4.	 	The term “fissionable substance” means any prescribed substance that is, or from which can be
obtained, a substance capable of releasing atomic energy by nuclear fission.
	 
	5.	 	With respect to property, loss of use of such property shall be deemed to be property damage.

01/4/96

NMA1979a

			
	 	 	 
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TERRORISM EXCLUSION CLAUSE (LM-02300-2006.04.14-A)

This Contract does not apply to and specifically excludes terrorism-related losses as follows:

	A.	 	For risks located in the United States of America, its territories and possessions, and at
the premises of any United States mission as such terms are intended to apply under the terms
of the Terrorism Risk Insurance Act of 2002 and the Terrorism Risk Insurance Extension Act of
2005 (“TRIA”), as it may be amended from time-to-time:

	 	1.	 	“Insured Losses” resulting, directly or indirectly, from a “Certified Act of Terrorism” under
the terms of TRIA.
	 
	 	2.	 	Loss or damage, directly or indirectly, arising out of or in connection with nuclear,
chemical, biological, or radiological explosion, pollution, or contamination resulting from
any Other Act of Terrorism. Notwithstanding the foregoing, this Contract shall extend to cover
insured physical loss or damage, excluding all time-element coverages and extensions, incurred
as a direct and immediate consequence of an Other Act of Terrorism employing any non-nuclear
weapon or device designed to disperse chemical, biological, or radiological contaminants; but,
no coverage shall be afforded for any ensuing chemical, biological, or radiological
contamination or pollution resulting from an Other Act of Terrorism employing such weapon or
device.
	 
	 	 	 	“Other Act of Terrorism” as used in this subparagraph A.2. above shall mean any violent act or act
that is dangerous to human life, property, or infrastructure that results in physical loss or
damage that is committed by an individual or individuals acting on behalf of any person or interest
as part of an effort to coerce the civilian population of the United States or to influence the
policy or affect the conduct of the United States government by coercion, which is not a “Certified
Act of Terrorism” under the terms of TRIA.

	B.	 	For risks located within the United Kingdom, this Contract shall not cover:

	 	1.	 	Loss, destruction, or damage in Great Britain (being England, Wales, and Scotland) occasioned
by or happening through or as a direct or indirect consequence of an Act of Terrorism.
	 
	 	2.	 	Loss, destruction, or damage in Northern Ireland within the meaning of the Northern Ireland
(Emergency Provisions) Act 1973 or successors thereof.

	 	 	In the event of an occurrence giving rise to a loss or losses payable by the Company not being
certified by Her Majesty’s government or Her Majesty’s Treasury or any successor relevant Authority
to have been an Act of Terrorism and solely by reason thereof the Company is unable to recover

			
	 	 	 
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	 	 	such loss or losses in whole or in part from Pool Reinsurance Company Limited, the Reinsurers
accept that this subparagraph B.1. above does not apply to such loss or losses.
	 
	 	 	For the purpose of this paragraph B:
	 
	 	 	“Act of Terrorism” means an act of persons acting on behalf of or in connection with any
organization that carries out activities directed towards the overthrowing or influencing by force
or violence of Her Majesty’s government in the United Kingdom.
	 
	 	 	This paragraph B shall not, however, apply to goods in transit or goods in temporary storage while
in transit.
	 
	 	 	Notwithstanding the foregoing, this paragraph B excludes loss or damage directly or indirectly
arising out of or in connection with nuclear, chemical, biological, or radiological explosion,
pollution, or contamination resulting from any Act of Terrorism. This Contract shall extend,
however, to cover insured physical loss or damage, excluding all time-element coverages and
extensions, incurred as a direct and immediate consequence of an Act of Terrorism employing any
non-nuclear weapon or device designed to disperse chemical, biological, or radiological
contaminants; but, no coverage shall be afforded for any ensuing chemical, biological, or
radiological contamination or pollution resulting from an Act of Terrorism employing such weapon or
device.
	 
	C.	 	For risks located in all other sovereignties not subject to paragraphs A or B above:
	 
	 	 	Loss or damage, 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 this paragraph C, regardless of
any other cause or event contributing concurrently or in any other sequence to the loss.
	 
	 	 	For the purpose of this paragraph C:
	 
	 	 	“Act of Terrorism” shall mean any violent act or act that is dangerous to human life, property, or
infrastructure that results in physical loss or damage that is committed by an individual or
individuals acting on behalf of any person or interest as part of an effort to coerce the civilian
population of any nation or to influence the policy or affect the conduct of the government of any
such sovereign nation by coercion.
	 
	 	 	Where an occurrence falling within the definition of Act of Terrorism in this paragraph C,
involving risks insured or reinsured in Consorcio, Gareat, Extremus, the Australian Terrorism Pool
(or any similar scheme formed during the term of this Contract) gives rise to a loss or losses
payable by the Company and such occurrence is not certified by the individual authority acting
respectively for Consorcio, Gareat, Extremus, the Australian Terrorism Pool (or any similar scheme
formed during the term of this Contract) having

			
	 	 	 
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	 	2008 Second Casualty Excess of
Loss — $100m x $100m

Page 48 of 49

 

	 	 	responsibility to make such judgment, or any successor authority, as an Act of Terrorism, the
reinsurers accept that this exclusion does not apply to such loss(es).
	 
	 	 	Notwithstanding the foregoing, this paragraph C excludes loss or damage, directly or indirectly,
arising out of or in connection with nuclear, chemical, biological, or radiological explosion,
pollution, or contamination resulting from any Act of Terrorism. This Contract shall extend,
however, to cover insured physical loss or damage, excluding all time-element coverages and
extensions, incurred as a direct and immediate consequence of an Act of Terrorism employing any
non-nuclear weapon or device designed to disperse chemical, biological, or radiological
contaminants; but, no coverage shall be afforded for any ensuing chemical, biological, or
radiological contamination or pollution resulting from an Act of Terrorism employing such weapon or
device.

			
	 	 	 
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	 	2008 Second Casualty Excess of
Loss — $100m x $100m

Page 49 of 49

 

INTERESTS AND LIABILITIES AGREEMENT

(hereinafter referred to as the “Agreement”)

to the

SECOND CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

CONTRACT No. 2008159

(hereinafter referred to as the “Contract”)

between

PEERLESS INSURANCE COMPANY

(hereinafter referred to as the “Company”)

and

LIBERTY MUTUAL INSURANCE COMPANY

(hereinafter referred to as the “Subscribing Reinsurer”)

It is hereby mutually agreed by and between the Company of the one part and the Subscribing
Reinsurer of the other part, that the Subscribing Reinsurer’s share in the interests and
liabilities of the Reinsurers as set forth in the attached Second Casualty Excess of Loss
Reinsurance Contract No. 2008159, effective 12:01 a.m., Local Standard Time, January 1, 2008, to
which this Agreement is attached shall be for:

100%

The share of the Subscribing Reinsurer in the interests and liabilities of all reinsurers
participating in said Contract shall be separate and apart from the shares of such other reinsurers
to the said Contract. The interests and liabilities of the Subscribing Reinsurer shall not be joint
with those of the other Reinsurers and in no event shall the Subscribing Reinsurer participate in
the interests and liabilities of the any other Reinsurers participating in said Contract.

Second Casualty Excess of Loss

Interest and Liabilities Agreement

Effective: 01/01/2008

Page 1 of 2

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement and the attached Second Casualty
Excess of Loss Reinsurance Contract to be executed in duplicate by their respective duly authorized officers;

In Keene, New Hampshire, this 20th day of
August, 2008, for and on
behalf of:

	 	 	 	 	 	 	 

	ATTEST:

	 	 	 	PEERLESS INSURANCE COMPANY	 	 
	 
	 	 	 	 	 	 
	/s/ Daniel P. Baker
 

Signature

	 	 
	 	/s/ Nancy C. Callender
 

Signature
	 	 
	 
	 	 	 	 	 	 
	Daniel P. Baker

	 	 	 	Nancy C. Callender	 	 
	 

	 	 	 	 	 	 
	Name

	 	 	 	Name	 	 
	 
	 	 	 	 	 	 
	VP, Financial Services 

	 	 	 	Agency Markets AVP — Mgr. Reinsurance Mgmt 	 	 
	 

	 	 	 	 	 	 
	Title

	 	 	 	Title	 	 

And in Boston, Massachusetts, this 19th day of September,
2008, for and on
behalf of:

	 	 	 	 	 	 	 

	ATTEST:

	 	 	 	LIBERTY MUTUAL INSURANCE COMPANY	 	 
	 
	 	 	 	 	 	 
	/s/ Lauren H. Covert
 

Signature

	 	 
	 	/s/ Elaine Caprio Brady
 

Signature
	 	 
	 
	 	 	 	 	 	 
	Lauren H. Covert 

	 	 	 	Elaine Caprio Brady 	 	 
	 

	 	 	 	 	 	 
	Name

	 	 	 	Name	 	 
	 
	 	 	 	 	 	 
	Director of Ceded Reinsurance 

	 	 	 	Vice President 	 	 
	 

	 	 	 	 	 	 
	Title

	 	 	 	Title	 	 

Second Casualty Excess, of Loss

Interest and Liabilities Agreement

Effective: 01/01/2008

Page 2 of 2exv10w159

Exhibit 10.159

CASUALTY EXCESS OF LOSS

REINSURANCE CONTRACT

No.1000102

EFFECTIVE JANUARY 1, 2008

between

EMPLOYERS INSURANCE COMPANY OF WAUSAU

Wausau, Wisconsin

and

LIBERTY MUTUAL INSURANCE COMPANY

Boston, Massachusetts

(hereinafter referred to as the “Company”)

and

PEERLESS INSURANCE COMPANY

Keene, New Hampshire

(hereinafter referred to as the “Subscribing Reinsurer”)

			
	 	 	 
	Effective: January 1, 2008
	 	Wausau Casualty Excess Contract

CAS08WAU01

 

 

CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT No. 1000102

	 	 	 	 	 	 	 
	CONTENTS	 	ARTICLE	 	PAGE
	ACCESS TO RECORDS

	 	XIV
	 	 	13	 
	AMENDMENTS

	 	XV
	 	 	14	 
	ARBITRATION

	 	XVI
	 	 	14	 
	ASSIGNMENT, NOVATION or TRANSFER

	 	XVII
	 	 	16	 
	BUSINESS COVERED

	 	I
	 	 	1	 
	CONFIDENTIALITY CLAUSE

	 	XVIII
	 	 	17	 
	CURRENCY

	 	XIX
	 	 	18	 
	DIVIDENDS AND TAXES

	 	XX
	 	 	18	 
	EFFECTIVE DATE AND TERMINATION

	 	II
	 	 	2	 
	ENTIRE AGREEMENT

	 	XXI
	 	 	18	 
	ERRORS OR OMISSIONS

	 	XXII
	 	 	18	 
	EXCLUSIONS

	 	IX
	 	 	6	 
	EXTRA CONTRACTUAL OBLIGATIONS

	 	VIII
	 	 	6	 
	FEDERAL EXCISE TAX

	 	XXIII
	 	 	19	 
	FEDERAL TERRORISM EXCESS RECOVERY CLAUSE

	 	XXIV
	 	 	19	 
	GOVERNING LAW

	 	XXV
	 	 	19	 
	INSOLVENCY

	 	XXVI
	 	 	20	 
	INTEREST PENALTY

	 	XXVII
	 	 	20	 
	LIMIT AND RETENTION

	 	IV
	 	 	4	 
	LOSS ADJUSTMENTS AND SETTLEMENTS

	 	XXVIII
	 	 	21	 
	LOSS IN EXCESS OF POLICY LIMITS

	 	XII
	 	 	5	 
	LOSS OCCURRENCE

	 	VI
	 	 	10	 
	MEDIATION

	 	XXIX
	 	 	22	 
	OFFSET

	 	XXX
	 	 	23	 
	REINSURANCE CLAIMS OBLIGATIONS

	 	XXXI
	 	 	23	 
	REINSURANCE PREMIUM

	 	XII
	 	 	12	 
	REPORTS AND REMITTANCES

	 	XIII
	 	 	12	 
	SALVAGE AND SUBROGATION

	 	XXXII
	 	 	23	 
	SERVICE OF SUIT

	 	XXXIII
	 	 	24	 
	SEVERABILITY

	 	XXXIV
	 	 	24	 
	SPECIAL ACCEPTANCES

	 	X
	 	 	10	 
	SPECIAL CONDITIONS

	 	XXXV
	 	 	25	 
	TERRITORY

	 	III
	 	 	4	 
	THIRD PARTIES

	 	XXXVI
	 	 	28	 
	ULTIMATE NET LOSS

	 	VI
	 	 	4	 
	UNAUTHORIZED REINSURENCE

	 	XXXVII
	 	 	28	 
	WARRANTIES

	 	V
	 	 	4	 
	ATTACHMENTS:
	 	 	 	 	 	 
	EXHIBIT A — FIRST EXCESS OF LOSS
	 	 	 	 	 	 
	EXHIBIT B — SECOND EXCESS OF LOSS
	 	 	 	 	 	 
	APPENDIX A — PHARMACEUTICAL/MEDICAL RISKS
	 	 	 	 	 	 

			
	 	 	 
	Effective: January 1, 2008
	 	2008 Wausau Casualty Excess Contract

 

 

INSOLVENCY FUNDS EXCLUSION CLAUSE

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

NUCLEAR INCIDENT EXCLUSION CLAUSE — LIABILITY — REINSURANCE — CANADA.

NUCLEAR INCIDENT EXCLUSION CLAUSE — REINSURANCE — NO. 4.

			
	 	 	 
	Effective: January 1, 2008
	 	2008 Wausau Casualty Excess Contract

 

 

CASUALTY EXCESS OF LOSS

REINSURANCE CONTRACT

No. 1000102

(hereinafter referred to as the “Contract”)

between

EMPLOYERS INSURANCE COMPANY OF WAUSAU

Wausau, Wisconsin

and

LIBERTY MUTUAL INSURANCE COMPANY

Boston, Massachusetts

(hereinafter referred to as the “Company”)

and

PEERLESS INSURANCE COMPANY

Keene, New Hampshire

(hereinafter referred to as the “Subscribing Reinsurer”)

ARTICLE I — BUSINESS COVERED

	A.	 	This Contract shall indemnify the Company on an excess of loss basis in respect of
the Ultimate Net Loss as a result of losses occurring or claims made during the term
of the Contract for Policies in force at 12:01 a.m. Local Standard Time, January 1,
2008, and new and renewal Policies becoming effective on or after said date, subject
to the terms and conditions contained herein.
	 
	B.	 	This Contract is solely between the Company and the Subscribing Reinsurer, and
nothing contained in this Contract shall create any obligations or establish any
rights against the Subscribing Reinsurer in favor of any person or entity not a party
hereto.
	 
	C.	 	The term “Policies” shall mean each of the Company’s or a Legal Entity’s binders,
policies, endorsements and contracts of insurance or reinsurance on the business
covered hereunder.
	 
	D.	 	Under this Contract, the indemnity for reinsured loss applies only to the
following Annual Statement Lines of Business and Classes of Insurance written by the
Company or ceded to the Company directly or indirectly, by a legal entity listed below
(each, a “Legal Entity” and, collectively, the “Legal Entities”)
	 
	 	 	Employers Insurance Company of Wausau, Wausau, Wisconsin,

Wausau General Insurance Company, Wausau, Wisconsin,

Wausau Underwriters Insurance Company, Wausau, Wisconsin,

Wausau Business Insurance Company, Wausau, Wisconsin,

Liberty County Mutual Insurance Company, Irving, Texas,

for business classified as Wausau Business Group which includes business previously
classified as Business Solutions Group,

			
	 	 	 
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	 	2008 Wausau Casualty Excess Contract

Page 1 of 46

 

	 	 	Liberty Mutual Insurance Company, Boston, Massachusetts (on behalf of itself and The First
Liberty Insurance Corporation, LM Insurance Corporation, both of West Des Moines, Iowa,
Liberty Insurance Corporation, South Burlington, Vermont, Liberty Mutual Fire Insurance
Company, Wausau, Wisconsin, for business previously classified as Business Solutions Group
only), except as excluded under Article IX — Exclusions of this Contract.

	 	 	 
	NAIC	 	 
	CODE	 	LINES OF BUSINESS
	 
	 	 
	3

	 	Farmowners
	 
	 	 
	4

	 	Homeowners
	 
	 	 
	05.2

	 	Commercial Multiple Peril
	 
	 	 
	16

	 	Workers Compensation
	 
	 	 
	17

	 	Other Liability
	 
	 	 
	18

	 	Products Liability
	 
	 	 
	19.1, 19.2

	 	Private Passenger Automobile Liability
	 
	 	 
	19.3, 19.4

	 	Commercial Automobile Liability
	 
	 	 
	21

	 	Automobile Physical Damage

	 	 	Coverage is provided, as respects the Wausau Business Group’s Underwriting Guidelines as
follows:

	 	1.	 	Automobile Liability includes; Bodily Injury Liability, Property Damage
Liability, Medical Payments, Uninsured Motorists, Underinsured Motorists,
No-Fault Coverage and Auto Physical Damage Collision.
	 
	 	2.	 	Other Liability including Professional Liability; Bodily Injury Liability,
Property Damage Liability, Personal and Advertising Injury Liability and Medical
Payments Coverage when written as part of a Commercial or Personal Package Policy or
on a monoline basis. However, Advertising Injury Liability shall only apply to this
Agreement when written as part of a Commercial Package Policy or a Commercial General
Liability Coverage Form.
	 
	 	3.	 	Workers Compensation and Employers Liability.
	 
	 	4.	 	Personal and Commercial Umbrella Liability.
	 
	 	5.	 	Clash of multiple Policies involved in the same occurrence.
	 
	 	6.	 	Directors and Officers Liability

ARTICLE II — EFFECTIVE DATE AND TERMINATION

	A.	 	This Contract shall become effective at 12:01 a.m., Local Standard Time, with respect to
losses occurring on Policies inforce at 12:01 a.m., Local Standard Time, January 1, 2008,
and new and renewal Policies becoming effective on or after said date and shall remain in
force until 12:00 a.m. January 1, 2009 Local Standard Time, unless terminated earlier in
accordance with the provisions of this Contract.
	 
	B.	 	This Contract shall apply to Policies in accordance with the following provisions:

	 	1.	 	As respects Policies written on an occurrence basis:

			
	 	 	 
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	 	2008 Wausau Casualty Excess Contract

Page 2 of 46

 

	 	a.	 	This Contract shall apply with respect to losses occurring on or
after the inception date of this Contract.

	 	2.	 	As respects Policies written on a claims made basis:

	 	a.	 	“Claims Made” shall be understood to mean losses arising under
Policies in which the date when the claim is made determines under which
Policy the loss is collectible. Such losses are covered hereunder irrespective
of the date on which the loss occurs provided that the date the claim is made
falls within the period of this Contract.
	 
	 	b.	 	For the purposes of the foregoing, the date a claim is first made
shall be the date applicable to the entire loss and the Subscribing Reinsurer
shall be liable for its proportion of the entire loss irrespective of the
expiry date of the Contract, provided that such date falls within the period
of this Contract.
	 
	 	c.	 	In the event of a Loss Occurrence arising hereunder which involves
Policies (or sections thereof) which respond on both a losses occurring and
Claims Made basis, the date of the Loss Occurrence will be deemed to be the
earlier of the dates, namely the date of the occurrence of the loss.

	C.	 	In the event of termination of this Contract, the Company shall have the option of
continuing or terminating the liability in force at the date of termination as set
forth below. The Company may exercise such option provided written notice of the
Company’s election is given by certified mail to the Subscribing Reinsurer prior to
the date of termination. If the Company does not choose to exercise its option prior
to the date of termination, such option shall revert to the Subscribing Reinsurer.

	 	1.	 	Continuation of Liability

	 	a.	 	As respects Policies written on an occurrence basis:
	 
	 	 	 	Upon termination of this Contract, all Policies covered hereunder and in
force at the date of termination of this Contract shall continue until their
natural expiry, cancellation or next anniversary of such business, whichever
first occurs; but in no case shall this reinsurance be extended for longer
than 12 months, plus odd time, after the termination date.
	 
	 	b.	 	As respects Policies written on a claims made basis:
	 
	 	 	 	Upon termination of this Contract, the Subscribing Reinsurer shall continue
to be liable for claims received or recorded by the Company or by the
insured with respect to Policies in force at the date of termination for the
full original policy period until the natural expiry, cancellation or next
anniversary of such Policies, not to exceed 12 months, whichever comes
first. However, if the Company or a Legal Entity, as applicable, has
provided an Extended Reporting Period within 12 months after the date of
termination on Policies in force at the date of termination or if the
Extended Reporting Period is in force at the date of termination, the
Subscribing Reinsurer shall continue to be liable for such extended
reporting period.

	 	2.	 	Termination of Liability

	 	a.	 	As respects Policies written on an occurrence basis:
	 
	 	 	 	Upon termination of this Contract, the Subscribing Reinsurer shall be liable
for losses occurring prior to the date of termination; however, the
Subscribing Reinsurer shall have no liability for losses occurring
subsequent to the termination of this Contract.
	 
	 	b.	 	As respects Policies written on a claims made basis:

			
	 	 	 
	Effective: January 1, 2008
	 	2008 Wausau Casualty Excess Contract

Page 3 of 46

 

	 	 	 	Upon termination of this Contract, the Subscribing Reinsurer shall not be
liable for claims received or recorded by the Company or a Legal Entity,
as applicable, or insured after the effective date of termination unless
such claim is received and recorded by the Company or a Legal Entity, as
applicable, or the insured during an Extended Reporting Endorsement Period
in force at the date of termination.

ARTICLE III — TERRITORY (LM-02200-2005.06.02-A)

The territorial limits of this Contract shall be identical with those of the Policies.

ARTICLE IV — LIMIT AND RETENTION

	A.	 	The limits and retentions provided under this Contract are as set forth in
Exhibits A and B attached hereto and made a part of this Contract.
	 
	B.	 	The Company’s retention and the Subscribing Reinsurer’s limit of liability for
each Loss Occurrence, set forth in Section I of Exhibits A and B attached hereto and
made part of this Contract, shall apply irrespective of the number of Policies
affected or number of hazards in one Policy and regardless of the number of Lines of
Business involved, except as provided for in Article V — Warranties.
	 
	C.	 	In the event both a Property and Casualty loss are involved in the same Loss
Occurrence, it is understood that the Company shall retain for its own account only
the first $5,000,000 of the combined Property and Casualty Ultimate Net Loss,
provided only one Property Risk may be combined in the same Loss Occurrence. Such
loss and the Company’s retention thereon shall be apportioned to each Property and
Casualty loss in the same proportion that the Company’s Ultimate Net Loss for each
such Property and Casualty loss bears to the combined Ultimate Net Loss from both
losses. The Subscribing Reinsurer shall reimburse the Company for the difference
between the Ultimate Net Loss under each Property and Casualty loss and the pro rated
retention on each Property and Casualty loss.
	 
	D.	 	Reinsurance of the Company’s retention, set forth in each Exhibit, shall not be
deducted in arriving at the Ultimate Net Loss herein, except that recoveries from the
Public Entities Legal Liability Quota Share Reinsurance Contract shall inure to the
benefit of this Contract.

ARTICLE V — WARRANTIES

Notwithstanding any other provision of this Contract, the maximum amount included in the
Ultimate Net Loss under this Contract shall be:

	1.	 	$10,000,000 each Life as respects statutory Workers’ Compensation business,
including Voluntary Compensation, United States Longshore and Harbor Workers’
Compensation Act, Jones Act and Federal Employees’ Labor Act.
	 
	2.	 	$25,000,000 each Umbrella Policy;
	 
	3.	 	$2,000,000 Employers Liability coverage limit each Policy.

ARTICLE VI — ULTIMATE NET LOSS (LM-02400-2006.11.08-A)

	A.	 	The term “Ultimate Net Loss” as used in this Contract shall mean: (1) all
amounts paid or due and payable by the Company or a Legal Entity in the
investigation, appraisal, adjustment,

			
	 	 	 
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	 	2008 Wausau Casualty Excess Contract

Page 4 of 46

 

	 	 	settlement, litigation, defense or appeal, or payment of claims or judgments
arising from each and every Loss Occurrence for which the Company or a Legal Entity
is or may be found liable under the Policies, less salvages and subrogation
recoveries and amounts recovered or recoverable under pooling agreements or other
reinsurances, whether collectible or not. “Ultimate Net Loss” includes, but is not
limited to, the following paid or due and payable amounts: loss adjustment
expenses, defense costs, court costs, supersedeas and appeal bond costs, Post or
Prejudgment Interest and Delayed Damages, Attorneys Fees and Expenses,
Claim-Specific Declaratory Judgment Expenses, a pro rata share of salaries and
expenses of the Company’s or its affiliates’ field employees according to the time
occupied in adjusting, defending, and settling such loss, and expenses of all of
the Company’s or its affiliates’ officers and employees incurred in connection with
the loss; (except that salaries of officers and employees engaged in general
management and located in the home office of the Company or its affiliates and any
office expense of the Company or its affiliates shall not be included), and all
other costs of investigation or litigation, (2) Extra Contractual Obligations (as
defined in the Extra Contractual Obligations Article), and (3) Loss in excess of
original Policy limits (as described in the Loss in Excess of Original Policy
Limits Article).
	 
	B.	 	“Claim-Specific Declaratory Judgment Expenses” shall be defined as fees and
expenses incurred in actions brought to determine whether the Company or a Legal
Entity has a defense and/or indemnification obligation for individual claims presented
against Policies covered under this Contract. Any Claim-Specific Declaratory Judgment
Expense shall be deemed to have been fully incurred on the same date as the insured’s
original loss (if any) giving rise to the action, unless otherwise provided for within
this Contract.
	 
	C.	 	The term “Attorneys’ Fees and Expenses” as used above, means the fees and expenses
of attorneys, including the fees and expenses of the Company’s or its affiliates
in-house attorneys providing legal advice on coverage questions and/or defending the
Company or a Legal Entity in coverage litigation, and fees and expenses of staff
counsel in the defense of policyholder claims. Such Attorneys’ Fees and Expenses for
in-house attorneys and staff counsel shall be calculated at the rate for such
attorneys plus the expenses incurred by such attorneys, but excluding office expenses
of the Company and its affiliates and salaries and expenses of their other employees.
	 
	D.	 	“Post or Prejudgment Interest or Delayed Damages” shall mean interest or damages
added to a settlement, verdict, award, or judgment based on the period of time prior
to or after the settlement, verdict, award, or judgment whether or not made part of
the settlement, verdict, award, or judgment.
	 
	E.	 	Nothing in this Article shall be construed to mean that losses under this Contract
are not recoverable until the Company’s Ultimate Net Loss has been ascertained. In
the event a verdict or judgment is reduced by an appeal or a settlement subsequent to
the entry of the judgment, thereby resulting in an ultimate saving on such verdict or
judgment, or in the event a judgment is reversed outright, the loss adjustment expense
incurred in securing such final reduction or reversal shall be prorated between the
Reinsurers and the Company in the proportion that each benefits from such reduction or
reversal, and the expenses incurred up to the time of the original verdict or judgment
shall be added to the Ultimate Net Loss. In the event there is no reduction or
reversal of a verdict or judgment, the loss adjustment expense incurred in attempting
to secure such reduction or reversal shall be added to the Ultimate Net Loss.

ARTICLE VII — LOSS IN EXCESS OF POLICY LIMITS (LM-01600-2005.08.24-A)

	A.	 	This Contract shall protect the Company within the limits hereof, for 90% of any
Loss in excess of the Company’s original Policy limit where Loss in excess of the
limit has been incurred because of a failure by the Company, or a Legal Entity or by a
third-party claims administrator to settle within the Policy limit or by reason of
alleged or actual negligence, fraud, or bad faith in rejecting an offer of

			
	 	 	 
	Effective: January 1, 2008
	 	2008 Wausau Casualty Excess Contract

Page 5 of 46

 

	 	 	settlement or in defending or prosecuting litigation, including appeals,
arbitration, or any alternative dispute resolution or settlement discussions
involving any claim.
	 
	B.	 	However, the above paragraph shall not apply where the loss has been incurred due
to the fraud of a member of the Board of Directors or a Corporate Officer of the
Company or a Legal Entity acting individually or collectively or in collusion with any
individual or corporation or any other organization or party involved in the
presentation, defense or settlement of any claim covered hereunder.
	 
	C.	 	With regard to excess of Policy limits, the word “Loss” shall mean any amounts for
which the Company or a Legal Entity would have been contractually liable to pay had it
not been for the limit of the original Policy. The date on which any Loss in excess
of the Company’s original Policy limit is incurred by the Company or a Legal Entity
shall be deemed, in all circumstances, to be the date of the original Loss Occurrence,
accident, casualty, disaster, or loss, as selected by the Company.

ARTICLE VIII — EXTRA CONTRACTUAL OBLIGATIONS (LM-00900-2007.03.28-A)

	A.	 	This Contract shall protect the Company within the limits hereof for 90% of Extra
Contractual Obligations. “Extra Contractual Obligations” are defined as any actual or
potential liabilities not covered under any other provision of this Contract, arising
from or relating to any alleged or actual act, error or omission, whether intentional
or otherwise, or from any alleged or actual negligence, tortious conduct, reckless
conduct, violations of statutes or regulations governing the conduct of insurance
companies and/or claims adjusters, or bad faith in connection with: (i) the handling of
any claim under the Policies covered by this Contract, such liabilities arising because
of, but not limited to, the following: failure by the Company, a Legal Entity or by a
third party claims administrator to settle within the Policy limit, or by reason of
alleged or actual negligence, fraud or bad faith of the Company, a Legal Entity or by a
third party claims administrator in rejecting an offer of settlement, or in defending
or prosecuting litigation, including appeals, arbitration, or any alternative dispute
resolution or settlement discussions involving any claim; or (ii) the providing of or
failure to provide any loss control or loss prevention services in connection with any
Policy hereunder.
	 
	B.	 	The date on which any Extra Contractual Obligation is incurred shall be deemed, in
all circumstances, to be the date of the original Loss Occurrence, accident, casualty,
disaster, or loss, as selected by the Company.
	 
	C.	 	However, this Article shall not apply where the loss has been incurred due to the
fraud of a member of the Board of Directors or a corporate officer of the Company or a
Legal Entity acting individually or collectively or in collusion with any individual or
corporation or any other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.

ARTICLE IX — EXCLUSIONS

THIS AGREEMENT DOES NOT COVER:

	A.	 	THE FOLLOWING GENERAL CATEGORIES

	 	1.	 	Assumed reinsurance other than inter-company agreements.
	 
	 	2.	 	Loss or damage caused directly or indirectly by: (a) enemy attack by armed
forces including action taken by military, naval or air forces in resisting an
actual or an immediately impending enemy attack; (b) invasion; (c) revolution; (d)
bombardment; (e) hostilities; (f) acts of foreign enemies; (g) civil war; (h)
rebellion; (i) insurrection; (j)military or usurped power; (k) martial law;

			
	 	 	 
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	 	2008 Wausau Casualty Excess Contract

Page 6 of 46

 

	 	 	 	(l) intervention; or (m) confiscation by order of any government or public
authority. However this exclusion would not apply to loss or damage covered under
a standard form of Policy containing a standard war exclusion clause.
	 
	 	3.	 	Insolvency Funds as per the attached Insolvency Funds Exclusion Clause,
which is made part of this Contract.
	 
	 	4.	 	Business derived from any Pool, Association, including Joint
Underwriting Association, Syndicate, Exchange, Plan, Fund or other facility
directly as a member, subscriber or participant, or indirectly by way of
reinsurance or assessments; provided this exclusion shall not apply to Automobile or
Workers Compensation assigned risks which may be currently or subsequently covered
hereunder.
	 
	 	5.	 	Pollution Liability, to the extent excluded in the original Policies and
endorsements except when a judicial entity invalidates the Policies’ exclusion or in
any jurisdiction whose regulatory authorities have prohibited the exclusion.
	 
	 	6.	 	Asbestos liability, to the extent excluded in the original Policies and
endorsements except when a judicial entity invalidates the Policies’ exclusion or in
any jurisdiction whose regulatory authorities have prohibited the exclusion.
	 
	 	7.	 	Nuclear Risks as defined in the Nuclear Incident Exclusion Clauses which
are attached and made part of this Contract:

	 	a.	 	Nuclear Incident Exclusion Clause — Liability — Reinsurance — U.S.A.
	 
	 	b.	 	Nuclear Incident Exclusion Clause — Liability — Reinsurance — Canada.
	 
	 	c.	 	Nuclear Incident Exclusion Clause — Reinsurance — No. 4.

	 	8.	 	Business with the Peerless Insurance Company covered under the Employers
Insurance Company of Wausau Quota Share Agreement and business with the Peerless
Insurance Company covered under the Liberty Mutual Insurance Company Quota Share
Agreement.

	B.	 	THE FOLLOWING INSURANCE COVERAGES OR BUSINESS CLASSIFIED AS:

	 	1.	 	Malpractice insurance, and/or Professional Liability insurance, as respects the
following;

	 	a.	 	Physicians, Surgeons, Dentists or Hospitals;
	 
	 	b.	 	Lawyers;
	 
	 	c.	 	Architects or Design Engineers;
	 
	 	d.	 	Accountants
	 
	 	e.	 	Insurance Agents or brokers;
	 
	 	f.	 	Insurance Companies;
	 
	 	g.	 	Bloodbanks.

	 	2.	 	Insurance classified as:

	 	a.	 	Surety and Credit insurance;
	 
	 	b.	 	Fiduciary Liability;
	 
	 	c.	 	Fidelity Bonds;
	 
	 	d.	 	Credit and Financial Guarantee;
	 
	 	e.	 	Securities and Exchange Liability;

			
	 	 	 
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	 	f.	 	Boiler and Machinery

	 	3.	 	Business involving Pharmaceutical/Medical Risks per the attached Appendix A.
	 
	 	4.	 	Business involving manufacture, transportation, handling or storage of
fireworks, fuses and other substances made for the express purpose of exploding.
	 
	 	5.	 	Insurance in which the principal operations are classified as:

	 	a.	 	Aviation;
	 
	 	b.	 	The operation of any carrier on rails; however, this
exclusion does not apply to Railroad Protective Liability forms.

	 	6.	 	Liability under the Jones Act and Maritime Employers Liability Act.

	C.	 	THE FOLLOWING RISKS AS RESPECTS AUTOMOBILE LIABILITY AND AUTOMOBILE
COLLISION:

	 	1.	 	Ownership, maintenance or use of trucks used for transporting
explosives or munitions other than incidental transportation.

	D.	 	THE FOLLOWING AS RESPECTS LIABILITY OTHER THAN AUTOMOBILE, RELATING TO
PREMISES OR OPERATIONS PRINCIPALLY INVOLVING:

	 	1.	 	Airports, bridges unless the spans is less than 75 feet between
pillars, tunnels, dams and reservoirs.
	 
	 	2.	 	Gas utilities.
	 
	 	3.	 	Gas and oil refineries. This exclusion does not to apply to the
construction and maintenance of such exposures which shall include, but not be
limited to, landscaping, road construction, excavation and water hauling, plumbing
and electrical services.
	 
	 	4.	 	Garbage and refuse dumps.
	 
	 	5.	 	The following classes of contractors;

	 	(i)	 	blasting contractors (whose primary business operation is blasting for others);
	 
	 	(ii)	 	insulation contractors, except insulation contractors installing
fiberglass or
Styrofoam insulation.

	E.	 	THE FOLLOWING AS RESPECTS PRODUCTS AND COMPLETED OPERATIONS:

	 	1.	 	Manufacture, sale or distribution of aircraft or aircraft parts. This
exclusion does not apply to noncritical aircraft parts.
	 
	 	2.	 	Manufacturers of fertilizers, insecticides, herbicides and animal feeds,
and manufacturers, packagers or repackagers of hazardous chemicals when there is a
change to the chemical composition of the original product(s).
	 
	 	3.	 	Manufacturers, packagers or repackagers of prescription Pharmaceuticals,
other than retail drug stores;

			
	 	 	 
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	 	4.	 	The manufacturer of motorized or self propelled vehicles such as automobiles,
buses, motorcycles and trucks, but not to exclude automotive parts manufacturers,
except for parts manufacturers engaged in the manufacturing of the critical
components of the braking, steering and fuel systems.
	 
	 	5.	 	Liability arising out of or exacerbated by the consumption or use of
any product containing tobacco, or arising out of the manufacture or direct
import of such products, but this exclusion does not apply to liability arising
from the retail sale or wholesale distribution of such products by Risks not
engaged in their manufacture and whose sales revenue from such products do not
exceed 50% of total sales revenue;

	G.	 	THE FOLLOWING RISKS AS RESPECTS WORKERS COMPENSATION AND EMPLOYERS LIABILITY:

	 	1.	 	Construction of airports, bridges unless the span is less than 75 feet
between pillars, tunnels, dams and reservoirs.
	 
	 	2.	 	Gas utilities.
	 
	 	3.	 	Gas and oil refineries. This exclusion is not to apply to the
construction and maintenance of such exposures which shall include, but not be
limited to, landscaping, road construction, excavation and water hauling, plumbing
and electrical services.
	 
	 	4.	 	Garbage and refuse dumps.
	 
	 	5.	 	The following classes of contractors;

	 	(i)	 	blasting contractors (whose primary business operation is blasting for others);
	 
	 	(ii)	 	insulation contractors, except insulation contractors installing
fiberglass or
Styrofoam insulation.

	 	6.	 	Underground mining operations.
	 
	 	7.	 	Professional sports teams.
	 
	 	8.	 	Airline crews

	H.	 	THE FOLLOWING RISKS AS RESPECTS TERRORISM
	 
	 	 	Terrorism losses arising from Airports, Bridges, Government Buildings, Nuclear
Facilities, Office Buildings over 25 stories, Security Services, Stadiums and Tunnels,
Nuclear, Biological and Chemical exposures, Explosive Manufacturing risks, Fertilizer
mixing plants, Railroads, Amusement/Theme parks with greater than 5,000 person
capacity, Distribution and manufacturing of weapons/munitions.
	 
	I.	 	Policies issued to insureds regularly engaged in other operations, a minor part
of which involves classes excluded under this Article, shall not be excluded, however
this shall not apply to items identified as excluded in paragraph A.2. — 6 above. The
Company shall be the sole judge of what is “incidental”.
	 
	J.	 	In the event the Company is inadvertently bound on any Risk which is excluded
under this Contract, the reinsurance provided under this Contract shall apply to such
Risk until discovery by the Company within its Home Office of the existence of such
Risk and for 45 days thereafter or for the period required by statutes, and shall
then cease unless within such period, the Company has received from the Subscribing
Reinsurer written notice of its approval of such Risk. However this shall not apply
to inadvertently bound Risks identified as excluded in paragraph A.2 — 7 above.

			
	 	 	 
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	K.	 	Notwithstanding exclusions listed in A.4 and A.5 above, if a competent court
has rendered adverse judgment interpreting an ISO or Company exclusion wording,
the Subscribing Reinsurer will cover that portion of the judgment regarding losses
due to pollution subject to all terms and conditions of this Contract.
	 
	L.	 	The Company and the Subscribing Reinsurer have agreed on the Company’s
Underwriting Guidelines as respects Policies covered under this Contract.

ARTICLE X — SPECIAL ACCEPTANCES

It is understood and agreed the Company may submit Risks excluded above to the
Subscribing Reinsurer for coverage hereunder and, if specifically accepted by the
Subscribing Reinsurer, such Risks shall then be covered under the terms of this
Contract, except as such terms shall be modified by such acceptance. A Subscribing
Reinsurer’s failure to respond within 5 full business days shall be deemed approval of
a risk submitted for special acceptance. Once a Risk has been accepted under the
provisions of this Article, it will automatically be included at renewal unless there
have been material changes to the Risk, in which case the Risk will be resubmitted.

ARTICLE XI — LOSS OCCURRENCE

The provisions under this Article are set forth in the following Parts I, II and III:

Part I — As respects Policies written on an occurrence basis:

The term “Loss Occurrence” shall mean any accident, disaster, casualty or happening or
series of accidents, disasters, casualties or happenings arising out of or following
the same cause or a series of similar causes. The term “Loss Occurrence” shall be held
to include:

	A.	 	As respects Products Bodily Injury and Products Property Damage Liability,
injuries to all persons and all damage to property of others occurring during a
Policy Period and proceeding from or traceable to the same cause or series of similar
causes, shall be deemed to arise out of one Loss Occurrence, and the date of such
Loss Occurrence shall be deemed to be the commencing date of the Policy Period. For
the purpose of this provision, each annual period of a Policy which continues in
force for more than one year shall be deemed to be a separate Policy Period.
	 
	B.	 	As respects Bodily Injury Liability (other than Automobile and Products), said
term shall also be understood to mean, as regards each original assured, injuries to
one or more than one person resulting from infection, contagion, poisoning, or
contamination proceeding from or traceable to the same cause or series of similar
causes.
	 
	C.	 	As respects Property Damage Liability (other than Automobile and Products),
Loss Occurrence shall also, subject to provisions 1. and 2. below, be understood to
mean loss or losses caused by a series of operations, events, or occurrences arising
out of operations at one specific site and which cannot be attributed to any single
one of such operations, events or occurrences, but rather to the cumulative effect of
the same. In assessing each and every Loss Occurrence within the foregoing
definition, it is understood and agreed that:

	 	1.	 	The series of operations, events or occurrences shall not extend
over a period longer than 12 consecutive months; and

			
	 	 	 
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	 	2.	 	The Company may elect the date on which the period of not exceeding 12
consecutive months shall be deemed to have commenced.

	 	 	In the event that the series of operations, events or occurrences extend over a period
longer than 12 consecutive months, then each consecutive period of 12 months, the first
of which commences on the date elected under 2. above, shall form the basis of claim
under this Contract.
	 
	D.	 	As respects those Policies which provide aggregate limits of liability, the total of
all individual losses occurring during any one Policy year which proceed from or are
traceable to the same cause or a series of similar causes.
	 
	E.	 	As respects an occupational or other disease or cumulative injury under Workers
Compensation and Employers Liability, each case of an employee contracting any disease
for which the Company or a Legal Entity may be liable shall be considered a separate
and distinct occurrence and the date of each occurrence shall be deemed to be as
follows:

	 	1.	 	If the case is compensable under the Workers Compensation Law or any
Occupational Disease Compensation Act, the date of the beginning of the disability
for which compensation is payable;
	 
	 	2.	 	If the case is not compensable under the Workers Compensation Law or any
Occupational Disease Compensation Act, the date of the disability due to said
disease actually began;
	 
	 	3.	 	Where claim is made after employment has ceased, then the date of the
cessation of employment shall be deemed to be the date of disability;
	 
	 	4.	 	Notwithstanding the foregoing, in the incidence of a sudden catastrophic
event not exceeding 72 hours in duration including traumatic injury or death, all
losses to all employers shall be deemed a Loss Occurrence.

Part II — As respects Policies written on a claims made basis:

	A.	 	The term “Loss Occurrence” shall mean each claim or series of claims made to the
Company or a Legal Entity, or the insured, during the term of this Contract arising out
of or following the same cause or series of similar causes.
	 
	B.	 	As respects a Loss Occurrence involving one or more Policies written on a claims
made basis, the date of Loss Occurrence for purposes of reinsurance, shall be
considered the earliest date when notice of claims is first received and recorded by
the Company or a Legal Entity or the insured, whichever comes first, and any related
claims reported subsequent to such date shall be included in such loss. However, if
notice of claims is first received and recorded by the Company or a Legal Entity or the
insured during an Extended Reporting Period, the date of occurrence shall be deemed to
be the last day of the policy period.

Part III — As respects loss occurrence and claims-made Policies involved in the same Loss
Occurrence:

In the event a Loss Occurrence involving one or more Policies written on an occurrence basis
and one or more Policies written on a claims-made basis, it is understood that the earliest
date on which bodily injury or property damage occurs, and any related claims reported
subsequent to such date shall be included in such loss whether they are covered under
occurrence or claims-made Policies.

			
	 	 	 
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ARTICLE XII — REINSURANCE PREMIUM

The rates set forth in Section 4 of the attached Exhibits, shall be applied to the Subject
Earned Premium for all classes of Business Covered hereunder, as stated in Paragraph D. of
Article I — Business Covered.

	A.	 	The term “Earned Premium” as used herein is equal to the sum of the Net Premiums
Written on the business covered hereunder during the period under consideration, plus
the unearned premium reserve as respects premiums in force at the beginning of such
period, less the unearned premium reserve as respects premiums in force at the end of
the period, said unearned premium is to be calculated on a monthly pro rata basis.
	 
	B.	 	The term “Net Premiums Written” shall mean gross premiums written less returns,
allowances and reinsurances which inure to the benefit of the Subscribing Reinsurer.
	 
	C.	 	The term “Subject Earned Premium” shall mean the Earned Premium times the rates noted below.

	 	 	 	 	 
	ASLOB	 	Percentage
	Homeowners
	 	 	0	%
	Farmowners
	 	 	0	%
	Commercial Multiple Peril (liability)
	 	 	0	%
	Workers Compensation
	 	 	100	%
	Other Liability — Umbrella
	 	 	100	%
	Other Liability — Non-Umbrella
	 	 	0	%
	Products Liability
	 	 	0	%
	Private Passenger & Commercial Auto Liability
	 	 	0	%
	Private Passenger & Commercial Auto Physical Damage
	 	 	0	%

ARTICLE XIII — REPORTS AND REMITTANCES

	A.	 	The Company shall furnish the Subscribing Reinsurer with all necessary data
respecting premiums and losses for as long as one of the parties hereto has a claim
against the other arising from this Contract.
	 
	B.	 	Quarterly Deposit Premiums equal to1/4  of the 100% of Annual Deposit Premium will
be remitted on January 15, May 15, August 15 and November 15, according to the
schedule below. For purposes of calculating minimum and deposit premium due by each
of the Employers Insurance Company of Wausau and Liberty Mutual Insurance Company, the
minimum and deposit premium shall be multiplied by the ratio that the subject earned
premium of each bears to the total subject earned premium of the Company. The
Company shall submit finalized accounts to the Subscribing Reinsurer on February 15,
of the subsequent year, summarizing the actual subject earned premium for the previous
Contract Year. The difference between the deposit premium and the actual subject
earned premium will be settled to/from the Company within 15 days of February 15.
However, in no event shall the annual adjusted premium be less than the Annual Minimum
Premium for each layer, set forth below:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Annual	 	Annual	 	Quarterly
	Layer	 	Deposit	 	Minimum	 	Deposit
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	First Layer — WC only
	 	$	5,421,000	 	 	$	4,336,800	 	 	$	1,355,250	 
	First Layer — All Other Casualty
	 	$	1,682,000	 	 	$	1,345,600	 	 	$	420,500	 
	Second Layer — WC only
	 	$	1,104,000	 	 	$	883,200	 	 	$	276,000	 
	Second Layer — All Other Casualty
	 	$	168,000	 	 	$	134,400	 	 	$	42,000	 

			
	 	 	 
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ARTICLE XIV — ACCESS TO RECORDS (LM-00100-2007.08.13-A)

	A.	 	A. Except as otherwise provided in this Article, the Subscribing Reinsurer, or its
duly authorized representative, may upon reasonable prior written notice to the
Company, at the Subscribing Reinsurer’s own expense, examine at the offices of the
Company or its affiliates, during normal office hours, the Company’s or the Legal
Entities’ Policy, accounting, underwriting, or claim records and files, or any such
additional relevant records and files, as they exist in the Company’s or its
affiliates’ possession or reasonable control, relating to business ceded under this
Contract. The Subscribing Reinsurer’s notice shall reasonably describe the nature of
the inspection that it wishes to conduct, the persons conducting the inspection and
upon notice of available files from the Company, the files that it wishes to review.
Subject to the limitations expressed in this Article, this right of inspection shall
survive termination or expiration of this Contract and shall continue as long as either
Party has any rights or obligations under this Contract.
	 
	B.	 	The Company reserves the right to deny the Subscribing Reinsurer access to records
or files concerning any particular claim(s) if the Subscribing Reinsurer has not
disputed liability for payment of such claim(s), and payment of such claim(s) is more
than ninety (90) days overdue according to the Company’s records. The Company shall,
however, prior to an arbitration demand that may be instituted by either party,
continue to respond to reasonable specific requests for information and questions
raised by the Subscribing Reinsurer concerning such claims; and nothing in this Article
shall restrict the right or ability of the Subscribing Reinsurer to seek discovery of
relevant information in an arbitration proceeding pursuant to the Arbitration Article
of this Contract.
	 
	C.	 	As a condition precedent to access to records under this Article, the Subscribing
Reinsurer, its personnel and any authorized third party representative of the
Subscribing Reinsurer shall agree to the provisions of the Confidentiality Article of
this Contract.
	 
	D.	 	The Company reserves the right to withhold any documents from the Subscribing
Reinsurer (1) concerning Trade Secrets of the Company or its affiliates, (2) subject to
the terms of a third party non-disclosure agreement with the Company or its affiliates
requiring third party consent to disclosure, (3) subject to the Work Product Privilege
or Attorney-Client Privilege or (4) concerning individual private information that as a
matter of law cannot be disclosed by the Company or its affiliates (hereinafter
referred to in the Contract as “Privileged Documents”). The Company shall reasonably
try to exempt the Subscribing Reinsurers from any third party non-disclosure agreement
or obtain consent from the third party to disclose to the Subscribing Reinsurer.
	 
	E.	 	Notwithstanding the foregoing, the Company shall permit and not object to the
Subscribing Reinsurer’s access to Privileged Documents falling within (3) above, in
connection with the underlying claim reinsured hereunder following final settlement or
final adjudication of the case or cases involving such claim, with prejudice against
all claimants, and all parties to such adjudications; provided that the Company, may
defer release of such Privileged Documents if there are subrogation, contribution,
or other third party actions with respect to that claim or case, which might jeopardize
the Company’s or its affiliates’ defense by release of such Privileged Documents. In
the event that the Company shall seek to defer release of such Privileged Documents or
to withhold documents concerning Trade Secrets, it will in consultation with the
Subscribing Reinsurer take other steps as reasonably necessary to provide the
Subscribing Reinsurer with the information it reasonably requires to indemnify
the Company without causing a loss of such privileges or protections. The
Subscribing Reinsurer, however, shall not have access to Privileged Documents relating
to any dispute between the Company and the Subscribing Reinsurer.
	 
	F.	 	For purposes of this Article, “Trade Secrets” shall have the meaning provided in
Section 1839 of the United States Economic Espionage Act of 1996.
“Attorney-Client Privilege” shall mean communications of a confidential nature
between a) the Company or its affiliates, or anyone retained by or in the control of
the Company or its affiliates, or their in-house or outside legal counsel, or anyone in
the control of such legal counsel, and b) any in-house or outside legal counsel which
relate

			
	 	 	 
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	 	 	to legal advice being sought by the Company or its affiliates and/or which contains
legal advice being provided to the Company or its affiliates. “Work Product Privilege”
shall mean communications, written materials and tangible things prepared by or for
in-house or outside counsel, or prepared by or for the Company or its affiliates, in
anticipation of or in connection with litigation, arbitration, or other dispute
resolution proceedings.

ARTICLE XV — AMENDMENTS

This Contract may be amended by mutual consent of the parties expressed in an addendum; and
such addendum, when executed by both parties, shall be deemed to be an integral part of this
Contract and binding on the parties hereto.

ARTICLE XVI — ARBITRATION (LM-00200-2007.05.03-A)

	A.	 	Disputes to be Arbitrated. With the exception of any dispute
resolution procedures that are otherwise contained in this Contract, any and all
disputes between the Company and any
Subscribing Reinsurer or Reinsurers (“Party” individually or “Parties” collectively)
arising out of, relating to, or concerning this Contract, whether sounding in contract
or tort and whether arising during or after this Contract’s formation, or after its
termination, including disputes as to whether the Contract was validly formed or is
voidable, shall be submitted to the decision of an arbitration panel (“Panel”). The
Panel shall consist of an umpire and two party-appointed arbitrators unless a Party
meets the requirements of Paragraph C of this Article and demands arbitration pursuant
thereto, in which case the Panel would consist of an umpire only.
	 
	B.	 	Procedures. Except as provided herein, any arbitration shall be based upon the
Procedures for the resolution of U.S. Insurance and Reinsurance Disputes, Regular Panel
Version, dated April 2004 (the “Procedures”), developed by the Insurance and Reinsurance
Dispute Resolution Task Force, subject to the following modifications:

	 	1.	 	Qualifications of the arbitrators and umpires shall be in accordance with
Alternative section 6.2 of the Procedures.
	 
	 	2.	 	The Parties hereby designate the umpire list maintained by ARIAS (U.S.) as
the list to be used in the event that section 6.7(a) of the Procedures is invoked.
	 
	 	3.	 	Unless otherwise mutually agreed, the members of the Panel shall
be impartial and disinterested. The members of the Panel may not be: (1) in the
control of any Party or its parent, affiliate, or agent, (2) a former director or
officer of any Party or its parent, affiliate, or agent, or (3) a likely witness in
the arbitration. The requirement of impartiality means that all members of the Panel
shall have the same obligation to approach the Panel’s duties and decisions with
fairness and without consideration for the fact that Panel members may have been
appointed by one of the Parties. The requirement of impartiality does not mean that
any arbitrator can have no previous knowledge of or experience with respect to issues
involved in the dispute or disputes.
	 
	 	4.	 	The first sentence of Section 10.4 of the Procedures shall be replaced by
the following sentence: “The Panel shall require that each Party submit concise
written statements of position, including summaries of the facts and evidence a Party
intends to present, discussion of the applicable law and the basis for the requested
Award or denial of relief sought.”

			
	 	 	 
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	 	5.	 	Once the Panel has been constituted, no Party (or anyone acting for a Party)
shall have any communications concerning the arbitration or any of the issues
before the Panel with any member of the Panel that is not also disclosed to all
other Parties and all members of the Panel. Each Panel member shall have a
continuing duty to disclose promptly to all Parties and all Panel members any
violation of this prohibition and the specifics of any improper communications
that occurred. This prohibition shall remain in place until all challenges to any
arbitration awards and decisions have been either waived or finally concluded.
	 
	 	6.	 	Section 11.1 of the Procedures shall be replaced by the following
provision: “The Parties may propound discovery seeking disclosure of such
information and/or documents relevant to the dispute or necessary for the proper
resolution of the dispute.”
	 
	 	7.	 	Position statements may be amended at any reasonable time, but not later
than the close of discovery without a showing to the Panel that the amending Party
could not reasonably have raised the new claim or issue at an earlier time.
	 
	 	8.	 	The Panel shall hold an evidentiary hearing, if one is necessary, within
one year of the arbitration demand, unless the Parties otherwise agree. Should a
Party seek a reasonable extension to this time frame for good cause shown, the
other Party’s agreement shall not be unreasonably withheld.
	 
	 	9.	 	To the extent permitted by the law, the Panel shall have the authority to
issue subpoenas and other orders to enforce its decisions.
	 
	 	10.	 	The Panel may award reasonable attorneys’ fees and arbitration costs to
the prevailing Party, as determined by the Panel.
	 
	 	11.	 	Section 14.3 of the Procedures shall be replaced by the following
provision: “The Panel shall make a decision and issue an award with regard to the
terms expressed in this Contract, and the custom and practice of the property and
casualty insurance and reinsurance business. The Panel shall not be obligated to
follow the strict rules of law and evidence.”

	C.	 	Alternative Streamlined Procedures. Notwithstanding the foregoing
provisions of this Article, the Alternative Streamlined Procedures set forth in section
16 of the Procedures, as modified by sections B3, B4, and B9 through B11 of this
Article, shall apply in the event that, in a consolidated proceeding or otherwise, the
Party initiating arbitration is seeking payment of a total amount that is no greater
than one million dollars ($1,000,000), or the currency equivalent thereof. Sections
16.1, 16.2, 16.3 and the second sentence of section 16.4 of the Alternative Streamlined
Procedures shall not apply. The Parties agree to comply with section 6.7 of the
Procedures to appoint a single umpire, and hereby designate the umpire list maintained
by ARIAS (U.S.) as the list to be used in section 6.7(a).
	 
	D.	 	Hearing Location. The hearing shall be held in Boston, Massachusetts,
unless the Parties mutually agree to a different location.
	 
	E.	 	Confirmation. Either Party may apply to a court of competent jurisdiction
for an order confirming any award of the Panel; a judgment of that court shall
thereupon be entered on any award. If such an order is issued, the Party against whom
confirmation is sought shall pay the attorneys’ fees incurred of the Party who applied
for the confirmation order and all court costs of any such proceeding.

			
	 	 	 
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	F.	 	Equitable Relief from a Court of Law. Nothing herein shall be construed to prevent
any participating Party from applying to a court of competent jurisdiction to issue a
restraining order or other equitable relief to maintain the “status quo” of the Parties
participating in the arbitration pending the decision and award by the Panel.
	 
	G.	 	Consolidated Proceedings.

	 	1.	 	Same contract, single Subscribing Reinsurer. Both the Company and any single
Subscribing Reinsurer on this Contract have the right to combine any and all disputes
between them that concern this Contract (including any renewal of this Contract or any
contract for which this Contract is a renewal) into a single arbitration proceeding
before a single Panel, except that the standard for determining whether a Party may add a
new issue, claim, or dispute to an arbitration proceeding shall be the standard for
amending a Position statement, as set forth in Paragraph B7 of this Article.
	 
	 	2.	 	Multiple contracts, single Subscribing Reinsurer. The Company has the right to
combine any and all disputes between the Company and a single Subscribing Reinsurer into
a single arbitration proceeding before a single Panel where such disputes involve this
Contract and any additional contracts between the two Parties, except that the standard
for determining whether a Party may add a new issue, claim, or dispute to an arbitration
proceeding shall be the standard for amending a Position statement, as set forth in
Paragraph B7 of this Article.
	 
	 	3.	 	Same contract, multiple Reinsurers. At the Company’s option, if more than one
Subscribing Reinsurer is involved in arbitration relating to this Contract, where
there are common questions of law or fact and a possibility of conflicting awards or
inconsistent results, all such Reinsurers shall constitute and act as one
Party for purposes of this Article and communications shall be made by the
Company to each of the Reinsurers constituting the one Party; provided, however, that the
Reinsurers shall have the right to assert several, rather than joint defenses or claims,
and to be represented by separate counsel. This provision shall not change the liability
of each of the Reinsurers under the terms of this Contract from several to joint.

	H.	 	Choice of Law. The law set forth in the Governing Law Article shall apply to
this Arbitration Article. In addition, to the extent the Panel (or the umpire in an
Alternative Streamlined Procedure) looks to applicable law, such Panel or umpire shall
apply the law as set forth in the Governing Law Article of this Contract.
	 
	I.	 	Option to Litigate. Notwithstanding the foregoing provisions of this Article,
to the extent that the Company has demanded payment of a total amount of at least twenty
million dollars ($20,000,000) or the currency equivalent thereof from any Subscribing
Reinsurer or from the Reinsurers, the Company reserves the right to initiate litigation
to resolve any disputes arising from such demand.
	 
	J.	 	Survival of Article. This Article shall survive the termination or expiration of
this Contract.

ARTICLE XVII — ASSIGNMENT, NOVATION, OR TRANSFER (LM-00300-2007.10.05-A)

This Contract shall be binding upon and inure to the benefit of the Company and the
Subscribing Reinsurer and their respective successors and assigns; provided, however, that
this Contract may not be assigned, novated or transferred, including any attempted
transfer of rights and/or obligations under any U.S. or foreign statute, legislation or
jurisprudence, by either the Company or the Subscribing Reinsurer, or as the result of the
actions of a parent company or affiliated entity of either, without the prior written
consent of the other. In the event of any assignment, novation or transfer, the assignor,
novator or transferor shall remain liable under this Contract, and further guarantees the

			
	 	 	 
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performance of all obligations of any assignee, novatee or transferee under this
Contract. Notwithstanding the foregoing, the Company may assign this Contract to an
affiliated entity, without the Subscribing Reinsurer’s written consent.

ARTICLE XVIII — CONFIDENTIALITY CLAUSE (LM-00400-2005.11.10-A)

	A.	 	Confidential Information. The submission materials, and any
Policy, financial, underwriting, accounting, and claims information, data statements,
representations, and other materials provided by the Company or it affiliates and
received by the Subscribing Reinsurer in the course of an audit, inspection, or
otherwise, represent confidential or proprietary information (“Confidential
Information”). This Confidential Information is intended for the sole use of the
Subscribing Reinsurer (and its retrocessionaires, respective auditors, accountants, and
legal counsel) as may be necessary in analyzing and/or accepting a participation in
and/ or executing its responsibilities under or related to this Contract. The
Subscribing Reinsurer acknowledges and agrees that with respect to any review of
Confidential Information by the Subscribing Reinsurer, and/or discussion of
Confidential Information, the Company and its affiliates do not waive and do not
intend to waive any available privilege or protection. The review of Confidential
Information by the Subscribing Reinsurer and/or discussion of Confidential Information
with the Company or its affiliates shall not destroy, waive, or otherwise impair the
proprietary and/or protected status of any Confidential Information or any information
revealed in such discussion with the personnel of the Company or its affiliates,
whether reviewed by and/or discussed with the Subscribing Reinsurer intentionally or
inadvertently, nor does the review of the Confidential Information and/or discussion of
Confidential Information with the Company or its affiliates constitute an estoppel or
waiver of the Company’s or its affiliates’ rights to assert the attorney-client or
work-product privileges, or any other applicable privilege or protection, over certain
documents contained in the Company’s or its affiliates’ files and/or certain
information.
	 
	B.	 	The Company and the Subscribing Reinsurer agree that no confidentiality obligations
will apply to Confidential Information to the extent such Confidential Information:
(1) is or becomes available to the public, other than as a result of impermissible
disclosure by the Subscribing Reinsurer, (2) was or became available lawfully to the
Subscribing Reinsurer from a source, other than the Company, its affiliates or their
personnel, that is not subject to a confidentiality obligation, (3) was developed
independently by the Subscribing Reinsurer prior to disclosure by the Company, its
affiliates or their personnel, as demonstrated by the Subscribing Reinsurer’s records,
or (4) is required to be disclosed by law, regulation, court, or regulatory agency
action, subject to Paragraph E of this Article.
	 
	C.	 	The Subscribing Reinsurer agrees to preserve all confidentiality and privilege
pertaining to all Confidential Information provided by the Company and all knowledge
and information gained through its review of Confidential Information or discussions
with the personnel of the Company or its affiliates. The Subscribing Reinsurer further
agrees not to disclose any such Confidential Information to any other person or entity
except as such disclosure may be necessary to its retrocessionaires, accountants,
attorneys, auditors, actuaries or third party catastrophe modelers or as otherwise
required by law. The Subscribing Reinsurer agrees that no Confidential Information is
to be copied and/or removed from the Company’s or its affiliates’ premises without the
express permission of the Company.
	 
	D.	 	Non-Public Personally Identifiable Information. Additionally, any
disclosure of non-public personally identifiable information shall comply with all
state and federal statutes and regulations governing the disclosure of non-public
personally identifiable information. “Non-public personally identifiable
information” is financial or medical information of or concerning a private person
which either has been obtained from sources which are not available to the general
public or obtained from the person who is the subject and which information is included
in data files exchanged by the parties hereto. For the purposes hereof, the terms shall
include data elements such as names and addresses of individuals. Disclosing or using
this information for any purpose beyond the scope of this Contract, or

			
	 	 	 
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	 	 	beyond the exceptions set forth above, is expressly forbidden without the prior consent
of the Company.
	 
	E.	 	Third-Party Demand. Should the Subscribing Reinsurer receive a third-party
demand pursuant to subpoena, summons, or court or governmental order, to disclose
Confidential Information (including Non-public personally identifiable information) that has
been provided by the Company or its affiliates, the Subscribing Reinsurer shall make
commercially reasonable efforts to notify the Company promptly upon receipt of the demand
and prior to disclosure of the Confidential Information and provide the Company a reasonable
opportunity to object to the disclosure. If the Company timely objects to the release of the
Confidential Information, the Subscribing Reinsurer will comply with the reasonable requests
of the Company in connection with the Company’s efforts to resist release of the
Confidential Information. The Company shall bear the cost of resisting the release of the
Confidential Information.
	 
	F.	 	Survival. The parties agree that the obligations contained in this Article
shall survive the expiration or termination of this Contract.

ARTICLE XIX — CURRENCY (LM-00500-2005.08.09)

Whenever a reference to a monetary currency appears in this Contract, it shall be construed to
mean United States Dollars (“USD”). However, in those cases where the Policies are issued by
the Company using Canadian Dollars (“CAD”), it shall mean Canadian Dollars. All payments made
by either party shall be made in United States Dollars except that payments made involving
Policies issued using Canadian Dollars shall be made in Canadian Dollars. All amounts paid or
received by the Company in any other currency shall be converted into United States Dollars at
the rate of exchange on the date at which it is entered on the books of the Company.

ARTICLE XX — DIVIDENDS AND TAXES (LM-00600-2005.06.02-A)

In consideration of the terms of this Contract, the Company shall not claim any deduction in
respect of any amount paid as dividends or as reinsurance premium when making tax returns,
other than income or profits tax returns to any State or to the District of Columbia.

ARTICLE XXI — ENTIRE AGREEMENT (LM-00701-2005.08.24-A)

This Contract shall constitute the entire agreement between the Company and the Subscribing
Reinsurer with respect to the subject matter of this Contract and shall supersede all prior
understandings, negotiations and discussions, whether oral or written, by or between the
Company and the Subscribing Reinsurer relating to the subject matter hereof. There are no
general or specific warranties, representations or other agreements by or among the Company
and the Subscribing Reinsurer in connection with entering into this Contract except as
specifically set forth in this Contract. Notwithstanding the foregoing, this Contract may be
amended or modified only by a writing signed by both the both the Company and the Subscribing
Reinsurer.

ARTICLE XXII — ERRORS AND OMISSIONS (LM-00800-2005.06.02-A)

Any inadvertent delay, omission, or error in complying with the terms and conditions of this
Contract shall not be held to relieve either party hereto from any liability, which would
attach to it hereunder if such delay, omission, or error had not been made, provided such
delay, omission, or error is rectified upon discovery.

			
	 	 	 
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ARTICLE XXIII — FEDERAL EXCISE TAX (LM-01000-2005.08.24-A)

	A.	 	This Article is applicable to any Subscribing Reinsurer who is domiciled outside of the
United States of America, except for any Subscribing Reinsurer exempt from Federal Excise
Tax. A Subscribing Reinsurer that claims exempt status from Federal Excise Tax shall provide
to the Company, upon its request, proof that the exempt status adequately satisfies the
demands of the U.S. Internal Revenue Service, Department of the Treasury, or its successor
and/or other applicable U.S. government authority.
	 
	B.	 	Each Subscribing Reinsurer shall allow the applicable percentage of the premium payable
hereon (as imposed under Section 4371 of the Internal Revenue Code) for the purpose of
paying Federal Excise Tax to the extent such premium is subject to such tax.
	 
	C.	 	In the event of any return of premium, the Subscribing Reinsurer shall deduct the
aforesaid percentage from the return premium payable hereon and the Company or its agent
shall recover such tax from the United States Government.

ARTICLE XXIV — FEDERAL TERRORISM EXCESS RECOVERY (LM-01100-2007.12.28-A)

	A.	 	Any loss reimbursement the Company receives from the United States Government under
the Terrorism Risk Insurance Act of 2002 and any subsequent amendments thereto (“TRIA”)
as a result of loss occurrences commencing during the term of this Contract shall apply
as follows:
	 
	B.	 	Except as provided below, any loss reimbursement under TRIA shall inure solely to the
benefit of the Company and shall be entirely disregarded in applying all of the provisions
of this Contract.
	 
	C.	 	If one or more loss occurrences commencing during the term of this Contract result(s) in
reinsurance recoveries to the Company under this Contract and reimbursement under TRIA, and
such amounts, together with any other reinsurance recoveries to the Company for said loss
occurrence(s), exceed the total amount of “Insured Losses” to the Company, any amount in
excess thereof shall be held by the Company. The Company shall then reimburse the
Subscribing Reinsurer a portion of such excess recovery in an amount equal to the proportion
that the Subscribing Reinsurer’s payment under this Contract bears to the total treaty
reinsurance recoveries to the Company for Insured Losses for said loss occurrence(s).
Provided, however, that in no event shall such reimbursement exceed the amount paid by the
Subscribing Reinsurer to the Company under this Contract.
	 
	D.	 	For purposes hereof, if a loss reimbursement received by the Company under TRIA is based
on the Company’s Insured Losses in more than one loss occurrence and neither the Secretary
of the Treasury nor his delegate specifies the amount of loss allocable to each respective
loss occurrence, the reimbursement shall be pro-rated in the proportion that the Company’s
Insured Losses in each loss occurrence bears to the Company’s total Insured Losses resulting
from all loss occurrences to which the reimbursement applies.
	 
	E.	 	For purposes of this Article, “Insured Loss(es)” shall have the same meaning as set forth
in Section 102(5) of TRIA.

ARTICLE XXV — GOVERNING LAW (LM-01200-2005.06.02-A)

The validity and interpretation of this Contract shall be governed by and construed in accordance
with the law of the Commonwealth of Massachusetts.

			
	 	 	 
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ARTICLE XXVI — INSOLVENCY (LM-01300-2005.08.24-A)

(If more than one reinsured company is referenced within the definition of “Company” in the
Preamble to this Contract, this Article shall apply severally to each such company. Further,
this Article and the laws of the domiciliary state shall apply in the event of the insolvency
of any company intended to be covered hereunder. In the event of a conflict between any
provision of this Article and the laws of the domiciliary state of any company intended to be
covered hereunder, that domiciliary state’s laws shall prevail.)

	A.	 	In the event of the insolvency of the Company, reinsurance under this Contract shall be
payable on demand, with reasonable provision for verification, on the basis of claims
allowed against the insolvent Company by any court of competent jurisdiction or by any
liquidator, receiver, conservator, or statutory successor of the Company having authority to
allow such claims, without diminution because of such insolvency or because such liquidator,
receiver, conservator, or statutory successor has failed to pay all or a portion of any
claims. Such payments by the Subscribing Reinsurer shall be made directly to the Company or
its liquidator, receiver, conservator, or statutory successor, except to the extent Section
4118(a) of the New York Insurance Law applies, or except (a) where the Contract specifically
provides another payee of such reinsurance in the event of the insolvency of the Company,
or (b) where the Subscribing Reinsurer with the consent of the direct insured or insureds
has assumed such Policy obligations of the Company as direct obligations of the Subscribing
Reinsurer to the payees under such Policies and in substitution for the obligations of the
Company to such payees.
	 
	B.	 	It is agreed, however, that the liquidator, receiver, conservator, or statutory successor
of the insolvent Company shall give written notice to the Subscribing Reinsurer of the
pendency of a claim against the insolvent Company on the Policy or Policies reinsured within
a reasonable time after such claim is filed in the insolvency proceeding and that during the
pendency of such claim the Subscribing Reinsurer may investigate such claim and interpose,
at its own expense, in the proceeding where such claim is to be adjudicated, any defense or
defenses which it may deem available to the Company or its liquidator, receiver,
conservator, or statutory successor. The expense thus incurred by the Subscribing Reinsurer
shall be chargeable, subject to court approval, against the insolvent Company as part of the
expense of liquidation to the extent of a proportionate share of the benefit, which may
accrue to the Company solely as a result of the defense undertaken by the Subscribing
Reinsurer.
	 
	C.	 	Where two or more Reinsurers are involved in the same claim and a majority in interest
elects to interpose defense to such claim, the expense shall be apportioned in accordance
with the terms of this Contract as though such expense had been incurred by the insolvent
Company.
	 
	D.	 	With respect to California Workers Compensation loss(es), it is agreed that in the event
of any delinquency proceeding, receivership, or insolvency of the Company and/or the failure
of the Subscribing Reinsurer, for any reason, to make payments under this Contract, the
Insurance Commissioner of California may, upon 30-days notice, draw upon any sums from the
deposit made by the Subscribing Reinsurer in accordance with the provisions of sections
11691 - 11703 of the California Insurance Code.

ARTICLE XXVII — INTEREST PENALTY (LM-01400-2005.08.24-A)

	A.	 	The interest amounts provided for in this Article shall apply to the Subscribing
Reinsurer or to the Company in the following circumstances:

			
	 	 	 
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	 	1.	 	If a loss payment owed by the Subscribing Reinsurer to the Company is not received
within 45 calendar days following the date of presentation to the Subscribing Reinsurer
of information necessary to approve payment of the claim, and/or
	 
	 	2.	 	If any premium payment owed by the Company to the Subscribing Reinsurer is not
received within 45 calendar days following the date on which payment is due, and/or
	 
	 	3.	 	If any premium adjustment, agreed by either Party to the other, is not received
within 150 calendar days following the expiry or anniversary of this Contract, and/or
	 
	 	4.	 	If any return of premiums, commissions, profit sharing, or any amounts not
provided in subparagraphs 1, 2, and 3 above, are not received in accordance with the
date specified in this Contract or if no date is specified, within 90 calendar days
following the date the debtor Party received the billing.

	B.	 	Failure by the Subscribing Reinsurer or Company to comply with their respective payment
obligations within the time periods as herein provided shall, as of that date, be subject to an
interest payment computed by multiplying the amount due by a variable rate consisting of
the U.S. Prime Rate as published in the Eastern Edition of The Wall Street
Journal on the first day of the calendar month in which the amount became past due,
plus 2%. The variable rate shall be adjusted monthly thereafter to equal the U.S. Prime
Rate as published in the Eastern Edition of The Wall Street Journal on the first
day of each successive month during which the amount due remains unpaid, plus 2%. The
product shall then be multiplied by 1/365 for each day after the due date that the amount
due and the interest amount remain unpaid. Any interest that occurs pursuant to this
Article shall be calculated by the Party to which it is owed.
	 
	C.	 	The validity of any claim or payment may be contested under the provisions of this
Contract. If the debtor Party prevails in arbitration or any other proceeding with respect
to the amounts in dispute, there shall be no interest penalty due. If the creditor Party
wholly or partially prevails on any of the amounts in dispute, the interest penalty shall be
awarded as outlined above. Such interest penalty shall be calculated from the date the
monies were due and owing to the date of resolution of the arbitration or proceeding, and
shall be payable as of the date of resolution of the arbitration or proceeding.
	 
	D.	 	If a Subscribing Reinsurer advances the entire or partial payment of any claim it is
contesting, and wholly or partially prevails in the contest, the Company shall promptly
return the applicable amount of such payment. The arbitrator(s) hearing such dispute shall
determine if interest shall be added to the amount returned by the Company.
	 
	E.	 	Any interest owing pursuant to this Article may be waived by the Party to which it is
owed. Further, any interest calculated pursuant to this Article that is $100 or less shall
be waived. Any waiver of any interest pursuant to this paragraph, however, shall not
affect the waiving Party’s right to claim and/or pursue interest for any other failure by
the other Party to make payment when due under this Article.

ARTICLE XXVIII — LOSS ADJUSTMENT AND SETTLEMENT (LM-01500-2006.09.07-A)

	A.	 	The Company shall give notice, as soon as practicable, to the Subscribing Reinsurer of
any claim that it has reason to believe could involve this Contract. The Company shall
keep the Subscribing Reinsurer informed of significant developments likely to affect the
cost of any claim or claims hereunder.

			
	 	 	 
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	B.	 	The Company or a Legal Entity may commence, continue, defend, settle, or withdraw
from actions, suits, or prosecutions and, generally, do all such things relating to any
claim or loss in which the Subscribing Reinsurer is interested as, in the Company’s or a
Legal Entity’s judgment, may be beneficial or expedient to the Company and the
Subscribing Reinsurer. The Company and the Legal Entities shall be the sole judges as to
what claims are covered under the Policies. All of the Ultimate Net Loss and Loss
Occurrences, as well as all loss settlements made and judgments paid by the Company or a
Legal Entity, provided they are within the terms of this Contract either under the
strict conditions of the Policies or by way of compromise, shall be unconditionally
binding upon the Subscribing Reinsurer, who agrees to pay all amounts for which they are
liable immediately upon reasonable evidence of the amount due being furnished to the
Subscribing Reinsurer by the Company. The true intent of this Contract is that the
Subscribing Reinsurer shall, in every case to which this Contract applies, follow the
settlements and the fortunes of the Company and the Legal Entities.
	 
	C.	 	The Company shall advise the Subscribing Reinsurer of all claims which:

	 	1.	 	Are reserved by the Company or a Legal Entity in excess of 50% of the Company’s
retention.

ARTICLE XXIX — MEDIATION (LM-03000-2005.12.20-A)

	A.	 	In the event of any dispute or difference of opinion arising out of or relating to
this Contract, including but not limited to the formation, interpretation, performance
or breach of this Contract, whether such dispute arises before or after the expiration
of this Contract, the Company and the Subscribing Reinsurer may mutually agree in
writing that, prior to or at any time during an arbitration proceeding, they will
submit such dispute or difference of opinion to non-binding mediation which will be
held at a location mutually agreed by the parties. The parties agree that any
non-binding mediation conducted during any stage of an arbitration process shall be
conducted concurrently with such arbitration process, and that the arbitration process
or proceedings shall not be stayed unless both the Company and the Subscribing
Reinsurer otherwise agree.
	 
	B.	 	Each party shall submit a list of not more than four (4) potential mediators to the
other party within the fourteen (14) days of reaching such mutual agreement. The two
parties shall then agree on the appointment on one (1) mediator from the combined lists
within seven (7) days. The mediator shall be a neutral, impartial third party, without
past employment or directorial relationships with the parties to the mediation. Such
mediator shall make full disclosure of all past partisan relationships with either the
Company or Subscribing Reinsurer to the parties within seven (7) days of his or her
notification that he or she has been selected as a Mediator.
	 
	C.	 	If the Company and the Subscribing Reinsurer cannot agree on a mediator within
twenty-one (21) days from the date of a mutual agreement to mediate, then arbitration
proceedings may commence in accordance with the Arbitration Article.
	 
	D.	 	The mediator will schedule an initial mediation session within thirty (30) days
of his or her appointment and will be responsible for the formulation of an agenda to
be distributed to the parties involved in the mediation not less than five (5) days
before the mediation commences.
	 
	E.	 	The mediator will not have the power of enforcement of any agreement between the
parties nor will the mediator have any right to assess any damages, including punitive
damages, to either party participating in the mediation.
	 
	F.	 	If, in the opinion of the mediator, the parties cannot resolve the dispute or
difference of opinion, arbitration proceedings may commence in accordance with the
Arbitration Article. In any event, the mediation shall conclude within sixty (60)
days of its referral to the mediator. Should the mediation

			
	 	 	 
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	 	 	not be resolved in sixty (60) days, then arbitration proceedings may commence in
accordance with the Arbitration Article.
	 
	G.	 	Each party shall bear the expense of its own representatives and shall jointly
and equally bear with the other party the expenses of the mediator and the place of
mediation.

ARTICLE XXX — OFFSET (LM-01700-2005.06.02-A)

Each party to this Contract together with their successors or assigns shall have and may
exercise, at any time, the right to offset any balance(s) due the other (or, if more than
one, any other). Such offset may include balances due under this Contract, and any other
contracts between the parties, whether such balances arises from premium, losses, or
otherwise, and regardless of the capacity of any party, whether as assuming and/or ceding
insurer, under the various reinsurance contracts involved, provided however, that in the
event of insolvency of a party hereto, offsets shall only be allowed in accordance with the
provisions of the applicable law, statute, or regulation governing such offset.

ARTICLE XXXI — REINSURER CLAIMS OBLIGATIONS (LM-03100-2007.10.10-A)

It is understood and agreed that the Subscribing Reinsurer will fulfill its obligations
under the Loss Adjustment and Settlement Article, until all claims have been reported and
settled. Without first obtaining the Company’s written consent, the Subscribing Reinsurer
will not, either directly or as the result of an action of a parent company or an
affiliated entity, invoke any U.S. or foreign statute, legislation, or jurisprudence that
purports to enable the Subscribing Reinsurer to require the Company or a Legal Entity to
settle their claims liabilities, including but not limited to any estimated or
undetermined claims liabilities, under this Contract on an accelerated basis. It is
further expressly understood and agreed that in the event the Subscribing Reinsurer
attempts to require the Company or a Legal Entity to settle their claims liabilities on
an accelerated basis, the Company shall continue to have the right to utilize or to draw
upon Letters of Credit or other collateral, under the terms of this Contract. This
Article does not prevent the Company and the Subscribing Reinsurer from settling any
claims liabilities using a commutation process that is agreeable to both parties. This
Article shall in
no way affect the rights and obligations of the Company and the Subscribing Reinsurer under
the Insolvency Article.

ARTICLE XXXII — SALVAGE AND SUBROGATION (LM-01800-2006.09.12-A)

	A.	 	The Subscribing Reinsurer shall be credited with its share of salvage and/or
subrogation in respect of claims and settlements under this Contract, less its share of
recovery expense. Unless the Company and the Subscribing Reinsurer agree to waive such
rights in the settlement of a disputed claim, or the Company and the Subscribing
Reinsurer agree to the contrary, the Company and the Legal Entities shall enforce the
right to salvage and/or subrogation and shall prosecute all claims arising out of such
right. Should the Company or the Legal Entities refuse or neglect to enforce this
right, the Subscribing Reinsurer is hereby empowered and authorized to institute
appropriate action in the name of the Company or the Legal Entities, as applicable.
	 
	B.	 	Amounts recovered from salvage and/or subrogation and the expense of any salvage
and/or subrogation proceedings brought by the Company, a Legal entity, or the
Subscribing Reinsurer to enforce such rights shall be apportioned between the Company
and the Subscribing Reinsurer in the ratio of their respective interests in the total
salvage and/or subrogation recovery, and shall be in addition to the limits hereon. In
the event there is a failure to obtain a salvage and/or subrogation recovery, the
expense of the proceedings shall be apportioned between the Company and the Subscribing
Reinsurer in the ratio of their respective interests in the total loss.

			
	 	 	 
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	C.	 	All salvage and/or subrogation recoveries obtained by either party, subsequent to
payments made by the Subscribing Reinsurer under this Contract, shall be applied as if
obtained prior to said payments and all necessary adjustments shall be made between the
Company and the Subscribing Reinsurer as soon as practicable after said salvage and/or
subrogation recovery is obtained.
	 
	D.	 	The Company or a Legal Entity shall have the right, before the happening of the
loss, to waive its right of subrogation as to that loss.

ARTICLE XXXIII — SERVICE OF SUIT (LM-01900-2005.08.24-A)

(This article applies to unauthorized Reinsurers and to Reinsurers who are domiciled
outside the United States of America.)

	A.	 	This Service of Suit Article will not be read to conflict with or override the
obligations of the parties to arbitrate their disputes as provided for in the
Arbitration Article. This Article is intended as an aid to compelling arbitration or
enforcing such arbitration or arbitral award, not as an alternative to the Arbitration
Article for resolving disputes arising out of this Contract.
	 
	B.	 	In the event of the failure of the Subscribing Reinsurer to pay any amount
claimed to be due hereunder, the Subscribing Reinsurer, at the request of the Company,
will submit to the jurisdiction of a Court of competent jurisdiction within the United
States. Nothing in this Article constitutes or should be understood to constitute a
waiver of the Subscribing 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. The Subscribing
Reinsurer, once the appropriate Court is selected, whether such court is the one
originally chosen by the Company and accepted by the Subscribing Reinsurer or is
determined by removal, transfer, or otherwise, as provided for above, will comply with
all requirements necessary to give said Court jurisdiction and, in any suit instituted
against any of them upon this Contract, will abide by the final decision of such Court
or of any Appellate Court in the event of an appeal.
	 
	C.	 	Service of process in such suit may be made upon; Mendes & Mount, LLP, 750
Seventh Avenue, New York, NY 10019-6829.)
	 
	D.	 	The above-named are authorized and directed to accept service of process on
behalf of the Subscribing Reinsurer in any such suit. Further, pursuant to any statute
of any state, territory, or district of the United States that makes provision
therefore, the Subscribing Reinsurer hereby designates the Superintendent,
Commissioner, or Director of Insurance, or other officer specified for that purpose in
the statute, or their successor(s) in office, as their true and lawful attorney upon
whom may be served any lawful process in any action, suit, or proceedings instituted by
or on behalf of the Company or any beneficiary hereunder arising out of this Contract,
and hereby designate the above-named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.

ARTICLE XXXIV — SEVERABILITY (LM-02000-2005.06.02-A)

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

			
	 	 	 
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ARTICLE XXXV — SPECIAL CONDITIONS (LM-02100-2007.10.05-A)

	A.	 	This Article applies only in the event that:

	 	1.	 	A State insurance Department or other legal authority orders the
Subscribing Reinsurer to cease writing business or has imposed upon it any other
restrictions on or conditions relating to the Subscribing Reinsurer’s license or
conduct of business in any jurisdiction; or
	 
	 	2.	 	The Subscribing Reinsurer has become insolvent or has been placed into
liquidation or receivership (whether voluntary or involuntary), or there have
been instituted against it proceedings for the appointment of a receiver,
liquidator, rehabilitator, conservator, trustee in bankruptcy, or other agent
known by whatever name, to take possession of its assets or control of its
operations; or
	 
	 	3.	 	The Subscribing Reinsurer’s policyholders’ surplus or equity has been
reduced by 25% or there has been a 25% reduction in the Subscribing Reinsurer’s
stamp capacity or funds at Lloyd’s of the amount of surplus at the inception of
this Contract; or
	 
	 	4.	 	The Subscribing Reinsurer has entered into a definitive agreement to
become merged with, acquired, or controlled by any company, corporation, or
individual(s) not controlling the Subscribing Reinsurer’s operations at the
inception of this Contract; or
	 
	 	5.	 	The Subscribing Reinsurer’s A.M. Best Rating has been assigned or
downgraded below A- or Standard and Poor’s Rating has been assigned or
downgraded below A-; or
	 
	 	6.	 	The Subscribing Reinsurer fails to maintain its surplus at a level of
at least 200% of the Subscribing Reinsurer’s Authorized Control Level Risk-Based
Capital; or
	 
	 	7.	 	The Subscribing Reinsurer announces intentions to cease underwriting operations; or
	 
	 	8.	 	The Subscribing Reinsurer voluntarily ceases underwriting operations; or
	 
	 	9.	 	The Subscribing Reinsurer has reinsured its entire liability under this Contract; or:
	 
	 	10.	 	The Subscribing Reinsurer, directly or through the actions of a parent
company or an affiliated entity, has or has attempted to assign, novate or
transfer the Subscribing Reinsurer’s rights and/or obligations under this
Contract, including any attempted transfer of rights and/or obligations under
any U.S. or foreign statute, legislation or jurisprudence, without the Company’s
prior written consent; or
	 
	 	11.	 	The Subscribing Reinsurer, directly or through the actions of a parent
company or an affiliated entity, has invoked any U.S. or foreign statute,
legislation or jurisprudence which purports to enable the Reinsurer to require
the Company to settle its claims liabilities, including but not limited to any
estimated or undetermined claims liabilities under this Contract, on an
accelerated basis. This condition does not apply to any attempt to enforce a
settlement of claims liabilities under a commutation process to which the
parties have agreed.

	B.	 	If one or more of the above-stated circumstances occur, the Company shall provide
the Subscribing Reinsurer with a written statement of the Subscribing Reinsurer’s share
of all paid recoverables, case reserves, loss adjustment expenses, incurred but not
reported losses, reserves for unearned premium, and ceding commissions due under this
Contract (collectively

			
	 	 	 
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Page 25 of 46

 

	 	 	“Obligations”). Within fifteen (15) days of the Subscribing Reinsurer’s receipt of
such statement, the Subscribing Reinsurer agrees to fund all Obligations by clean,
irrevocable, and unconditional Letters of Credit payable exclusively to the Company
and issued by a bank acceptable to the Company. At the Company’s request, the
Subscribing Reinsurer shall agree to provide separate Letters of Credit for each Legal
Entity. Such Letters of Credit shall be issued for a period of not less than one year,
and shall be automatically extended for one year from their dates of expiration or any
future expiration dates, unless sixty (60) days prior to any expiration date the
issuing bank shall notify the Company or a Legal Entity, as applicable by certified
mail that the issuing bank elects not to extend any Letter of Credit for any
additional period.

	C.	 	The Subscribing Reinsurer and Company agree that the Letters of Credit provided by the
Subscribing Reinsurer, pursuant to the provisions of this Contract, may be drawn upon at any
time, notwithstanding any other provision of this Contract, and be utilized by the Company,
a Legal Entity, or any successor, by operation of law, of the Company or a Legal Entity,
including without limitation, any liquidator, rehabilitator, receiver, or conservator of the
Company or a Legal Entity, without diminution because of the insolvency of the Company, a
Legal Entity or the Subscribing Reinsurer for one or more of the following purposes:

	 	1.	 	To pay or reimburse the Company or a Legal Entity for:

	 	a.	 	The Subscribing Reinsurer’s share under this Contract of
premiums returned, but not yet recovered from the Subscribing Reinsurer, to
the owners of Policies reinsured under this Contract due to cancellations of
such Policies; and
	 
	 	b.	 	The Subscribing Reinsurer’s share, under this Contract, of
surrenders and benefits or liabilities paid by the Company or a Legal Entity,
but not yet recovered from the Subscribing Reinsurer, under the terms and
provisions of the Policies reinsured under this Contract; and
	 
	 	c.	 	Any other amounts necessary to secure the credit or reduction
from liability for reinsurance taken by the Company or a Legal Entity.

	 	2.	 	Where the Letters of Credit will expire without renewal or be
reduced or replaced by Letters of Credit for a reduced amount and where the
Subscribing Reinsurer’s entire obligations under this Contract remain
unliquidated and undischarged ten (10) days prior to the termination date, to
withdraw amounts equal to the Subscribing Reinsurer’s share of the liabilities,
to the extent that the liabilities have not yet been funded by the Subscribing
Reinsurer and exceed the amount of any reduced or replacement Letters of Credit,
and deposit those amounts in a separate account in the name of the Company or a
Legal Entity in a qualified U.S. financial institution apart from its general
assets, in trust for such uses and purposes as specified above as may remain
after withdrawal and for any period after the termination date.

	D.	 	At annual intervals, or at the Company’s option, on a quarterly basis, the Company shall
prepare an adjusted statement of the Subscribing Reinsurer’s Obligations, for the sole
purpose of amending the Letters of Credit, in the following manner:

	 	1.	 	If the statement shows that the Subscribing Reinsurer’s Obligations
exceed the balance of credit as of the statement date, the Subscribing Reinsurer
shall, within fifteen (15) days after receipt of notice of such excess, secure
delivery to the Company of an amendment to the Letters of Credit increasing the
amount of credit by the amount of such difference.
	 
	 	2.	 	If, however, the statement shows that the Subscribing Reinsurer’s
Obligations are less than the balance of credit as of the statement date, the
Company shall, within fifteen (15)

			
	 	 	 
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Page 26 of 46

 

	 	 	 	days after receipt of written request from the Subscribing Reinsurer,
release such excess credit by agreeing to secure an amendment to the Letters
of Credit reducing the amount of credit available by the amount of such
excess credit.

	E.	 	If the Subscribing Reinsurer fails to fund such Obligations by Letters of Credit
as described above, the Company may terminate this Contract at any time by the giving
of thirty (30) days prior written notice to the Subscribing Reinsurer.

	F.	 	The coverage afforded by this Contract shall cease as of the date of termination
and the Subscribing Reinsurer shall return the unearned premium, if any. If
coverage hereunder terminates while a claim covered by this Contract is in progress,
the Subscribing Reinsurer shall be liable subject to all other conditions hereof for
its proportion of the entire claim, provided that the event giving rise to the claim
started before such termination.

	G.	 	If the Company elects to terminate this Contract, the Company shall have the
option to commute the Subscribing Reinsurer’s liability for loss(es), whether
reported or unreported, comprising the sum total of the present value of the ceded:
(1) case reserves and allocated loss adjustment expense, (2) projected ultimate
losses, (3) any unearned premium reserve, and (4) undiscounted outstanding paid
claims (hereinafter the “Commutation Losses”), on Policies covered by this Contract
as of the effective date of termination.

	 	A.	 	The Company shall submit a statement of valuation showing the
elements considered reasonable to establish the Commutation Losses, and the
Subscribing Reinsurer shall pay the amount requested. In the event the
Company and the Subscribing Reinsurer cannot agree on the statement of
valuation of the Subscribing Reinsurer’s liability under such Policies, either
party may request in writing that the differences be settled by a panel of
three actuaries. Each party shall appoint an actuary to assess such
liability within fifteen (15) days after receipt of the written request for
commutation. Upon such appointment, the two actuaries shall appoint a third
actuary. If the two actuaries fail to agree on the third actuary within
thirty (30) days of their appointment, each of them shall nominate three
individuals, of whom the other shall decline two, and the final decision shall
be made by drawing lots. The actuaries shall then investigate and capitalize
such Commutation Loss(es) within thirty (30) days. As used herein,
“capitalize” shall mean to determine the present value of Commutation Losses,
without regard to the Subscribing Reinsurer’s ability to pay such losses.
The panel shall meet in Boston, Massachusetts, unless the Company and
Subscribing Reinsurer agree otherwise.
	 
	 	B.	 	All actuaries shall be disinterested in the outcome of the
commutation and shall be Fellows of the Society of Actuaries/Fellows of the
Casualty Actuarial Society. Except as stated below, the expense of the
actuaries and of the commutation shall be equally divided between the parties
of the commutation.
	 
	 	C.	 	The decision in writing of the actuaries, when filed with the
parties hereto, shall be final and binding, except that if the Company does
not agree with the capitalized value of the Commutation Loss(es), the Company
shall have no obligation to commute. In the event the Company does not agree
with the capitalized value of the Commutation Loss(es) and does not move
forward with commutation, the expense of the actuaries including reasonable
expense of the actuary appointed by the Subscribing Reinsurer will be paid by
the Company. If the Contract is commuted, payment by the Subscribing
Reinsurer to the Company or any other third party mutually agreed upon by the
Subscribing Reinsurer and the Company shall constitute a complete and final
release of the Subscribing Reinsurer in respect to its liability under this
Contract.

			
	 	 	 
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Page 27 of 46

 

	H.	 	Termination under the terms of this Article can be made after the date of expiration of
this Contract.

ARTICLE XXXVI — THIRD PARTIES (LM-02700-2005.09.27-A)

This Contract shall not be deemed to give any right or remedy to any third party
whatsoever unless said right or remedy is specifically granted to such third party by
the terms of this Contract.

ARTICLE XXXVII — UNAUTHORIZED REINSURANCE (LM-02500-2006.10.26-A)

(Applies only to a Subscribing Reinsurer who at the inception of the Contract or at any
time thereafter does not qualify for full credit with any insurance regulatory
authority having jurisdiction over the Company’s reserves.)

	A.	 	As regards Policies issued by the Company coming within the scope of this
Contract, the Company agrees that when it shall file with the insurance regulatory
authority or set up on its books reserves for unearned premium and losses covered
hereunder which it shall be required by law to set up, it will forward to the
Subscribing Reinsurer a statement showing the proportion of such reserves which is
applicable to the Subscribing Reinsurer. The Subscribing Reinsurer hereby agrees
to fund such reserves in respect of unearned premium, known outstanding losses that
have been reported to the Subscribing Reinsurer and allocated loss adjustment
expense relating thereto, losses and allocated loss adjustment expense paid by the
Company or the Legal Entities but not recovered from the Subscribing Reinsurer,
plus reserves for losses incurred but not reported as determined by the Company, as
shown in the statement prepared by the Company (hereinafter referred to as “Subscribing
Reinsurer Obligations”) by funds withheld, cash advances, or Letters of
Credit unless the Company and the Subscribing Reinsurer otherwise agree, and/or the
method of funding is determined by applicable law, statute, or regulation, the
Subscribing Reinsurer shall agree to fund such Subscribing Reinsurer Obligations by
Letters of Credit.

	B.	 	When funding by Letters of Credit, the Subscribing Reinsurer agrees to apply for
and secure timely delivery to the Company of clean, irrevocable, and unconditional
Letters of Credit issued by a bank that is a qualified U.S. financial institution
and containing provisions acceptable to the insurance regulatory authorities having
jurisdiction over the Company’s reserves in an amount equal to the Subscribing
Reinsurer’s proportion of said reserves. At the Company’s request, Subscribing
Reinsurer will agree to provide separate Letters of Credit for each Legal Entity.
Such Letters of Credit shall be issued for a period of not less than one year, and
shall be automatically extended for one year from their date of expiration or any
future expiration date unless 60 days prior to any expiration date the issuing bank
shall notify the Legal Entity by certified mail that the issuing bank elects not to
consider the Letters of Credit extended for any additional period.

	C.	 	The Subscribing Reinsurer and Company agree that the Letters of Credit provided
by the Subscribing Reinsurer pursuant to the provisions of this Contract may be
drawn upon at any time, notwithstanding any other provision of this Contract, and
be utilized by the Company, a Legal Entity or any successor, by operation of law,
of the Company or a Legal Entity, including without limitation, any liquidator,
rehabilitator, receiver, or conservator of the Company, without diminution because
of the insolvency of the Company, a Legal Entity or the Subscribing Reinsurer for
one or more of the following purposes:

			
	 	 	 
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Page 28 of 46

 

	 	1.	 	To reimburse the Company or a Legal Entity for the Subscribing Reinsurer’s
share of premiums returned to the owners of Policies reinsured under this
Contract because of cancellations of the Policies;
	 
	 	2.	 	To reimburse the Company or a Legal Entity for the Subscribing
Reinsurer’s share of surrenders and benefits or losses paid by the Company or a
Legal Entity under provisions of the Policies reinsured under this Contract;
	 
	 	3.	 	To fund an account with the Company or a Legal Entity in an amount at
least equal to the deduction for reinsurance ceded from the Company’s or a Legal
Entity’s liabilities for Policies ceded under this Contract. The account shall
include, but not be limited to, amounts for Policy reserves, claims and losses
incurred (including losses incurred but not reported), loss adjustment expenses,
and unearned premium reserves; and
	 
	 	4.	 	To pay any other amounts the Company claims are due under this Contract.

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

	E.	 	At annual intervals, or at the Company’s option, on a quarterly basis, the
Company shall prepare a specific statement of the Subscribing Reinsurer’s Obligations,
for the sole purpose of amending the Letters of Credit, in the following manner:

	 	1.	 	If the statement shows that the Subscribing Reinsurer’s Obligations
exceed the balance of credit as of the statement date, the Subscribing Reinsurer
shall, within 30 days after receipt of notice of such excess, secure delivery to
the Company of an amendment to the Letters of Credit increasing the amount of
credit by the amount of such difference.
	 
	 	2.	 	If, however, the statement shows that the Subscribing 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
Subscribing Reinsurer, release such excess credit by agreeing to secure an
amendment to the Letters of Credit reducing the amount of credit available by
the amount of such excess credit.

	F.	 	Any and all disputes between the Company and any Subscribing Reinsurer or
Reinsurers (“Party”, individually, or “Parties”, collectively) arising out of,
relating to, or concerning this Article shall be resolved pursuant to the ARIAS-U.S.
Newer Arbitrator Program. Unless the Parties otherwise agree, the ARIAS Newer
Arbitrator Program expedited proceeding with a single Newer Arbitrator shall be used
to resolve any such disputes.

			
	 	 	 
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Page 29 of 46

 

EXHIBIT A

FIRST EXCESS OF LOSS

IS ATTACHED TO AND

FORMS PART OF

REINSURANCE CONTRACT No. 1000102

			
	 	 	 
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Page 30 of 46

 

EXHIBIT A — FIRST EXCESS OF LOSS

	 	 	 	 	 	 	 
	SECTION	 	SUBJECT	 	PAGE	 
	1	 	LIMIT AND RETENTION
	 	 	32	 
	2	 	REINSTATEMENT
	 	 	32	 
	3	 	DEFINITION
	 	 	32	 
	4	 	REINSURANCE PREMIUM
	 	 	33	 

			
	 	 	 
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Page 31 of 46

 

EXHIBIT A — FIRST EXCESS OF LOSS

SECTION 1 — LIMIT AND RETENTION (amounts shown are in terms of Ultimate Net Loss)

	A.	 	The Company shall retain the first $5,000,000 of Ultimate Net Loss as respects any
one Loss Occurrence. The Subscribing Reinsurer shall then be liable for the amount by
which the Company’s Ultimate Net Loss exceeds the retention of $5,000,000 but the
liability of the Subscribing Reinsurer shall never exceed $5,000,000 any one Loss
Occurrence and shall be further limited in each calendar year during the term of this
Contract to an aggregate liability of $25,000,000.

	B.	 	It is understood and agreed that the limit and retention described above applies to
both Employers Insurance Company of Wausau and Liberty Mutual Insurance Company. Any
Loss Occurrence affecting each of them shall be combined with respect to the
application of the limit and retention set forth herein. The limit, retention and
reinsurance recovery will be allocated in the same ratio that the Ultimate Net Loss
from each bears to the total Ultimate Net Loss of the Company.

	C.	 	Notwithstanding the foregoing, Subscribing Reinsurer’s liability arising out of
an Act of Terrorism shall be limited to only $5,000,000 in the aggregate for all
coverages combined, in each calendar year.

SECTION 2 — REINSTATEMENT

	A.	 	It is understood and agreed that each claim hereunder reduces the amount of
indemnity from the time of occurrence of the loss by the sum paid, but any amount so
exhausted is hereby reinstated from the time the Loss Occurrence commences without
payment of additional premium. For purposes of calculating reinstatement premium,
the reinsurance premium shall be multiplied by the ratio that each of the Employers
Insurance Company of Wausau and Liberty Mutual Insurance Company’s reinsurance recovery
bears to the total reinsurance recovery of the Company.

	B.	 	Nevertheless, the Subscribing Reinsurer’s liability hereunder shall never exceed
$5,000,000 in respect of any one Loss Occurrence and shall be further limited to an
aggregate of $25,000,000, in each calendar year.

SECTION 3 — DEFINITION

	A.	 	An “Act of Terrorism” for purposes of this Contract shall mean:

	 	1.	 	Any actual or threatened violent act or act harmful to human life,
tangible or intangible property or infrastructure directed towards or having the
effect of (a) influencing or protesting against any de jure or de facto government
or policy thereof, (b) intimidating, coercing or putting in fear a civilian
population or section thereof for the purpose of establishing or advancing a
specific ideological, religious or political system of thought, perpetrated by a
specific individual or group directly or indirectly through agents acting on
behalf of said individual or group or (c) retaliating against any country for
direct or vicarious support by that country of any other government or political
system.
	 
	 	2.	 	Any act deemed or declared by the Federal Office of Homeland Security to
be terrorism or a terrorist act shall also be considered an “Act of Terrorism” for
purposes of this Contract.

			
	 	 	 
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Page 32 of 46

 

SECTION 4 — REINSURANCE PREMIUM

	 	 	 	 	 
	 	 	Rate applied to
	Cover	 	Subject Earned Premium
	 
	 	 	 	 
	Workers’ Compensation
	 	 	0.502	%
	 
	 	 	 	 
	All Other Casualty Lines
	 	 	7.154	%

	 	 	 	 	 

	WC — Estimated Subject Earned Premium to the Layer:
	 	$	1,080,308,000	 
	Estimated Subject Net Earned Premium
	 	$	1,103,818,000	 
	 
	 	 	 	 
	All Other Casualty Lines — Estimated Subject Earned Premium to the Layer*:
	 	$	23,510,000	 
	Estimated Subject Net Earned Premium
	 	$	1,103,818,000	 

 

			
	*	 	All Casualty Lines of Business are covered under this Contract however the rate is
applied only to Commercial Umbrella.

			
	 	 	 
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Page 33 of 46

 

EXHIBIT B

SECOND EXCESS OF LOSS

IS ATTACHED TO AND

FORMS PART OF

REINSURANCE CONTRACT No. 1000102

			
	 	 	 
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Page 34 of 46

 

EXHIBIT B — SECOND EXCESS OF LOSS

	 	 	 	 	 	 	 
	SECTION	 	SUBJECT	 	PAGE	 
	1	 	LIMIT AND RETENTION
	 	 	36	 
	2	 	REINSTATEMENT
	 	 	36	 
	3	 	DEFINITION
	 	 	36	 
	4	 	REINSURANCE PREMIUM
	 	 	37	 

			
	 	 	 
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Page 35 of 46

 

EXHIBIT B — SECOND EXCESS OF LOSS

SECTION 1 — LIMIT AND RETENTION (amounts shown are in terms of Ultimate Net Loss)

	A.	 	The Company shall retain the first $10,000,000 of Ultimate Net Loss as respects any one
Loss Occurrence. The Subscribing Reinsurer shall then be liable for the amount by which the
Company’s Ultimate Net Loss exceeds the retention of $10,000,000 but the liability of the
Subscribing Reinsurer shall never exceed $15,000,000 any one Loss Occurrence;

	B.	 	It is understood and agreed that the limit and retention described above applies to
both Employers Insurance Company of Wausau and Liberty Mutual Insurance Company. Any
Loss Occurrence affecting each of them shall be combined with respect to the application
of the limit and retention set forth herein. The limit, retention and reinsurance
recovery will be allocated in the same ratio that the Ultimate Net Loss from each bears to
the total Ultimate Net Loss of the Company.

	C.	 	Notwithstanding the foregoing, Subscribing Reinsurer’s liability arising out of an Act of
Terrorism shall be limited to only $5,000,000 in the aggregate as respects all coverages, for any one
calendar year.

SECTION 2 — REINSTATEMENT

	A.	 	Each claim hereunder reduces the amount of indemnity from the time of occurrence of the
loss by the sum paid, but any amount so exhausted is hereby reinstated from the time the
Loss Occurrence commences hereon. For purposes of calculating reinstatement premium, the
reinsurance premium shall be multiplied by the ratio that each of the Employers Insurance
Company of Wausau and Liberty Mutual Insurance Company’s reinsurance recovery bears to the
total reinsurance recovery of the Company.

	B.	 	For each amount so reinstated the Company agrees to pay an additional premium
calculated at pro rata of the annual premium hereon, being pro rata only as to the fraction
of the limit of liability of this Contract (i.e., the fraction of 100% of $15,000,000) so
reinstated and 100% as to the term.

	C.	 	Nevertheless, the Subscribing Reinsurer’s liability hereunder shall never exceed
$15,000,000 in respect of any one Loss Occurrence and shall be further limited in all to
$30,000,000 in each calendar year during the term of this Contract.

SECTION 3 — DEFINITION

	A.	 	An “Act of Terrorism” for purposes of this Contract shall mean:

	 	1.	 	Any actual or threatened violent act or act harmful to human life, tangible
or intangible property or infrastructure directed towards or having the effect of (a)
influencing or protesting against any de jure or de facto government or policy
thereof, (b) intimidating, coercing or putting in fear a civilian population or
section thereof for the purpose of establishing or advancing a specific ideological,
religious or political system of thought, perpetrated by a specific individual or
group directly or indirectly through agents acting on behalf of said individual or
group or (c) retaliating against any country for direct or vicarious support by that
country of any other government or political system.
	 
	 	2.	 	Any act deemed or declared by the Federal Office of Homeland Security to be
terrorism or a terrorist act shall also be considered an “Act of Terrorism” for
purposes of this Contract.

			
	 	 	 
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Page 36 of 46

 

SECTION 4 — REINSURANCE PREMIUM

	 	 	 	 	 
	 	 	Rate applied to
	Cover	 	Subject Earned Premium
	 
	 	 	 	 
	Workers’ Compensation
	 	 	0.102	%
	 
	 	 	 	 
	All Other Casualty Lines
	 	 	0.716	%

	 	 	 	 	 

	WC — Estimated Subject Earned Premium to the Layer:
	 	$	1,080,308,000	 
	Estimated Subject Net Earned Premium
	 	$	1,103,818,000	 
	 
	 	 	 	 
	All Other Casualty Lines — Estimated Subject Earned Premium to the Layer*:
	 	$	23,510,000	 
	Estimated Subject Net Earned Premium
	 	$	1,103,818,000	 

 

			
	*	 	All Casualty Lines of Business are covered under this Contract however the rate is
applied only to Commercial Umbrella.

			
	 	 	 
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Page 37 of 46

 

Appendix A — Swiss Re List of Pharmaceutical /
Implantable Medical Product Liability Risks

	 	 	 	 	 
	#	 	COMPANY NAME	 	HQ LOC.
	1
	 	ABBOTT LABORATORIES
	 	USA
	2
	 	ACTAVIS GROUP
	 	Iceland
	3
	 	ALLERGAN
	 	USA
	4
	 	ALPHARMA
	 	USA
	5
	 	AMGEN
	 	USA
	6
	 	ASTELLAS
	 	Japan
	7
	 	ASTRAZENECA
	 	UK
	8
	 	BARR PHARMACEUTICALS (including former Pliva)
	 	USA
	9
	 	BAXTER INTERNATIONAL
	 	USA
	10
	 	BAYER (including former Schering AG)
	 	Germany
	11
	 	BIOGEN IDEC
	 	USA
	12
	 	BIOMET
	 	USA
	13
	 	BOEHRINGERINGELHEIM
	 	Germany
	14
	 	BOSTON SCIENTIFIC CORPORATION (including former Guidant)
	 	USA
	15
	 	BRISTOL-MYERS SQUIBB
	 	USA
	16
	 	CEPHALON
	 	USA
	17
	 	CSL
	 	Australia
	18
	 	DAIICHI SANKYO (former Daiichi Pharmaceutical and Sankyo Co.)
	 	Japan
	19
	 	DAINIPPON SUMITOMO PHARMA (former Dainippon Pharmaceutical and Sumitomo Pharmaceutical)
	 	Japan
	20
	 	EDWARDS LIFESCIENCES
	 	USA
	21
	 	EISAI
	 	Japan
	22
	 	ELAN
	 	Ireland
	23
	 	FOREST LABORATORIES
	 	USA
	24
	 	GENENTECH
	 	USA
	25
	 	GENERAL ELECTRIC Healthcare
	 	USA
	26
	 	GENZYME
	 	USA
	27
	 	GILEAD SCIENCES
	 	USA
	28
	 	GLAXOSMITHKLINE
	 	UK
	29
	 	HOSPIRA
	 	USA
	30
	 	IPSEN (Beaufour Ipsen)
	 	France
	31
	 	JOHNSON & JOHNSON
	 	USA
	32
	 	KING PHARMACEUTICALS
	 	USA
	33
	 	KYOWA HAKKO KOGYO
	 	Japan
	34
	 	LABORATOIRE SERVIER
	 	France
	35
	 	LILLY (ELI)
	 	USA
	36
	 	LUNDBECK
	 	Denmark
	37
	 	MEDIMMUNE
	 	USA
	38
	 	MEDTRONIC
	 	USA
	39
	 	MERCK & CO
	 	USA
	40
	 	MERCK KGAA (including former Serono)
	 	Germany
	41
	 	MYLAN LABORATORIES
	 	USA
	42
	 	NOVARTIS (including former Chiron)
	 	Switzerland
	43
	 	NOVO NORDISK
	 	Denmark
	44
	 	NYCOMED (including former Altana Pharma)
	 	Switzerland
	45
	 	ORGANON BIOSCIENCES** (former Akzo Nobel Pharma Business)
	 	Netherlands
	46
	 	OTSUKA PHARMACEUTICAL
	 	Japan
	47
	 	PFIZER
	 	USA
	48
	 	PROCTER & GAMBLE
	 	USA
	49
	 	PURDUE FREDERICK/PRA Holding
	 	USA
	50
	 	RANBAXY LABORATORIES
	 	India
	51
	 	ROCHE
	 	Switzerland
	52
	 	SANOFI-AVENTIS
	 	France
	53
	 	SCHERING-PLOUGH
	 	USA
	54
	 	SHIONOGI
	 	Japan
	55
	 	SHIRE PHARMACEUTICALS
	 	UK
	56
	 	SMITH & NEPHEW
	 	UK
	57
	 	SOLVAY
	 	Belgium
	58
	 	ST. JUDE MEDICAL
	 	USA
	59
	 	STRYKER
	 	USA
	60
	 	SYNTHES
	 	Switzerland
	61
	 	TAKEDA
	 	Japan
	62
	 	TANABE*
	 	Japan
	63
	 	TAP Pharmaceutical Products
	 	USA
	64
	 	TEVA PHARMACEUTICAL (including former Ivax Corp.)
	 	Israel
	65
	 	TYCO Healthcare
	 	USA
	66
	 	UCB (including former Schwarz Pharma)
	 	Belgium
	67
	 	WATSON PHARMACEUTICAL
	 	USA
	68
	 	WYETH
	 	USA
	69
	 	ZIMMER
	 	USA

 

			
	*	 	TANABE = Planned merger with Mitsubishi Pharma Corp. in October 2007
(tentatively named MitsubishiTanabe Pharma). The newly formed company will
remain a SR defined Pharma Risk.

			
	 	 	 
	Effective: January 1, 2008
	 	2008 Wausau Casualty Excess Contract

Page 38 of 46

 

 

			
	**	 	ORGANON BIOSCIENCES = Schering-Plough Corporation announced in March 2007 the
acquisition of Organon Biosciences; transaction is expected to be closed by the end of 2007

			
	 	 	 
	Effective: January 1, 2008
	 	2008 Wausau Casualty Excess Contract

Page 39 of 46

 

SUPPLEMENT TO THE ATTACHMENTS

DEFINITION OF IDENTIFICATION TERMS USED WITHIN THE ATTACHMENTS

	A.	 	Wherever the term “Company” or “Reinsured” or “Reassured” or whatever other
term is used to designate the reinsured company or companies within the various
attachments to the reinsurance agreement, the term shall be understood to mean
Company or Reinsured or Reassured or whatever other term is used in the attached
reinsurance agreement to designate the reinsured company or companies.

	B.	 	Wherever the term “Agreement” or “Contract” or “Policy” or whatever other
term is used to designate the attached reinsurance contract within the various
attachments to the reinsurance contract, the term shall be understood to mean
Agreement or Contract or Policy or whatever other term is used to designate the
attached reinsurance contract.

	C.	 	Wherever the term “Reinsurer” or “Reinsurers” or “Underwriters” or whatever
other term is used to designate the reinsurer or reinsurers in the various
attachments to the reinsurance agreement, the term shall be understood to mean
Reinsurer or Reinsurers or Underwriters or whatever other term is used to designate
the reinsuring company or companies.

INSOLVENCY FUNDS EXCLUSION CLAUSE

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

			
	 	 	 
	Effective: January 1, 2008
	 	2008 Wausau Casualty Excess Contract

Page 40 of 46

 

NUCLEAR INCIDENT EXCLUSION CLAUSE — LIABILITY — REINSURANCE — U.S.A. N.M.A. 1590

	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. in
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 Liabilities 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, Agreementual Liability, Elevator Liability,
Owners or Agreementors (including railroad) Protective Liability, Manufacturers and
Agreementors Liability, Product Liability, Professional and Malpractice Liability,
Storekeepers Liability, Garage Liability, Automobile Liability (including Massachusetts
Motor Vehicle or Garage Liability) shall be deemed to include with respect to such
coverages, from the time specified in Clause V. of this paragraph 3., the following
provision (specified as the Broad Exclusion Provision):
	 
	 	 	BROAD EXCLUSION PROVISION*

			
	 	 	 
	N.M.A. 1590
	 	2007 Wausau Casualty Excess Contract

Page 41 of 46

 

	 	 	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 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
question of a nuclear facility by any person or organization.
	 
	 	III.	 	Under any Liability Coverage, to injury, sickness, disease, death or
destruction, bodily injury or property damage resulting from the hazardous
properties of nuclear material, if

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

	 	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 other than the tailings or wastes produced by the
extraction or concentration of uranium or thorium from any ore processed for
its source material
	 
	 	 	 	content 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

			
	 	 	 
	N.M.A. 1590
	 	2007 Wausau Casualty Excess Contract

Page 42 of 46

 

	 	(a)	 	any nuclear reactor,
	 
	 	(b)	 	any equipment or device designed or used for (1)
separating the isotopes of uranium or plutonium, (2) processing or
utilizing spent fuel, or (3) handling, processing or packaging waste,
	 
	 	(c)	 	any equipment or device used for the processing,
fabricating or alloying of special nuclear material if at any time the
total amount of such material in the custody of the insured at the
premises where such equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235,
	 
	 	(d)	 	any structure, basin, excavation, premises or place
prepared or used for the storage or disposal of waste

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

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

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

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

	*	 	NOTE: The words printed in BOLD TYPE 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.

			
	 	 	 
	N.M.A. 1590
	 	2007 Wausau Casualty Excess Contract

Page 43 of 46

 

	 	 	NUCLEAR INCIDENT EXCLUSION CLAUSE — LIABILITY — REINSURANCE — CANADA
	 
	 	 	N.M.A. 1979

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

	2.	 	Without in any way restricting the operation of Paragraph 1. of this Clause, it is agreed
that for all purposes of this Contract all the original liability Contracts of the Company,
whether new, renewal or replacement, of the following classes, namely,

	 	 	 	Personal Liability

Farmers’ Liability

Storekeepers’ Liability

	 	 	which become effective on or after 31st December 1984, shall be deemed to include, from
their inception dates and thereafter, the following provision:

	 	 	Limited Exclusion Provision -

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

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

	3.	 	Without in any way restricting the operation of Paragraph 1. of this Clause, it is agreed
that for all purposes of this Contract all the original liability Contracts of the Company,
whether new, renewal or replacement, of any class whatsoever (other than Personal Liability,
Farmers’ Liability, Storekeepers’ Liability or Automobile Liability Contracts), which become
effective on or after 31st December 1984, shall be deemed to include, from their inception
dates and thereafter, the following provision:

	 	 	Broad Exclusion Provision -

	 	 	It is agreed that this Policy does not apply:

	 	(a)	 	to liability imposed by or arising under the Nuclear Liability Act; nor
	 
	 	(b)	 	to bodily injury or property damage with respect to which an Insured under this
Policy is also insured under a Contract of nuclear energy liability insurance (whether
the Insured is unnamed in such Contract and whether or not it is legally enforceable by
the Insured) issued by the Nuclear Association of Canada or any other insurer or group
or pool of insurers or would be an Insured under any such Policy but for its
termination upon exhaustion of its limit of liability; nor
	 
	 	(c)	 	to bodily injury or property damage resulting directly or indirectly from the
nuclear energy hazard arising from:

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

			
	 	 	 
	N.M.A. 1979
	 	2007 Wausau Casualty Excess Contract

Page 44 of 46

 

	 	(ii)	 	the furnishing of an Insured of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or
use of any nuclear facility; and
	 
	 	(iii)	 	the possession, consumption, use, handling, disposal or transportation of
fissionable substances, or of other radioactive material (except
radioactive isotopes, away from a nuclear facility, which have reached
the final stage of fabrication so as to be usable for any scientific,
medical, agricultural, commercial or industrial purpose) used,
distributed, handled or sold by an Insured.

	 	 	As used in this Policy:

	 	(1)	 	The term “nuclear energy hazard” means the radioactive, toxic, explosive,
or other hazardous properties of radioactive material;
	 
	 	(2)	 	The term “radioactive material” means uranium, thorium,
plutonium, neptunium, their respective derivatives and compounds, radioactive
isotopes of other elements and any other substances that the Atomic Energy Control
Board may, by regulation, designate as being prescribed substances capable of
releasing atomic energy, or as being requisite for the production, use or
application of atomic energy;
	 
	 	(3)	 	The term “nuclear facility” means:

	 	(a)	 	any apparatus designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass of plutonium,
thorium and uranium or any one or more of them;
	 
	 	(b)	 	any equipment or device designed or used for (i) separating the
isotopes of plutonium, thorium and uranium or any one or more of them, (ii)
processing or utilizing spent fuel, or (iii) handling, processing or
packaging waste;
	 
	 	(c)	 	any equipment or device used for the processing, fabricating or
alloying of plutonium, thorium or uranium enriched in the isotope uranium 233
or in the isotope uranium 235, or any one or more of them if at any time the
total amount of such material in the custody of the Insured at the premises
where such equipment or device is located consists of or contains more than
25 grams of plutonium or uranium 233 or any combination thereof, or more than
250 grams of uranium 235;
	 
	 	(d)	 	any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste radioactive material; and includes
the site on which any of the foregoing is located, together with all
operations conducted thereon and all premises used for such operations.

	 	(4)	 	The term “fissionable substance” means any prescribed substance that is,
or from which can be obtained, a substance capable of releasing atomic energy by
nuclear fission.
	 
	 	(5)	 	With respect to property, loss of use of such property shall be deemed to be property
damage.

			
	 	 	 
	N.M.A. 1979
	 	2007 Wausau Casualty Excess Contract

Page 45 of 46

 

NUCLEAR INCIDENT EXCLUSION CLAUSE — REINSURANCE — NO. 4

	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 operations of Nuclear Incident Exclusion Clauses,
 — Liability, — Physical Damage, — Boiler and Machinery and paragraph 1. of this
Clause, it is understood and agreed that for all purposes of the reinsurance assumed
by the Reinsurer from the Reinsured, all original insurance Policies or Contracts of
the Reinsured (new, renewal and replacement) shall be deemed to include the
applicable existing Nuclear Clause and/or Nuclear Exclusion Clause(s) in effect at
the time and any subsequent revisions thereto as agreed upon and approved by the
Insurance Industry and/or a qualified Advisory or Rating Bureau.

			
	 	 	 
	 
	 	2008 Wausau Casualty Excess Contract

Page 46 of 46

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