Document:

Exhibit 10.40

Underlying Excess Workers’
Compensation

Reinsurance Contract

Effective: January 1, 2002

 

issued to

 

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

 

any and all insurance companies which are now or 

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

 

	
  

  	
   

  
	
   

  	
   

  

 

 

 

Underlying Excess Workers’
Compensation 

Reinsurance Contract

Effective: January 1, 2002

 

issued to

 

AmCOMP Preferred Insurance Company

North Palm Beach, Florida 

AmCOMP Assurance Corporation

North Palm Beach, Florida

 

and

 

any and all insurance companies which are now or 

hereafter come under the same ownership or management as the

AmCOMP Group 

North Palm Beach, Florida

 

	
  Reinsurer

  	
   

  	
  Participation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  American Re-Insurance
  Company, A Delaware Corporation

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  100

  	
  %

  

 

 

Table of Contents

 

	
  Article

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  I

  	
   

  	
  Classes of Business
  Reinsured

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  II

  	
   

  	
  Commencement and
  Termination

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  III

  	
   

  	
  Special Termination

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  IV

  	
   

  	
  Territory (BRMA 51A)

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  V

  	
   

  	
  Exclusions

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  VI

  	
   

  	
  Retention and Limit

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  VII

  	
   

  	
  Definitions

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
  VIII

  	
   

  	
  Other Reinsurance

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  IX

  	
   

  	
  Claims

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  X

  	
   

  	
  Subrogation

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  XI

  	
   

  	
  Premium

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  XII

  	
   

  	
  Late Payments

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  XIII

  	
   

  	
  Offset and Security

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  XIV

  	
   

  	
  Access to Records (BRMA
  1D)

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  XV

  	
   

  	
  Liability of the
  Reinsurer

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  XVI

  	
   

  	
  Net Retained Lines
  (BRMA 32E)

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  XVII

  	
   

  	
  Errors and Omissions
  (BRMA 14F)

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  XVIII

  	
   

  	
  Taxes (BRMA 50B)

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  XIX

  	
   

  	
  Unauthorized Reinsurers

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  XX

  	
   

  	
  Insolvency

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  XXI

  	
   

  	
  Arbitration (BRMA 6J)

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  XXII

  	
   

  	
  Service of Suit (BRMA
  49C)

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  XXIII

  	
   

  	
  Material Changes

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  XXIV

  	
   

  	
  Agency Agreement

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  XXV

  	
   

  	
  Intermediary (BRMA 23A)

  	
  20

  

 

 

Underlying Excess Workers’
Compensation

Reinsurance Contract

Effective:
January 1, 2002

 

issued to

 

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

 

and

 

any and all insurance companies which are now or 

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

(hereinafter
referred to collectively as the “Company”)

 

by

 

The Subscribing Reinsurer(s) Executing the

Interests and Liabilities Agreement(s)

Attached Hereto

(hereinafter
referred to as the “Reinsurer”)

 

Article I
- Classes of Business Reinsured

 

By this Contract the
Reinsurer agrees to reinsure the excess liability which may accrue to the
Company under its policies, contracts and binders of insurance or reinsurance
(hereinafter called “policies”) issued or renewed on or after the effective
date hereof, and classified by the Company as Workers’ Compensation and
Employers Liability business, subject to the terms, conditions and limitations
hereinafter set forth.

 

Article II
- Commencement and Termination

 

A.           This Contract shall become effective on
January 1, 2002, with respect to losses arising out of occurrences
commencing on or after that date, and shall continue in force thereafter until
terminated.

 

B.             Either party may terminate this Contract
at the end of any contract year by giving the other party not less than 90 days
prior notice by certified mail.

 

1

 

C.             Unless the Company elects that the
Reinsurer have no liability for losses arising out of occurrences commencing
after the effective date of termination, and so notifies the Reinsurer prior to
or within 72 hours after the
effective date of termination, reinsurance hereunder on business in force on
the effective date of termination shall remain in full force and effect until
expiration, cancellation or next premium anniversary of such business,
whichever first occurs, but in no event beyond 12 months, plus odd time (not to
exceed 18 months in all), following the effective date of termination.

 

D.            Notwithstanding the provisions above, in
the event that any policy subject to this Contract is required by statute,
regulation or by order of an insurance department to be continued in force, the
Reinsurer agrees to extend reinsurance coverage hereunder with respect to such
policy until such policy may be canceled or non-renewed by the Company.

 

E.              “Contract year” as used herein shall mean
the period from January 1, 2002 through December 31, 2002, and each
subsequent 12-month period (or portion thereof) thereafter that this Contract
continues in force.

 

Article III
- Special Termination

 

Notwithstanding the
provisions of Article II, the Reinsurer may terminate this Contract on a
“runoff” or “cutoff” basis at any time by giving the Company not less than 45
days prior notice by certified mail in the event any of the following occur:

 

1.               The Company’s policyholders’ surplus
drops 25.0% or more in any 90-day period beginning on or after April 1,
2002. The first 90-day period shall be measured against policyholders’ surplus
as provided in the Company’s year-end 2001 NAIC Statutory annual statement;

 

2.               The Company fails to pay reinsurance
premiums in accordance with this Contract;

 

3.               The Company merges with, or is acquired
by any other company, corporation or individual(s) not controlling the
Company’s operations previously;

 

4.               The sale of any material portion of the
Company or the sale or purchase of a portfolio of the Company’s business
reasonably considered by the Reinsurer to be material to the business subject
to this Contract;

 

5.               The Company’s underwriting abilities are
restricted in any way by the Insurance Department of the State of Florida or
any court of competent jurisdiction.

 

6.               There is any material change in the Company’s
existing senior management.

 

 

2

 

Article IV
- Territory (BRMA 51A)

 

The territorial limits of
this Contract shall be identical with those of the Company’s policies.

 

Article V - Exclusions

 

A.           This Contract does not apply to and
specifically excludes the following:

 

1.               Reinsurance assumed by the Company under
obligatory reinsurance agreements, except;

 

a.               Agency reinsurance where the policies
involved are to be reunderwritten in accordance with the underwriting standards
of the Company and reissued as Company policies at the next anniversary or
expiration date;

 

b.              Intercompany reinsurance between any of
the reinsured companies under this Contract.

 

2.               Ex-gratia payments.

 

3.               Risks subject to a deductible in excess
of $25,000, or a self-insured retention excess of $25,000, unless such
deductible or self-insured retention is otherwise mandated by statute or
regulatory authority.

 

4.               Nuclear risks as defined in the “Nuclear
Incident Exclusion Clause - Liability - Reinsurance (U.S.A.)” and the “Nuclear
Incident Exclusion Clause - Liability - Reinsurance (Canada)” and loss or
liability defined in the “Nuclear Incident Exclusion Clause - Reinsurance -
No. 4” attached to and forming part of this Contract.

 

5.               Pollution liability coverages excluded
under the provisions of the “Pollution Exclusion Clause - General Liability -
Reinsurance (BRMA 39C)” attached to and forming part of this Contract.

 

6.               Liability as a member, subscriber or
reinsurer of any Pool, Syndicate or Association, but this exclusion shall not
apply to Assigned Risk Plans or similar state-mandated plans.

 

7.               All liability of the Company arising by
contract, operation of law, or otherwise, from its participation or membership,
whether voluntary or involuntary, in any insolvency fund. “Insolvency fund”
includes any guaranty fund, insolvency fund, plan, pool, association, fund or
other arrangement, however denominated, established or governed, which provides
for any assessment of or payment or assumption by the Company of part or all of
any claim, debt, charge, fee or other obligation of an insurer, or its
successors or assigns, which has been declared by any competent authority to be

 

3

 

insolvent, or which
is otherwise deemed unable to
meet any claim, debt, charge, fee or other obligation in whole or in part.

 

8.               Any claim caused or contributed to by
war, perpetrated by an official, employee or agent of a foreign state acting
for or on behalf of such state.

 

9.               Operation under the jurisdiction of the
U.S. Longshore and Harbor Workers’ Compensation Act, the Jones Act and the
Maritime Employers Liability Act, except for incidental exposures (i.e., 10% or
less of the insured’s payroll).

 

10.         Operations employing the process of
nuclear fission or fusion or handling of radioactive material, which operations
include but are not limited to:

 

a.               The use of nuclear reactors such as
atomic piles, particle accelerators or generators, or

 

b.              The use, handling or transportation of
radioactive materials, or the use, handling or transportation of any weapon of
war or explosive device employing nuclear fission or fusion.

 

However,
subparagraphs a and b above shall not apply to:

 

i.                  The exclusive use of
particle accelerators incidental to ordinary industrial or education
research pursuits, or

 

ii.               The exclusive use, handling or
transportation of radioisotopes for medical or industrial use, or to radium or
radium compounds.

 

11.         Operation of docks or wharves as related
to port authorities.

 

12.         The manufacturing, mining, refining,
processing, distribution, installation, removal or encapsulment of asbestos.

 

13.         Risks involving known exposure to the
following substances:

 

a.               Dioxin,

 

b.              Polychlorinated biphenols,

 

c.               Asbestos.

 

14.         All railway operations except sidetrack
agreements.

 

15.         Amusement parks, carnivals or circuses.
This exclusion shall not include miniature golf courses or driving range
operations.

 

 

4

 

16.         Subaquaeous operations.

 

17.         Underground mining, however this
exclusion shall not be construed to apply to open pit-quarrying or “surface
mining” operations.

 

18.         Blasting operations.

 

19.         Demolition of buildings or structures in
excess of five stories.

 

20.         Shoring, underpinning or moving of
buildings or structures.

 

21.         Erection or repair of scaffolds if 10.0%
or more of the insured’s annual remuneration is attributed to NCCI
Class Code 9529.

 

22.         Construction of tunnels or dams.

 

23.         Fireworks, fuses, or any explosive
substance (as defined below) as follows:

 

a.               Manufacturers or importers of such items.

 

b.              Loading of such items into containers for
use as explosive objects, propellant charges or detonation devices and the
storage thereof.

 

c.               Manufacturers or importers of any product
in which such items are an ingredient.

 

d.              Handling, storage, transportation or use
of such items.

 

“Explosive
substance” is defined as any substance manufactured for the express purpose of
exploding as differentiated from commodities used industrially and which are
only incidentally explosive.

 

24.         Onshore and offshore gas and oil drilling
operations.

 

25.         Operations where principal business
includes the use of any owned or unowned aircraft, or any device or machine
intended for and/or aiding in the achievement of atmospheric flight, projection
or orbit, for flight, and/or the ownership or operation of any airport. This
exclusion shall not apply where exposure is incidental (i.e., constitutes 10.0%
or less of the insured’s payroll) to the principal business operations and the
aircraft contains eight seats or fewer.

 

26.         Municipal law enforcement organizations
and municipal fire fighting organizations.

 

27.         Logging or forestry operations.

 

5

 

28.         Professional employment organizations
(PEO’s).

 

6

 

29.   Operations where the
principal business of the risk is manufacturing, production, distribution,
refining or storage of natural or artificial fuel, gas, butane, propane,
liquefied petroleum gases or gasoline. This exclusion shall not apply to any
risk whose principal business operations are any of the following:

 

a.     Retail gasoline service
station, either full or self service;

 

b.     Convenience store with
gasoline sales with its petroleum gas and/or storage tanks located below
ground;

 

c.     Any risk with a known
incidental gasoline or diesel fuel storage and/or transportation exposure. For
purposes of this exclusion, “incidental” will be defined as less than or equal
to a total for any and all tanks at a covered location of no more than 1,000
gallons for propane and 10,000 gallons for gasoline or diesel fuel.

 

B.    In the event the Company is
inadvertently bound on any risk which is excluded under subparagraph 9 or
subparagraphs 14 through 29 of paragraph A above, the reinsurance provided
under this Contract shall apply on such risk until discovery by the Company of
the existence of such risk and for 30 days thereafter, or unless otherwise
mandated by statute or regulatory authority. Coverage shall cease after such
time, unless the Company has received from the Reinsurer written notice of its
approval of such risk within 30 days.

 

C.    Notwithstanding the
foregoing, any reinsurance falling within the scope of one or more of the
exclusions set forth above that is specially accepted by the Reinsurer from the
Company shall be covered under this Contract and subject to all of the terms
and conditions hereof, except as such terms are modified by the special
acceptance.

 

Article VI - Retention and Limit

 

A.    As respects all losses
subject hereto except losses arising out of an occurrence of terrorism, the
Company shall retain and be liable for the first $500,000 of ultimate net loss
(whether involving any one or any combination of the classes of business
covered hereunder, regardless of the number of policies under which such loss
is payable or the number of different interests insured) arising out of each
occurrence. The Reinsurer shall then be liable for the amount by which such
ultimate net loss exceeds the Company’s retention, but the liability of the
Reinsurer shall not exceed $500,000 as respects any one occurrence.

 

B.    As respects all losses
arising out of an occurrence of terrorism, the Company shall retain and be
liable for the first $500,000 of ultimate net loss (whether involving any one
or any combination of the classes of business covered hereunder, regardless of
the number of policies under which such loss is payable or the number of
different interests insured) arising out of each occurrence. The Reinsurer
shall then be liable for the amount by which such ultimate net loss exceeds the
Company’s retention, but the liability of the Reinsurer shall not exceed
$500,000 as respects any one occurrence, nor shall it exceed $500,000 as
respects all occurrences of terrorism during the term of this Contract.

 

C.    Notwithstanding the
provisions of paragraphs A and B above, if the Company’s net earned premium
subject hereto exceeds $155,000,000 in any one contract year (excluding the
runoff period of the final contract year), the Company’s recoveries as respects
occurrences

 

 

7

 

commencing during that contract year, shall be reduced in the same
proportion that $155,000,000 bears to the Company’s actual net earned premium
in such contract year. Any recoveries made prior to determination of the
Company’s net earned premium for the contract year shall be adjusted
accordingly.

 

Article VII
- Definitions

 

A.    “Ultimate net loss” as used
herein is defined as the sum or sums (including loss in excess of policy
limits, extra contractual obligations and any loss adjustment expense, as
hereinafter defined) paid or payable by the Company in settlement of claims and
in satisfaction of judgments rendered on account of such claims, after
deduction of all recoveries from subrogation, all recoveries and all claims on
inuring insurance or reinsurance, whether collectible or not. Nothing herein
shall be construed to mean that losses under this Contract are not recoverable
until the Company’s ultimate net loss has been ascertained.

 

B,    “Loss in excess of policy
limits” and “extra contractual obligations” as used herein shall be defined as
follows:

 

1.     “Loss in excess of policy
limits” shall mean 90.0% of any amount paid or payable by the Company in excess
of its policy limits, but otherwise within the terms of its policy, such loss
in excess of the Company’s policy limits having been incurred because of, but
not limited to, failure by the Company to settle within the policy limits or by
reason of the Company’s alleged or actual negligence, fraud or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of an action against its insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such an action.

 

2.     “Extra contractual obligations”
shall mean 90.0% of any punitive, exemplary, compensatory or consequential
damages paid or payable by the Company, not covered by any other provision of
this Contract and which arise from the handling of any claim on business
subject to this Contract, such liabilities arising because of, but not limited
to, failure by the Company to settle within the policy limits or by reason of
the Company’s alleged or actual negligence, fraud or bad faith in rejecting an
offer of settlement or in the preparation of the defense or in the trial of an
action against its insured or reinsured or in the preparation or prosecution of
an appeal consequent upon such an action. An extra contractual obligation shall
be deemed, in all circumstances, to have occurred on the same date as the loss
covered or alleged to be covered under the policy.

 

Notwithstanding anything stated herein, this Contract shall not apply
to any loss in excess of policy limits or any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or criminal act by
any officer or director of the Company 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.

 

 

8

 

 

C.    “Occurrence” as used herein
is defined as an accident or occurrence or a series of accidents or occurrences
arising out of or caused by one event, whether involving one or more of the
Company’s policies, except that:

 

1.     As respects workers’
compensation policies, each occupational or industrial disease or cumulative
injury case contracted by an employee of an insured shall be deemed to have
been caused by a separate occurrence commencing on:

 

a.     The date of disability for
which compensation is payable if the case is compensable under the Workers’
Compensation Law;

 

b.     The date disability due to
the disease actually began if the case is not compensable under the Workers’
Compensation Law; or

 

c.     The date of cessation of
employment if claim is made after employment has ceased.

 

2.     Notwithstanding the provisions
of subparagraph 1 above, as respects losses resulting from occupational disease
and cumulative trauma suffered by employees of an insured for which the
employer is liable as a result of a sudden and accidental event not exceeding
48 hours in duration, all such losses shall be considered one occurrence and
may be combined with losses not classified as occupational disease or cumulative
trauma which arise out of the same event and the combination of such losses
shall be considered as one occurrence within the meaning hereof.

 

3.     Notwithstanding the foregoing, the following
shall apply to occurrences involving natural disasters:

 

a.     An occurrence shall be
limited to damage, injury or loss arising out of a natural disaster during any
continuous 168 hour period.

 

b.     The Company may choose the
date and time when such 168 hour period commences and if the occurrence is of
greater duration than 168 hours, the Company may divide such occurrence into
two or more occurrences, provided no two periods overlap and provided no period
commences earlier than the date and time of the first loss to the Company in
such occurrence.

 

c.     “Natural disaster” shall
mean loss caused by the perils of tornado, cyclone, windstorm, hurricane and
hail arising from the same atmospheric disturbance; earthquake, including
ensuing fire, landslide, mudslide, flood, tidal wave; volcanic eruptions;
flood; tides; tidal wave; landslide/mudslide; and meteors.

 

D.    “Occupational or Industrial
Disease” shall mean any abnormal condition that fulfills all of the following
conditions:

 

 

9

 

1.     It is not traceable to a
definite compensable accident occurring during the employee’s present or past
employment; and

 

2.     It has been caused by
exposure to a disease producing agent or agents present in the workers’
occupational environment; and

 

3.     It has resulted in a
disability or death.

 

E.     “Cumulative Injury” is any
injury that fulfills all of the following conditions:

 

1.     It is not traceable to a
definite compensable accident occurring during the employee’s present or past
employment; and

 

2.     It has occurred from, and
has been aggravated by, a repetitive employment-related activity; and

 

3.     It has resulted in a
disability or death.

 

F.     “Loss adjustment expense” as
used herein shall mean expenses assignable to the investigation, appraisal,
adjustment, settlement, litigation, defense and/or appeal of specific claims,
regardless of how such expenses are classified for statutory reporting
purposes. Loss adjustment expense shall include, but not be limited to,
interest on judgments, expenses of outside adjusters and declaratory judgment
expenses or other legal expenses and costs incurred in connection with coverage
questions and legal actions connected thereto, but shall not include office
expenses or salaries of the Company’s regular employees other than medical
management personnel whose cost the Company will bill to specific cases on a
time and expense basis.

 

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

 

 

10

 

Article VIII - Other Reinsurance

 

A.    The Company
shall be permitted to carry facultative reinsurance, recoveries under which
shall inure to the benefit of this Contract.

 

B.    The Company
shall be permitted to carry underlying quota share reinsurance, recoveries
under which shall inure solely to the benefit of the Company and be entirely
disregarded in applying all of the provisions of this Contract.

 

Article IX -
Claims

 

A.    Whenever a claim
is reserved by the Company for an amount greater than $250,000 hereunder and/or
whenever a claim appears likely to result in a claim under this Contract, the
Company shall notify the Reinsurer. Further, the Company shall notify the
Reinsurer whenever a claim involves a fatality, amputation, spinal cord damage,
brain damage, blindness, extensive burns or multiple fractures, regardless of
liability, if the policy limits or statutory benefits applicable to the claim
are greater than the Company’s retention hereunder. The Reinsurer shall have
the right to participate, at its own expense, in the defense of any claim or
suit or proceeding involving this reinsurance.

 

B.    All claim
settlements made by the Company, provided they are within the terms of this
Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay
all amounts for which it may be liable upon receipt of reasonable evidence of
the amount paid by the Company.

 

Article X -
Subrogation

 

The Reinsurer shall be credited with recoveries from
subrogation (i.e., reimbursement obtained or recovery made by the Company, less
the actual cost, excluding salaries of officials and employees of the Company
and sums paid to attorneys as retainer, of obtaining such reimbursement or
making such recovery) on account of claims and settlements involving
reinsurance hereunder. Recoveries therefrom shall always be used to reimburse
the excess carriers in the reverse order of their priority according to their
participation before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to subrogation
relating to any loss, a part of which loss was sustained by the Reinsurer, and
to prosecute all claims arising out of such rights.

 

Article XI - Premium

 

A.    As premium for
the reinsurance provided hereunder during each contract year, the Company shall
pay the Reinsurer 3.15% of its net earned premium for the contract year,
subject to an annual minimum premium of $3,827,250.

 

 

11

 

B.    The Company
shall pay the Reinsurer an annual deposit premium of $4,252,500 in four equal
installments of $1,063,125 on January 1, April 1, July 1 and
October 1 of each contract year. However, no deposit premium installments
shall be due after the effective date of termination.

 

C.    Within 60 days
following the end of each contract year and within 60 days following the
12-month period thereafter, the Company shall provide a report to the Reinsurer
setting forth the premium due hereunder for the contract year, computed in
accordance with paragraph A, and any additional premium due the Reinsurer or
return premium due the Company shall be remitted promptly.

 

D.    In the event
this Contract is terminated on a “runoff” basis, the Company shall pay the
Reinsurer premium for the “runoff” period equal to the percentage, shown in
paragraph A above, of the Company’s unearned premium applicable to subject
business in force on the effective date of termination, payable in four equal
installments on the first day of each three-month period during the runoff
period.

 

E.     “Net earned
premium” as used herein is defined as the Company’s gross earned premium for
the classes of business subject to this Contract, adjusted for experience
modification, discounts, credits, surcharges, expense constants and deductible
credits, plus or minus the Reinsurer’s pro rata share of any premium arising
from audit adjustments, minus cancellation and return premium, minus premiums
paid for facultative reinsurance which inures to the benefit of this Contract.

 

Article XII - Late Payments

 

A.    The provisions
of this Article shall not be implemented unless specifically invoked, in
writing, by one of the parties to this Contract.

 

B.    In the event
any premium, loss or other payment due either party is not received by the
intermediary named Article XXV (hereinafter referred to as the “Intermediary”)
by the payment due date, the party to whom payment is due may, by notifying the
Intermediary in writing, require the debtor party to pay, and the debtor party
agrees to pay, an interest penalty on the amount past due calculated for each
such payment on the last business day of each month as follows:

 

1.     The number of full days
which have expired since the due date or the last monthly calculation,
whichever the lesser, times

 

2.     l/365ths of the six-month
United States Treasury Bill rate as quoted in The
Wall Street Journal on the first business day of the month for which
the calculation is made; times

 

3.     The amount past due,
including accrued interest.

 

 

 

12

 

It is agreed that interest
shall accumulate until payment of the original amount due plus interest
penalties have been received by the Intermediary.

 

C.    The
establishment of the due date shall, for purposes of this
Article, be determined as follows:

 

1.     As respects the payment of
routine deposits and premiums due the Reinsurer, the due date shall be as
provided for in the applicable section of this Contract. In the event
a due date is not specifically stated for a given payment, it shall be deemed
due 30 days after the date of transmittal by the Intermediary of the initial
billing for each such payment.

 

2.     Any claim or loss payment
due the Company hereunder shall be deemed due 30 business days after the proof
of loss or demand for payment is transmitted to the Reinsurer. If such loss or
claim payment is not received within the 30 days, interest will accrue on the
payment or amount overdue in accordance with paragraph B above, from the date
the proof of loss or demand for payment was transmitted to the Reinsurer.

 

3.     As respects any payment,
adjustment or return due either party not otherwise provided for in
subparagraphs 1 and 2 above, the due date
shall be as provided for in the applicable section of this Contract. In
the event a due date is not specifically stated for a given payment, it shall
be deemed due 30 business days following transmittal of written notification
that the provisions of this Article have been invoked.

 

For purposes of interest calculations only, amounts due hereunder shall
be deemed paid upon receipt by the Intermediary.

 

D.    Nothing herein
shall be construed as limiting or prohibiting a subscribing reinsurer from
contesting the validity of any claim, or from participating in the defense of
any claim or suit, or prohibiting either party from contesting the validity of
any payment or from initiating any arbitration or other proceeding in
accordance with the provisions of this Contract. If the debtor party prevails
in an arbitration or other proceeding, then any interest penalties due
hereunder on the amount in dispute shall be null and void. If the debtor party
loses in such proceeding, then the interest penalty on the amount determined to
be due hereunder shall be calculated in accordance with the provisions set
forth above unless otherwise determined by such proceedings. If a debtor party
advances payment of any amount it is contesting, and proves to be correct in
its contestation, either in whole or in part, the other party shall reimburse
the debtor party for any such excess payment made plus interest on the excess
amount calculated in accordance with this Article.

 

E.     Interest
penalties arising out of the application of this Article that are $50,000
or less from any party shall be waived unless there is a pattern of late
payments consisting of three or more items over the course of any 12-month period.

 

 

13

 

Article XIII - Offset and
Security

 

A.    Each party hereto has the right, which may
be exercised at any time, to offset any amounts, whether on account of premiums
or losses or otherwise, due from such party to another party under this
Contract or any other reinsurance contract heretofore or hereafter entered into
between them, against any amounts, whether on account of premiums or losses or
otherwise due from the latter party to the former party. The party asserting
the right of offset may exercise this right, whether as assuming or ceding
insurer or in both roles in the relevant agreement or agreements.

 

B.    Each party hereby assigns and pledges to the
other party (or to each other party, if more than one) all of its rights under
this Contract to receive premium or loss payments at any time from such other
party (“collateral”), to secure its premium or loss obligations to such other
party at any time under this Contract and any other reinsurance agreement
heretofore or hereafter entered into by and between them (“secured
obligations”). If at any time a party is in default under any secured
obligation or shall be subject to any liquidation, rehabilitation,
reorganization or conservation proceeding, each other party shall be entitled
in its discretion, to apply, or to withhold for the purpose of applying in due
course, any collateral assigned and pledged to it by the former party and
otherwise to realize upon such collateral as security for such secured
obligations.

 

C.    The security interest described herein, and
the term “collateral,” shall apply to all payments and other proceeds in
respect of the rights assigned and pledged. A party’s security interest in
collateral shall be deemed evidenced only by the counterpart of this Contract
delivered to such party.

 

D.    Each right under this Article is a
separate and independent right, exercisable, without notice or demand, alone or
together with other rights, in the sole election of the party entitled thereto,
and no waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this
Article shall survive any cancellation or other termination of this
Contract.

 

E.     In the event of the insolvency of a party
hereto, offsets shall only be allowed in accordance with the laws of the
insolvent party’s state of domicile.

 

Article XIV
- Access to Records (BRMA 1D)

 

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

 

14

 

Article XV
- Liability of the Reinsurer

 

A.    The liability of the Reinsurer shall follow
that of the Company in every case and be subject in all respects to all the
general and specific stipulations, clauses, waivers and modifications of the
Company’s policies and any endorsements thereon. However, in no event shall
this be construed in any way to provide coverage outside the terms and
conditions set forth in this Contract.

 

B.    Nothing herein shall in any manner create
any obligations or establish any rights against the Reinsurer in favor of any
third party or any persons not parties to this Contract.

 

Article XVI
- Net Retained Lines (BRMA 32E)

 

A.    This Contract applies only to that portion of
any policy which the Company retains net for its own account (prior to
deduction of any underlying reinsurance specifically permitted in this
Contract), and in calculating the amount of any loss hereunder and also in
computing the amount or amounts in excess of which this Contract attaches, only
loss or losses in respect of that portion of any policy which the Company
retains net for its own account shall be included.

 

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

 

Article XVII
- Errors and Omissions (BRMA 14F)

 

Inadvertent delays,
errors or omissions made in connection with this Contract or any transaction
hereunder shall not relieve either party from any liability which would have
attached had such delay, error or omission not occurred, provided always that
such error or omission is rectified as soon as possible after discovery.

 

Article XVIII - Taxes (BRMA 50B)

 

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

 

15

 

Article XIX
- Unauthorized Reinsurers

 

A.    If the Reinsurer is unauthorized in any
state of the United States of America or the District of Columbia, the
Reinsurer agrees to fund its share of the Company’s ceded outstanding loss and
loss adjustment expense reserves (including incurred but not reported loss
reserves) by:

 

1.     Clean,
irrevocable and unconditional letters of credit issued and confirmed, if
confirmation is required by the insurance regulatory authorities involved, by a
bank or banks meeting the NAIC Securities Valuation Office credit standards for
issuers of letters of credit and acceptable to said insurance regulatory
authorities; and/or

 

2.     Escrow
accounts for the benefit of the Company; and/or 

 

3.     Cash
advances;

 

if, without such
funding, a penalty would accrue to the Company on any financial statement it is
required to file with the insurance regulatory authorities involved. The
Reinsurer, at its sole option, may fund in other than cash if its method and
form of funding are acceptable to the insurance regulatory authorities
involved.

 

B.    With regard to funding in whole or in part
by letters of credit, it is agreed that each letter of credit will be in a form
acceptable to insurance regulatory authorities involved, will be issued for a
term of at least one year and will include an “evergreen clause,” which
automatically extends the term for at least one additional year at each
expiration date unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The Company and the
Reinsurer further agree, notwithstanding anything to the contrary in this
Contract, that said letters of credit may be drawn upon by the Company or its
successors in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one or more of the
following purposes:

 

1.     To
reimburse itself for the Reinsurer’s share of losses and/or loss adjustment
expense paid under the terms of policies reinsured hereunder, unless paid in
cash by the Reinsurer;

 

2.     To
reimburse itself for the Reinsurer’s share of any other amounts claimed to be
due hereunder, unless paid in cash by the Reinsurer;

 

3.     To fund a
cash account in an amount equal to the Reinsurer’s share of any ceded
outstanding loss and loss adjustment expense reserves (including incurred but
not reported loss reserves) funded by means of a letter of credit which is
under non-renewal notice, if said letter of credit has not been renewed or
replaced by the Reinsurer 10 days prior to its expiration date;

 

4.     To refund
to the Reinsurer any sum in excess of the actual amount required to fund the
Reinsurer’s share of the Company’s ceded outstanding loss and loss adjustment

 

16

 

expense reserves
(including incurred but not reported loss reserves), if so requested by the
Reinsurer.

 

In the event the
amount drawn by the Company on any letter of credit is in excess of the actual
amount required for B(1) or B(3), or in the case of B(2), the actual
amount determined to be due, the Company shall promptly return to the Reinsurer
the excess amount so drawn.

 

Article XX - Insolvency

 

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

 

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

 

C.    It is
further understood and agreed that, in the event of the insolvency of one or
more of the reinsured companies, the reinsurance under this Contract shall be
payable directly by the Reinsurer to the company or to its liquidator, receiver
or statutory successor, except as provided by Section 4118(a) of the
New York Insurance Law or except (1) where this Contract specifically
provides another payee of such reinsurance in the event of the insolvency of
the company or (2) where the Reinsurer with the consent of the direct
insured or insureds has assumed such policy obligations of the company as
direct obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of the company to such payees.

 

17

 

Article XXI - Arbitration
(BRMA 6J)

 

A.    As a
condition precedent to any right of action hereunder, in the event of any
dispute or difference of opinion hereafter arising with respect to this
Contract, it is hereby mutually agreed that such dispute or difference of
opinion shall be submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be chosen by the two
Arbiters before they enter upon arbitration, all of whom shall be active or
retired disinterested executive officers of insurance or reinsurance companies
or Lloyd’s London Underwriters. In the event that either party should fail to
choose an Arbiter within 30 days following a written request by the other party
to do so, the requesting party may choose two Arbiters who shall in turn choose
an Umpire before entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within 30 days following their appointment,
each Arbiter shall nominate three candidates within 10 days thereafter, two of
whom the other shall decline, and the decision shall be made by drawing lots.

 

B.    Each party
shall present its case to the Arbiters within 30 days following the date of
appointment of the Umpire. The Arbiters shall consider this Contract as an
honorable engagement rather than merely as a legal obligation and they are
relieved of all judicial formalities and may abstain from following the strict
rules of law. The decision of the Arbiters shall be final and binding on
both parties; but failing to agree, they shall call in the Umpire and the
decision of the majority shall be final and binding upon both parties. Judgment
upon the final decision of the Arbiters may be entered in any court of
competent jurisdiction.

 

C.    If more
than one reinsurer is involved in the same dispute, 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 one party, provided, however, that nothing herein shall impair the
rights of such reinsurers to assert several, rather than joint, defenses or
claims, nor be construed as changing the liability of the reinsurers
participating under the terms of this Contract from several to joint.

 

D.    Each party
shall bear the expense of its own Arbiter, and shall jointly and equally bear
with the other the expense of the Umpire and of the arbitration. In the event
that the two Arbiters are chosen by one party, as above provided, the expense
of the Arbiters, the Umpire and the arbitration shall be equally divided
between the two parties.

 

E.     Any
arbitration proceedings shall take place at a location mutually agreed upon by
the parties to this Contract, but notwithstanding the location of the
arbitration, all proceedings pursuant hereto shall be governed by the law of
the state in which the Company has its principal office.

 

18

 

Article XXII
- Service of Suit (BRMA 49C)

 

(Applicable if the
Reinsurer is not domiciled in the United States of America, and/or is not
authorized in any State, Territory or District of the United States where
authorization is required by insurance regulatory authorities)

 

A.    It is
agreed that in the event the Reinsurer fails to pay any amount claimed to be
due hereunder, the 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 Reinsurer’s rights 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.

 

B.    Further,
pursuant to any statute of any state, territory or district of the United
States which makes provision therefor, the Reinsurer hereby designates the
party named in its Interests and Liabilities Agreement, or if no party is named
therein, the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Contract.

 

Article XXIII
- Material Changes

 

A.    It is
understood that no material changes in business practices will take place
during the term of this Contract that would significantly change the
underwriting results of the subject business without prior approval by the Lead
Reinsurer (i.e., American Re-Insurance Company, A Delaware Corporation)
including, but not limited to, policyholder dividends, claims handling and/or
settlement, business mix (i.e., hazard group, and class of insureds).  If a material change in the Company’s
business practices is to occur during the period, the Reinsurer shall be
allowed to negotiate changes in the contractual terms of the Contract
retroactively to remedy the change.

 

B.    It is further
agreed that the Company will furnish statutory quarterly and annual financial
statements to the Reinsurer at the same time these reports are filed with
regulatory authorities.

 

Article XXIV
- Agency Agreement

 

If more than one
reinsured company is named as a party to this Contract, the first named company
shall be deemed the agent of the other reinsured companies (subject to the
provisions of Article XX) for purposes of sending or receiving notices
required by the terms and conditions of this Contract, and for purposes of
remitting or receiving any monies due any party.

 

19

 

Article XXV
- Intermediary (BRMA 23A)

 

Benfield Blanch Inc. is
hereby recognized as the Intermediary negotiating this Contract for all business
hereunder. All communications (including but not limited to notices,
statements, premium, return premium, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating thereto shall be
transmitted to the Company or the Reinsurer through Benfield Blanch Inc., 3600
West 80th Street, Minneapolis, Minnesota 55431. Payments by the Company to the
Intermediary shall be deemed to constitute payment to the Reinsurer. Payments
by the Reinsurer to the Intermediary shall be deemed to constitute payment to
the Company only to the extent that such payments are actually received by the
Company.

 

In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date undermentioned at:

 

North Palm Beach, Florida
this 28 day of May in the year 2002.

 

	
   

  	
  /s/ Debra Cerre-Ruedisili,
  President

  
	
   

  	
  AmCOMP Preferred
  Insurance Company (for and on behalf of the 

  “Company”)

  

 

20

 

U.S.A.

 

NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY -
REINSURANCE

(Approved by Lloyd’s Underwriters’
Fire and Non-Marine Association)

 

(1)       This reinsurance does
not cover any loss or liability accruing to the Reassured as a member of, or
subscriber to, a association of insurers or reinsurers formed for the purpose
of covering nuclear energy risks or as a direct or indirect reinsurer 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 purposes of this reinsurance all the original policies of
the Reassured (new, renewal and replacement) of the classes specified 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 with respect to which an insured under
the

       (bodily injury or property damage

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 [ILLEGIBLE] 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 [ILLEGIBLE] four classes of policies stated above, such as the
Comprehensive Dwelling Policy and the applicable types Homeowners Policies.

 

III.   The
inception dates and thereafter of all original policies as described in II
above, whether new, renewal 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 [ILLEGIBLE] 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 operation of paragraph (1) of this Clause, it is understood
and agreed that for all purposes of this reinsurance the [ILLEGIBLE] liability
policies of the Reassured (new, renewal and replacement) affording the
following coverages:

 

Owners, Landlords
and Tenants Liability, Contractual Liability, Elevator Liability, Owners or
Contractors including railroad) Protective Liability, Manufacturers and
Contractors Liability, Product Liability, Professional [ILLEGIBLE] Malpractice
Liability, Storekeepers Liability, Garage Liability, Automobile Liability
(including Massachusetts [ILLEGIBLE] 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), 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 [ILLEGIBLE] or Nuclear Insurance
Association of Canada, or would be an insured under any such policy but for
termination upon exhaustion of its limit of liability; or

 

(b)   resulting
from the hazardous properties of nuclear material and with respect to which (I)
any person organization is required to maintain financial protection pursuant
to the Atomic Energy Act of 1954, any law amendatory thereof, or (2) the
insured is, or had this policy not been issued would be, entitled indemnity
from the United States of America, or any agency thereof, under any agreement
entered into 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 to
expenses incurred with respect

                 (first
aid,

to (bodily injury, sickness, disease or
death resulting from the hazardous properties of

    (bodily injury

nuclear material and arising out of the operation of a nuclear facility by any
person or organization.

 

III.   Under any
Liability Coverage to  (injury, sickness,
disease, death or destruction

                                                     (bodily
injury or property damage

resulting from the hazardous properties of nuclear material, if

 

(a)   the nuclear
material (1) is at any nuclear facility owned by, or operated by or on
behalf of, an insured (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 arises out of the furnishing by an
insured

      (bodily injury or property damage

of services, materials, parts or equipment in connection with the planning,
construction, [ILLEGIBLE] operation or use of any nuclear facility, but if such
facility is located within the United States of America its territories, or
possessions or Canada, this exclusion (c) applies

only to (injury to or destruction of
property at such nuclear facility

            (property
damage to such nuclear facility and any property thereat

 

IV.   As used in
this endorsement:

 

“hazardous
properties” include radioactive, toxic or explosive properties; “nuclear
material” means [ILLEGIBLE] material, special nuclear material or byproduct
material; “source material”, “special nuclear material”, [ILLEGIBLE] “byproduct
material” have the meanings given them in the Atomic Energy Act of 1954 or in
any law [ILLEGIBLE] 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 [ILLEGIBLE] (2) resulting from the operation
by any person or organization of any nuclear facility included within
[ILLEGIBLE] 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 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 premises used
for such operations: “nuclear reactor” means any apparatus designed or used to
sustain nuclear fission in a self-supporting chain reaction or to contain a
critical mass of fissionable material;

 

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

 

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

 

(    includes
all forms of radioactive contamination of property.

 

V.    The
inception dates and thereafter of all original policies affording coverages
specified in this paragraph [ILLEGIBLE] whether new, renewal or replacement,
being policies which become effective on or after 1st May. 1960, [ILLEGIBLE]
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 [ILLEGIBLE] 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 [ILLEGIBLE] paragraphs (2) and (3) above are
not applicable to original liability policies of the Reassured in Canada and
that with respect such policies this Clause shall be deemed to include the
Nuclear Energy Liability Exclusion Provisions adopted by the [ILLEGIBLE]
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 [ILLEGIBLE] [ILLEGIBLE] to original liability policies which include a
Limited Exclusion Provision or a Broad Exclusion Provision contain [ILLEGIBLE] words.

 

21/9/67

 

N.M.A. 1590

 

 

 

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
[ILLEGIBLE] any association of insurers or reinsurers formed for the purpose of
covering nuclear energy risks or as a direct [ILLEGIBLE] 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 [ILLEGIBLE] 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 1984, shall be deemed to include, from
their inception dates [ILLEGIBLE] 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 [ILLEGIBLE] under a contract of nuclear energy liability insurance
(whether the Insured is named in such contract or not [ILLEGIBLE] whether or
not it is legally enforceable by the Insured) issued by the Nuclear Insurance
Association of [ILLEGIBLE] or any other group or pool of insurers or would be
an Insured under any such policy but for its termination [ILLEGIBLE] exhaustion
of its limit 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 [ILLEGIBLE]
Agreement all the original liability contracts of the Reinsured, whether new,
renewal or replacement, of any [ILLEGIBLE] whatsoever (other than Personal
Liability, Farmers Liability, Storekeepers Liability or Automobile [ILLEGIBLE]
contracts), which become effective on or after 31st December 1984, shall
be deemed to include, from their [ILLEGIBLE] 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; or

 

(b)      to
bodily injury or property damage with respect to which an Insured under this
Policy is also [ILLEGIBLE] under a contract of nuclear energy liability
insurance (whether the Insured is named in such contract or [ILLEGIBLE] and
whether or not it is legally enforceable by the Insured) issued by the Nuclear
Insurance [ILLEGIBLE] Canada or any other insurer or group or pool of insurers
or would be an Insured under any such policy [ILLEGIBLE] for its termination
upon exhaustion of its limit of liability; or

 

(c)       to
bodily injury or property damage resulting directly or indirectly from the
nuclear energy hazard [ILLEGIBLE] from:

 

[ILLEGIBLE] the
ownership, maintenance, operation or use of a nuclear facility by or on behalf
of an Insured;

 

[ILLEGIBLE]
furnishing by an Insured of services, materials, parts or equipment in
connection with [ILLEGIBLE], construction, maintenance, operation or use of any
nuclear facility; and

 

 

 

(3)       The
possession, consumption, use, handling, disposal or transportation of
fissionable substances [ILLEGIBLE] of other radioactive material (except
radioactive isotopes, away from a nuclear facility, which [ILLEGIBLE] reached
the final stage of fabrication so as to be useable for any scientific, medical,
[ILLEGIBLE] commercial or industrial purpose) used, distributed, handled or
sold by an Insured.

 

As used in
this Policy:

 

(I)       The
term “nuclear energy hazard” means the radioactive, toxic, explosive or other
[ILLEGIBLE] properties of radioactive material;

 

(II)      The
term “radioactive material” means uranium, thorium, plutonium, neptunium, their
[ILLEGIBLE] derivatives and compounds, radioactive isotopes of other elements
and any other substances that [ILLEGIBLE] Atomic Energy Control Board may, by
regulation, designate as being prescribed substances [ILLEGIBLE] of releasing
atomic energy, or as being requisite for the production, use or application of
[ILLEGIBLE] energy;

 

(III)     The
term “nuclear facility” means:

 

(a)      any
apparatus designed or used to sustain nuclear fission in a self-supporting
chain reaction [ILLEGIBLE] 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 [ILLEGIBLE] 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 [ILLEGIBLE] more of them if at any time the
total amount of such material in the custody of the Insured [ILLEGIBLE] the
premises where such equipment or device is located consists of or contains more
than [ILLEGIBLE] grams of plutonium or uranium 233 or any combination thereof,
or more than 250 grams [ILLEGIBLE] uranium 235;

 

(d)      any
structure, basin, excavation, premises or place prepared or used for the
storage or [ILLEGIBLE] of waste radioactive material;

 

and includes the
site on which any of the foregoing is located, together with all [ILLEGIBLE]
conducted thereon and all premises used for such operations.

 

(IV)     The term
“fissionable substance” means any prescribed substance that is, or from which
can [ILLEGIBLE] obtained, a substance capable of releasing atomic energy by
nuclear fission.

 

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

 

 

 

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 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 Clause
No. 1B - Liability, No. 2 - Physical Damage, No. 3 - Boiler and
Machinery and paragraph (1) of this clause, it is understood and agreed
that for all purposes as respects the reinsurance assumed by the Reinsurer from
the Reassured, all original insurance policies or contracts of the Reassured
(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.

 

 

POLLUTION EXCLUSION CLAUSE - GENERAL LIABILITY - REINSURANCE

 

A.    This
reinsurance excludes all loss and/or liability accruing to the reinsured
company as a result of:

 

1.     bodily
injury or property damage arising out of the actual, alleged or threatened
discharge, dispersal, release or escape of pollutants:

 

a.     at or from
premises owned, rented or occupied by a named insured;

 

b.     at or from
any site or location used by or for a named insured or others for the handling,
storage, disposal, processing or treatment of waste;

 

c.     which are
at any time transported, handled, stored, treated, disposed of, or processed as
waste by or for a named insured or any person or organization for whom a named
insured may be legally responsible; or

 

d.     at or from
any site or location on which a named insured or any contractors or
subcontractors working directly or indirectly on behalf of a named insured are
performing operations:

 

(i)    if the
pollutants are brought on or to the site or location in connection with such
operations; or

 

(ii)   if the
operations are to test for, monitor, clean up, remove, contain, treat, detoxify
or neutralize the pollutants;

 

2      any
governmental direction or request that a named insured test for, monitor, clean
up, remove, contain, treat, detoxify or neutralize pollutants.

 

B.    Subparagraphs
A(1)(a) and A(1)(d)(i) above do not apply to bodily injury or
property damage caused by heat, smoke or fumes from a hostile fire.

 

C.    “Hostile
fire” means a fire which becomes uncontrollable or breaks out from where it was
intended to be.

 

D.    “Pollutants”
means any solid, liquid, gaseous or thermal irritant or contaminant, including
smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes
material to be recycled, reconditioned or reclaimed.Exhibit 10.41

 

 

Excess
Workers’ Compensation

Reinsurance Contract

Effective: January 1, 2002

 

issued to

 

AmCOMP Preferred
Insurance Company

North Palm Beach,
Florida

AmCOMP Assurance
Corporation

North Palm Beach,
Florida

and

any and all
insurance companies which are now or

hereafter come
under the same ownership or management as the

AmCOMP Group

North Palm Beach,
Florida

 

	
  

  	
   

  
	
  BENFIELD BLANCH

  	
   

  

 

 

Excess
Workers’ Compensation

Reinsurance Contract

Effective: January 1, 2002

 

issued to

 

AmCOMP Preferred
Insurance Company

North Palm Beach,
Florida

AmCOMP Assurance
Corporation

North Palm Beach,
Florida

and

any and all
insurance companies which are now or

hereafter come
under the same ownership or management as the

AmCOMP Group

North Palm Beach,
Florida

 

First Excess
Casualty Reinsurance

 

	
  Reinsurers

  	
   

  	
  Participations

  	
   

  
	
  American Re-Insurance Company, A Delaware
  Corporation

  	
   

  	
  50.0

  	
  %

  
	
  Everest Reinsurance Company

  	
   

  	
  20.0

  	
   

  
	
  GMAC Re
  Corporation (for Motors Insurance Corporation)

  	
   

  	
  20.0

  	
   

  
	
  Overseas Partners US Reinsurance Company (OPUS)

  	
   

  	
  10.0

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  100.0

  	
  %

  

 

Second Excess
Casualty Reinsurance

 

	
  Reinsurers

  	
   

  	
  Participations

  	
   

  
	
  American Re-Insurance Company, A Delaware
  Corporation

  	
   

  	
  50.0

  	
  %

  
	
  Everest Reinsurance Company

  	
   

  	
  20.0

  	
   

  
	
  GMAC Re Corporation (for Motors Insurance Corporation)

  	
   

  	
  20.0

  	
   

  
	
  Overseas Partners US Reinsurance Company (OPUS)

  	
   

  	
  10.0

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  100.0

  	
  %

  

 

1

 

Third Excess Casualty
Reinsurance

 

	
  Reinsurers

  	
   

  	
  Participations

  	
   

  
	
  American Re-Insurance Company, A Delaware Corporation

  	
   

  	
  50.0

  	
  %

  
	
  Everest Reinsurance Company

  	
   

  	
  10.0

  	
   

  
	
  Folksamerica Reinsurance Company

  	
   

  	
  15.0

  	
   

  
	
  GMAC Re Corporation (for Motors Insurance
  Corporation)

  	
   

  	
  15.0

  	
   

  
	
  Overseas Partners US Reinsurance Company (OPUS)

  	
   

  	
  10.0

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  100.0

  	
  %

  

 

2

 

Table of Contents

 

	
  Article

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  I

  	
   

  	
  Classes of Business Reinsured

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  II

  	
   

  	
  Commencement and Termination

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  III

  	
   

  	
  Special Termination

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  IV

  	
   

  	
  Territory (BRMA 51A)

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  V

  	
   

  	
  Exclusions

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  VI

  	
   

  	
  Retention and Limit

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  VII

  	
   

  	
  Reinstatement

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
  VIII

  	
   

  	
  Definitions

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  IX

  	
   

  	
  Other Reinsurance

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  X

  	
   

  	
  Claims

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  XI

  	
   

  	
  Subrogation

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  XII

  	
   

  	
  Premium

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  XIII

  	
   

  	
  Late Payments

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
  XIV

  	
   

  	
  Offset and Security

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  XV

  	
   

  	
  Access to Records (BRMA 1D)

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  XVI

  	
   

  	
  Liability of the Reinsurer

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  XVII

  	
   

  	
  Net Retained Lines (BRMA 32E)

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  XVIII

  	
   

  	
  Errors and Omissions (BRMA 14F)

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  XIX

  	
   

  	
  Taxes (BRMA 50B)

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  XX

  	
   

  	
  Unauthorized Reinsurers

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  XXI

  	
   

  	
  Insolvency

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  XXII

  	
   

  	
  Arbitration (BRMA 6J)

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  XXIII

  	
   

  	
  Service of Suit (BRMA 49C)

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  XXIV

  	
   

  	
  Material Changes

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  XXV

  	
   

  	
  Agency Agreement

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  XXVI

  	
   

  	
  Intermediary (BRMA 23A)

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Schedule A

  	
   

  

 

 

Excess
Workers’ Compensation

Reinsurance
Contract

Effective: January 1, 2002

 

issued to

 

AmCOMP Preferred
Insurance Company

North Palm Beach,
Florida

AmCOMP Assurance
Corporation

North Palm Beach,
Florida

and

any and all
insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach,
Florida

(hereinafter
referred to collectively as the “Company”)

 

by

 

The Subscribing
Reinsurer(s) Executing the

Interests and
Liabilities Agreement(s)

Attached Hereto

(hereinafter
referred to as the “Reinsurer”)

 

Article
I - Classes of Business Reinsured

 

By this Contract the Reinsurer agrees to reinsure the
excess liability which may accrue to the Company under its policies, contracts
and binders of insurance or reinsurance (hereinafter called “policies”) issued
or renewed on or after the effective date hereof, and classified by the Company
as Workers’ Compensation and Employers Liability business, subject to the
terms, conditions and limitations set forth herein and in Schedule A attached
to and forming part of this Contract.

 

Article
II - Commencement and Termination

 

A.     This Contract shall become effective on
January 1, 2002, with respect to losses arising out of occurrences commencing
on or after that date, and shall continue in force thereafter until terminated.

 

B.      Either party may terminate this Contract
at the end of any contract year by giving the other party not less than 90 days
prior notice by certified mail.

 

1

 

C.      Unless the Company elects that the
Reinsurer have no liability for losses arising out of occurrences commencing
after the effective date of termination, and so notifies the Reinsurer prior to
or within 72 hours after the effective date of termination, reinsurance
hereunder on business in force on the effective date of termination shall
remain in full force and effect until expiration, cancellation or next premium
anniversary of such business, whichever first occurs, but in no event beyond 12
months, plus odd time (not to exceed 18 months in all), following the effective
date of termination.

 

D.      Notwithstanding the provisions above, in
the event that any policy subject to this Contract is required by statute,
regulation or by order of an insurance department to be continued in force, the
Reinsurer agrees to extend reinsurance coverage hereunder following the
termination of this Contract with respect to such policy until the first date
that the Company may lawfully non-renew, cancel or terminate such policy,
whether or not the Company actually does non-renew, cancel or terminate such
policy.

 

E.      “Contract year” as used herein shall mean
the period from January 1, 2002 through December 31, 2002, and each subsequent
12-month period (or portion thereof) thereafter that this Contract continues in
force.

 

Article
III - Special Termination

 

Notwithstanding the provisions of Article II, the
Reinsurer may terminate this Contract on a “runoff” or “cutoff” basis at any
time by giving the Company not less than 45 days prior notice by certified mail
in the event any of the following occur:

 

1.     The Company’s policyholders’ surplus drops
25.0% or more in any 90-day period beginning on or after April 1, 2002. The
first 90-day period shall be measured against policyholders’ surplus as
provided in the Company’s year-end 2001 NAIC Statutory annual statement;

 

2.     The Company fails to pay reinsurance
premiums in accordance with this Contract;

 

3.     The Company merges with, or is acquired by
any other company, corporation or individual(s) not controlling the Company’s
operations previously;

 

4.     The sale of any material portion of the
Company or the sale or purchase of a portfolio of the Company’s business
reasonably considered by the Reinsurer to be material to the business subject
to this Contract;

 

5.     The Company’s underwriting abilities are
restricted in any way by the Insurance Department of the State of Florida or
any court of competent jurisdiction.

 

6.     There is any material change in the
Company’s existing senior management.

 

2

 

Article
IV - Territory (BRMA 51A)

 

The territorial limits of this Contract shall be
identical with those of the Company’s policies.

 

Article
V - Exclusions

 

A.            This Contract does not apply to and
specifically excludes the following:

 

1.             Reinsurance assumed by the Company under obligatory
reinsurance agreements, except:

 

a.             Agency reinsurance where the
policies involved are to be reunderwritten in accordance with the underwriting
standards of the Company and reissued as Company policies at the next
anniversary or expiration date;

 

b.             Intercompany reinsurance between
any of the reinsured companies under this Contract.

 

2.             Ex-gratia payments.

 

3.             Risks subject to a deductible in
excess of $25,000, or a self-insured retention excess of $25,000, unless such
deductible or self-insured retention is otherwise mandated by statute or
regulatory authority.

 

4.             Nuclear risks as defined in the
“Nuclear Incident Exclusion Clause - Liability - Reinsurance (U.S.A.)” and the
“Nuclear Incident Exclusion Clause - Liability - Reinsurance (Canada)” and loss
or liability defined in the “Nuclear Incident Exclusion Clause - Reinsurance -
No. 4” attached to and forming part of this Contract.

 

5.             Pollution liability coverages excluded under the
provisions of the “Pollution Exclusion Clause - General Liability - Reinsurance
(BRMA 39C)” attached to and forming part of this Contract.

 

6.             Liability as a member, subscriber
or reinsurer of any Pool, Syndicate or Association, but this exclusion shall
not apply to Assigned Risk Plans or similar state-mandated plans.

 

7.             All liability of the Company
arising by contract, operation of law, or otherwise, from its participation or
membership, whether voluntary or involuntary, in any insolvency fund.
“Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool,
association, fund or other arrangement, however denominated, established or
governed, which provides for any assessment of or payment or assumption by the
Company of part or all of any claim, debt, charge, fee or other obligation of
an insurer, or its successors or assigns, which has been declared by any
competent authority to be

 

3

 

insolvent, or which is
otherwise deemed unable to meet any claim, debt, charge, fee or other
obligation in whole or in part.

 

8.             Any claim caused or contributed to
by war, perpetrated by an official, employee or agent of a foreign state acting
for or on behalf of such state.

 

9.             Operation under the jurisdiction of
the U.S. Longshore and Harbor Workers’ Compensation Act, the Jones Act and the
Maritime Employers Liability Act, except for incidental exposures (i.e., 10% or
less of the insured’s payroll).

 

10.           Operations employing the process of
nuclear fission or fusion or handling of radioactive material, which operations
include but are not limited to:

 

a.             The use of nuclear reactors such as
atomic piles, particle accelerators or generators, or

 

b.             The use, handling or transportation
of radioactive materials, or the use, handling or transportation of any weapon
of war or explosive device employing nuclear fission or fusion.

 

However, subparagraphs a
and b above shall not apply to:

 

i.              The exclusive use of particle
accelerators incidental to ordinary industrial or education research pursuits,
or

 

ii.             The exclusive use, handling or
transportation of radioisotopes for medical or industrial use, or to radium or
radium compounds.

 

11.           Operation of docks or wharves as
related to port authorities.

 

12.           The manufacturing, mining, refining,
processing, distribution, installation, removal or encapsulment of asbestos.

 

13.           Risks involving known exposure to the
following substances:

 

a.             Dioxin,

 

b.             Polychlorinated bipbenols,

 

c.             Asbestos.

 

14.           All railway operations except
sidetrack agreements.

 

15.           Amusement parks, carnivals or
circuses. This exclusion shall not include miniature golf courses or driving
range operations.

 

4

 

16.           Subaquaeous operations.

 

17.           Underground mining, however this
exclusion shall not be construed to apply to open pit-quarrying or “surface
mining” operations.

 

18.           Blasting operations.

 

19.           Demolition of buildings or structures
in excess of five stories.

 

20.           Shoring, underpinning or moving of
buildings or structures.

 

21.           Erection or repair of scaffolds if
10.0% or more of the insured’s annual remuneration is attributed to NCCI Class
Code 9529.

 

22.           Construction of tunnels or dams.

 

23.           Fireworks, fuses, or any explosive
substance (as defined below) as follows:

 

a.             Manufacturers or importers of such
items.

 

b.             Loading of such items into
containers for use as explosive objects, propellant charges or detonation
devices and the storage thereof.

 

c.             Manufacturers or importers of any
product in which such items are an ingredient.

 

d.             Handling, storage, transportation
or use of such items.

 

“Explosive substance” is
defined as any substance manufactured for the express purpose of exploding as
differentiated from commodities used industrially and which are only
incidentally explosive.

 

24.           Onshore and offshore gas and oil
drilling operations.

 

25.           Operations where principal business
includes the use of any owned or unowned aircraft, or any device or machine
intended for and/or aiding in the achievement of atmospheric flight, projection
or orbit, for flight, and/or the ownership or operation of any airport. This
exclusion shall not apply where exposure is incidental (i.e., constitutes 10.0%
or less of the insured’s payroll) to the principal business operations and the
aircraft contains eight seats or fewer.

 

26.           Municipal law enforcement
organizations and municipal fire fighting organizations.

 

27.           Logging or forestry operations.

 

5

 

28.           Professional employment organizations
(PEO’s).

 

6

 

29.           Operations where the principal
business of the risk is manufacturing, production, distribution, refining or
storage of natural or artificial fuel, gas, butane, propane, liquefied
petroleum gases or gasoline. This exclusion shall not apply to any risk whose
principal business operations are any of the following:

 

a.             Retail gasoline service station,
either full or self service;

 

b.             Convenience store with gasoline
sales with its petroleum gas and/or storage tanks located below ground;

 

c.             Any risk with a known incidental
gasoline or diesel fuel storage and/or transportation exposure. For purposes of
this exclusion, “incidental” will be defined as less than or equal to a total
for any and all tanks at a covered location of no more than 1,000 gallons for propane
and 10,000 gallons for gasoline or diesel fuel.

 

B.            In the event the Company is
inadvertently bound on any risk which is excluded under subparagraph 9 or
subparagraphs 14 through 29 of paragraph A above, the reinsurance provided
under this Contract shall apply on such risk until discovery by the Company of
the existence of such risk and for 30 days thereafter, or unless otherwise
mandated by statute or regulatory authority. Coverage shall cease after such
time, unless the Company has received from the Reinsurer written notice of its
approval of such risk within 30 days.

 

C.            Notwithstanding the foregoing, any
reinsurance falling within the scope of one or more of the exclusions set forth
above that is specially accepted by the Reinsurer from the Company shall be
covered under this Contract and subject to all of the terms and conditions
hereof, except as such terms are modified by the special acceptance.

 

Article
VI - Retention and Limit

 

A.            As respects all losses subject
hereto except losses arising out of an occurrence of terrorism, as respects
each excess layer of reinsurance coverage provided by this Contract, the
Company shall retain and be liable for the first amount of ultimate net loss
(whether involving any one or any combination of the classes of business
covered hereunder, regardless of the number of policies under which such loss
is payable or the number of different interests insured), shown as “Company’s
Retention” for that excess layer in Schedule A attached hereto, arising out of
each occurrence. The Reinsurer shall then be liable, as respects each excess
layer, for the amount by which such ultimate net loss exceeds the Company’s
retention, but the liability of the Reinsurer shall not exceed the amount,
shown as “Reinsurer’s Per Occurrence Limit” for that excess layer in Schedule A
attached hereto, as respects any one occurrence.

 

B.            As respects losses arising out of an
occurrence of terrorism, as respects each excess layer of reinsurance coverage
provided hereunder, the Company shall retain and be liable for the first amount
of ultimate net loss, shown as “Company’s Retention” for that excess layer in
Schedule A attached hereto, arising out of each occurrence. The Reinsurer shall
then be liable, as respects each excess layer, for the amount by which such
ultimate net loss exceeds the Company’s retention, but the liability of the
Reinsurer shall not exceed the amount

 

7

 

shown as “Reinsurer’s
Terrorism Per Occurrence Limit” for that excess layer in Schedule A attached
hereto as respects any one occurrence of terrorism, nor shall it exceed the
amount shown as “Reinsurer’s Total Terrorism Limit” for that excess layer in
Schedule A attached hereto as respects loss or losses arising out of all occurrences
of terrorism during the term of this Contract.

 

C.            Notwithstanding the provisions of
paragraphs A and B above, if the Company’s net earned premium subject hereto
exceeds $155,000,000 in any one contract year (excluding the runoff period of
the final contract year), the Company’s recoveries from losses for each excess
layer, as respects occurrences commencing during that contract year, shall be
reduced in the same proportion that $155,000,000 bears to the Company’s actual
net earned premium in such contract year. Any recoveries made prior to
determination of the Company’s net earned premium for the contract year shall
be adjusted accordingly.

 

Article VII - Reinstatement

 

A.            In the event all or any portion of
the reinsurance under any excess layer of reinsurance coverage provided by this
Contract is exhausted by loss, the amount so exhausted shall be reinstated
immediately from the time the occurrence commences hereon.

 

1.             As respects each amount so
reinstated under the first and second excess layers and as respects the first
amount so reinstated under the third excess layer, the Company shall pay no
additional premium.

 

2.             For the second amount so reinstated
under the third excess layer the Company agrees to pay additional premium equal
to the product of the following:

 

a.             The percentage of the occurrence
limit for the excess layer reinstated (based on the loss paid by the Reinsurer
under that excess layer); times

 

b.             The earned reinsurance premium for
the excess layer reinstated for the contract year (exclusive of reinstatement
premium); times

 

c.             125%.

 

B.            Whenever the Company requests
payment by the Reinsurer of any loss under any excess layer hereunder, the
Company shall submit a statement to the Reinsurer of reinstatement premium due
the Reinsurer for that excess layer. If the earned reinsurance premium for any
excess layer for the contract year has not been finally determined as of the
date of any such statement, the calculation of reinstatement premium due for
that excess layer shall be based on the annual deposit premium for that excess
layer and shall be readjusted when the earned reinsurance premium for that
excess layer for the contract year has been finally determined. Any
reinstatement premium shown to be due the Reinsurer for any excess layer as
reflected by any such statement (less prior payments, if any, for that excess
layer) shall be payable by the Company concurrently with payment by the
Reinsurer of the requested loss for that excess layer. Any return reinstatement
premium shown to be due the Company shall be

 

8

 

remitted by the Reinsurer
as promptly as possible after receipt and verification of the Company’s
statement.

 

C.            Notwithstanding anything stated
herein, the liability of the Reinsurer under the third excess layer of
reinsurance coverage provided by this Contract shall not exceed $5,000,000 as
respects loss or losses arising out of any one occurrence, nor shall it exceed
$15,000,000 in all during any one contract year.

 

Article VIII - Definitions

 

A.            “Ultimate net loss” as used herein
is defined as the sum or sums (including loss in excess of policy limits, extra
contractual obligations and any loss adjustment expense, as hereinafter
defined) paid or payable by the Company in settlement of claims and in
satisfaction of judgments rendered on account of such claims, after deduction
of all recoveries from subrogation, all recoveries and all claims on inuring
insurance or reinsurance, whether collectible or not. Nothing herein shall be
construed to mean that losses under this Contract are not recoverable until the
Company’s ultimate net loss has been ascertained.

 

B.            “Loss in excess of policy limits”
and “extra contractual obligations” as used herein shall be defined as follows:

 

1.             “Loss in excess of policy limits”
shall mean 90.0% of any amount paid or payable by the Company in excess of its
policy limits, but otherwise within the terms of its policy, such loss in
excess of the Company’s policy limits having been incurred because of, but not
limited to, failure by the Company to settle within the policy limits or by
reason of the Company’s alleged or actual negligence, fraud or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of an action against its insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such an action.

 

2.             “Extra contractual obligations”
shall mean 90.0% of any punitive, exemplary, compensatory or consequential
damages paid or payable by the Company, not covered by any other provision of
this Contract and which arise from the handling of any claim on business
subject to this Contract, such liabilities arising because of, but not limited
to, failure by the Company to settle within the policy limits or by reason of
the Company’s alleged or actual negligence, fraud or bad faith in rejecting an
offer of settlement or in the preparation of the defense or in the trial of an
action against its insured or reinsured or in the preparation or prosecution of
an appeal consequent upon such an action. An extra contractual obligation shall
be deemed, in all circumstances, to have occurred on the same date as the loss
covered or alleged to be covered under the policy.

 

Notwithstanding anything
stated herein, this Contract shall not apply to any loss in excess of policy
limits or any extra contractual obligation incurred by the Company as a result
of any

 

9

 

fraudulent and/or
criminal act by any officer or director of the Company 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.            “Occurrence” as used herein is defined
as an accident or occurrence or a series of accidents or occurrences arising
out of or caused by one event, whether involving one or more of the Company’s
policies, except that:

 

1.             As respects workers’ compensation
policies, each occupational or industrial disease or cumulative injury case
contracted by an employee of an insured shall be deemed to have been caused by
a separate occurrence commencing on:

 

a.             The date of disability for which
compensation is payable if the case is compensable under the Workers’
Compensation Law;

 

b.             The date disability due to the
disease actually began if the case is not compensable under the Workers’
Compensation Law; or

 

c.             The date of cessation of employment
if claim is made after employment has ceased.

 

2.             Notwithstanding the provisions of
subparagraph 1 above, as respects losses resulting from occupational disease
and cumulative trauma suffered by employees of an insured for which the
employer is liable as a result of a sudden and accidental event not exceeding
48 hours in duration, all such losses shall be considered one occurrence and
may be combined with losses not classified as occupational disease or cumulative trauma which arise out of the
same event and the combination of such losses shall be considered as one occurrence
within the meaning hereof.

 

3.             Notwithstanding the foregoing, the
following shall apply to occurrences involving natural disasters:

 

a.             An occurrence shall be limited to
damage, injury or loss arising out of a natural disaster during any continuous
168 hour period.

 

b.             The Company may choose the date and
time when such 168 hour period commences and if the occurrence is of greater
duration than 168 hours, the Company may divide such occurrence into two or
more occurrences, provided no two periods overlap and provided no period
commences earlier than the date and time of the first loss to the Company in
such occurrence.

 

c.             “Natural disaster” shall mean loss
caused by the perils of tornado, cyclone, windstorm, hurricane and hail arising
from the same atmospheric disturbance; earthquake, including ensuing fire,
landslide, mudslide, flood, tidal wave; volcanic eruptions; flood; tides; tidal
wave; landslide/mudslide; and meteors.

 

10

 

D.            “Occupational
or Industrial Disease” shall mean any abnormal condition that fulfills all of
the following conditions:

 

1.             It is not traceable to a definite
compensable accident occurring during the employee’s present or past
employment; and

 

2.             It has been caused by exposure to a
disease producing agent or agents present in the workers’ occupational
environment; and

 

3.             It has resulted in a disability or
death.

 

E.             “Cumulative
Injury” is any injury that fulfills all of the following conditions:

 

1.             It is not traceable to a definite
compensable accident occurring during the employee’s present or past
employment; and

 

2.             It has occurred from, and has been
aggravated by, a repetitive employment-related activity; and

 

3.             It has resulted in a disability or
death.

 

F.             “Loss adjustment expense” as used
herein shall mean expenses assignable to the investigation, appraisal,
adjustment, settlement, litigation, defense and/or appeal of specific claims,
regardless of how such expenses are classified for statutory reporting
purposes. Loss adjustment expense shall include, but not be limited to,
interest on judgments, expenses of outside adjusters and declaratory judgment
expenses or other legal expenses and costs incurred in connection with coverage
questions and legal actions connected thereto, but shall not include office
expenses or salaries of the Company’s regular employees other than medical
management personnel whose cost the Company will bill to specific cases on a
time and expense basis.

 

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

 

11

 

Article
IX - Other Reinsurance

 

A.            The Company shall be permitted to
carry facultative reinsurance, recoveries under which shall inure to the
benefit of this Contract.

 

B.            The Company shall be permitted to
carry underlying quota share reinsurance and underlying excess reinsurance,
recoveries under which shall inure solely to the benefit of the Company and be
entirely disregarded in applying all of the provisions of this Contract.

 

Article X - Claims

 

A.            Whenever a claim is reserved by the
Company for an amount greater than $500,000 hereunder and/or whenever a claim
appears likely to result in a claim under this Contract, the Company shall
notify the Reinsurer. Further, the Company shall notify the Reinsurer whenever
a claim involves a fatality, amputation, spinal cord damage, brain damage,
blindness, extensive burns or multiple fractures, regardless of liability, if
the policy limits or statutory benefits applicable to the claim are greater
than the Company’s retention hereunder. The Reinsurer shall have the right to
participate, at its own expense, in the defense of any claim or suit or
proceeding involving this reinsurance.

 

B.            All claim settlements made by the
Company, provided they are within the terms of this Contract, shall be binding
upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it
may be liable upon receipt of reasonable evidence of the amount paid by the
Company.

 

Article XI - Subrogation

 

The Reinsurer shall be credited with recoveries from
subrogation (i.e., reimbursement obtained or recovery made by the Company, less
the actual cost, excluding salaries of officials and employees of the Company
and sums paid to attorneys as retainer, of obtaining reimbursement or making
such recovery) on account of claims and settlements involving reinsurance
hereunder. Recoveries therefrom shall always be used to reimburse the excess
carriers in the reverse order of their priority according to their
participation before being used in any way to reimburse the Company for its
primary loss. The Company hereby agrees to enforce its rights to subrogation
relating to any loss, a part of which loss was sustained by the Reinsurer, and
to prosecute all claims arising out of such rights.

 

Article XII - Premium

 

A.            As premium for each excess layer of reinsurance
coverage provided by this Contract, the Company shall pay the Reinsurer the
greater of the following for each contract year:

 

12

 

 

1.             The amount (or pro rata portion
thereof if this Contract is terminated prior to the end of any contract year),
shown as “Annual Minimum Premium” for that excess layer in Schedule A attached
hereto; or

 

2.             The percentage, shown as “Premium
Rate” for that excess layer in Schedule A attached hereto, of the Company’s net
earned premium for the contract year.

 

B.            The Company shall pay the Reinsurer
an annual deposit premium for each excess layer of the amount, shown as “Annual
Deposit Premium” for that excess layer in Schedule A attached hereto, in four
equal installments of the amount, shown as “Quarterly Deposit Premium” for that
excess layer in Schedule A attached hereto, on January 1, April 1, July 1and
October 1 of each contract year. However, no deposit premium installments shall
be due after the effective date of termination.

 

C.            Within 60 days following the end of
each contract year and within 60 days following the12-month period thereafter,
the Company shall provide a report to the Reinsurer setting forth the premium
due hereunder for each excess layer for the contract year, computed in
accordance with paragraph A, and any additional premium due the Reinsurer or
return premium due the Company for each such excess layer shall be remitted
promptly.

 

D.            In the event this Contract is
terminated on a “runoff” basis, the Company shall pay the Reinsurer premium for
the “runoff” period as respects each excess layer equal to the percentage,
shown as “Premium Rate” for that excess layer in Schedule A attached hereto, of
the Company’s unearned premium applicable to subject business in force on the
effective date of termination, payable in four equal installments on the first
day of each three-month period during the runoff period.

 

E.                                      “Net earned premium” as used herein is
defined as the Company’s gross earned premium for the classes of business
subject to this Contract, adjusted for experience modification, discounts,
credits, surcharges, expense constants and deductible credits, plus or minus
the Reinsurer’s pro rata share of any premium arising from audit adjustments,
minus cancellation and return premium, minus premiums paid for facultative
reinsurance which inures to the benefit of this Contract.

 

Article XIII - Late Payments

 

A.            The provisions of this Article shall
not be implemented unless specifically invoked, in writing, by one of the
parties to this Contract.

 

B.            In the event any premium, loss or
other payment due either party is not received by the intermediary named
Article XXVI (hereinafter referred to as the “Intermediary”) by the payment due
date, the party to whom payment is due may, by notifying the Intermediary in
writing, require the debtor party to pay, and the debtor party agrees to pay,
an interest

 

13

 

penalty on the amount
past due calculated for each such payment on the last business day of each
month as follows:

 

1.             The number of full days which have
expired since the due date or the last monthly calculation, whichever the
lesser, times

 

2.             l/365ths of the six-month United
States Treasury Bill rate as quoted in The
Wall Street Journal on the first business day of the month for which
the calculation is made; times

 

3.             The amount past due, including
accrued interest.

 

It is agreed that
interest shall accumulate until payment of the original amount due plus interest
penalties have been received by the Intermediary.

 

C.                                     The establishment of the due date shall,
for purposes of this Article, be determined as follows:

 

1.             As respects the payment of routine
deposits and premiums due the Reinsurer, the due date shall be as provided for
in the applicable section of this Contract. In the event a due date is not
specifically stated for a given payment, it shall be deemed due 30 days after
the date of transmittal by the Intermediary of the initial billing for each
such payment.

 

2.             Any claim or loss payment due the
Company hereunder shall be deemed due 30 business days after the proof of loss
or demand for payment is transmitted to the Reinsurer. If such loss or claim
payment is not received within the 30 days, interest will accrue on the payment
or amount overdue in accordance with paragraph B above, from the date the proof
of loss or demand for payment was transmitted to the Reinsurer.

 

3.             As respects any payment, adjustment
or return due either party not otherwise provided for in subparagraphs 1 and 2
above, the due date shall be as provided for in the applicable section of this
Contract. In the event a due date is not specifically stated for a given
payment, it shall be deemed due 30 business days following transmittal of written
notification that the provisions of this Article have been invoked.

 

For purposes of interest
calculations only, amounts due hereunder shall be deemed paid upon receipt by
the Intermediary.

 

D.                                    Nothing herein shall be construed as
limiting or prohibiting a subscribing reinsurer from contesting the validity of
any claim, or from participating in the defense of any claim or suit, or
prohibiting either party from contesting the validity of any payment or from
initiating any arbitration or other proceeding in accordance with the
provisions of this Contract. If the debtor party prevails in an arbitration or
other proceeding, then any interest penalties due hereunder on the amount in
dispute shall be null and void. If the debtor party loses in such

 

14

 

proceeding, then the
interest penalty on the amount determined to be due hereunder shall be
calculated in accordance with the provisions set forth above unless otherwise
determined by such proceedings. If a debtor party advances payment of any
amount it is contesting, and proves to be correct in its contestation, either
in whole or in part, the other party shall reimburse the debtor party for any
such excess payment made plus interest on the excess amount calculated in
accordance with this Article.

 

E.                                      Interest penalties arising out of the
application of this Article that are $50,000 or less from any party shall be
waived unless there is a pattern of late payments consisting of three or more
items over the course of any 12-month period.

 

Article XIV - Offset and Security

 

A.            Each party hereto has the right,
which may be exercised at any time, to offset any amounts, whether on account
of premiums or losses or otherwise, due from such party to another party under
this Contract or any other reinsurance contract heretofore or hereafter entered
into between them, against any amounts, whether on account of premiums or
losses or otherwise due from the latter party to the former party. The party
asserting the right of offset may exercise this right, whether as assuming or
ceding insurer or in both roles in the relevant agreement or agreements.

 

B.            Each party hereby assigns and
pledges to the other party (or to each other party, if more than one) all of
its rights under this Contract to receive premium or loss payments at any time
from such other party (“collateral”), to secure its premium or loss obligations
to such other party at any time under this Contract and any other reinsurance
agreement heretofore or hereafter entered into by and between them (“secured
obligations”). If at any time a party is in default under any secured
obligation or shall be subject to any liquidation, rehabilitation,
reorganization or conservation proceeding, each other party shall be entitled
in its discretion, to apply, or to withhold for the purpose of applying in due
course, any collateral assigned and pledged to it by the former party and
otherwise to realize upon such collateral as security for such secured
obligations.

 

C.            The security interest described
herein, and the term “collateral,” shall apply to all payments and other
proceeds in respect of the rights assigned and pledged. A party’s security
interest in collateral shall be deemed evidenced only by the counterpart of
this Contract delivered to such party.

 

D.            Each right under this Article is a
separate and independent right, exercisable, without notice or demand, alone or
together with other rights, in the sole election of the party entitled thereto,
and no waiver, delay, or failure to exercise, in respect of any right, shall
constitute a waiver of any other right. The provisions of this Article shall
survive any cancellation or other termination of this Contract.

 

15

 

E.                                      In the event of the insolvency of a party
hereto, offsets shall only be allowed in accordance with the laws of the
insolvent party’s state of domicile.

 

Article
XV - Access to Records (BRMA 1D)

 

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

 

Article
XVI - Liability of the Reinsurer

 

A.                                   The liability of the Reinsurer shall
follow that of the Company in every case and be subject in all respects to all
the general and specific stipulations, clauses, waivers and modifications of
the Company’s policies and any endorsements thereon. However, in no event shall
this be construed in any way to provide coverage outside the terms and
conditions set forth in this Contract.

 

B.                                     Nothing herein shall in any manner create
any obligations or establish any rights against the Reinsurer in favor of any
third party or any persons not parties to this Contract.

 

Article
XVII - Net Retained Lines (BRMA 32E)

 

A.                                   This Contract applies only to that
portion of any policy which the Company retains net for its own account (prior
to deduction of any underlying reinsurance specifically permitted in this
Contract), and in calculating the amount of any loss hereunder and also in
computing the amount or amounts in excess of which this Contract attaches, only
loss or losses in respect of that portion of any policy which the Company
retains net for its own account shall be included.

 

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

 

Article
XVIII - Errors and Omissions (BRMA 14F)

 

Inadvertent delays, errors or omissions made in
connection with this Contract or any transaction hereunder shall not relieve
either party from any liability which would have attached had such delay, error
or omission not occurred, provided always that such error or omission is
rectified as soon as possible after discovery.

 

16

 

Article XIX - Taxes (BRMA 50B)

 

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

 

Article XX - Unauthorized
Reinsurers

 

A.            If the Reinsurer is unauthorized in
any state of the United States of America or the District of Columbia, the
Reinsurer agrees to fund its share of the Company’s ceded outstanding loss and
loss adjustment expense reserves (including incurred but not reported loss
reserves) by:

 

1.             Clean, irrevocable and
unconditional letters of credit issued and confirmed, if confirmation is
required by the insurance regulatory authorities involved, by a bank or banks
meeting the NAIC Securities Valuation Office credit standards for issuers of
letters of credit and acceptable to said insurance regulatory authorities;
and/or

 

2.             Escrow accounts for the benefit of
the Company; and/or

 

3.             Cash advances;

 

if, without such funding,
a penalty would accrue to the Company on any financial statement it is required
to file with the insurance regulatory authorities involved. The Reinsurer, at
its sole option, may fund in other than cash if its method and form of funding
are acceptable to the insurance regulatory authorities involved.

 

B.            With regard to funding in whole or
in part by letters of credit, it is agreed that each letter of credit will be
in a form acceptable to insurance regulatory authorities involved, will be
issued for a term of at least one year and will include an “evergreen clause,”
which automatically extends the term for at least one additional year at each
expiration date unless written notice of non-renewal is given to the Company
not less than 30 days prior to said expiration date. The Company and the
Reinsurer further agree, notwithstanding anything to the contrary in this
Contract, that said letters of credit may be drawn upon by the Company or its
successors in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one or more of the
following purposes:

 

1.             To reimburse itself for the
Reinsurer’s share of losses and/or loss adjustment expense paid under the terms
of policies reinsured hereunder, unless paid in cash by the Reinsurer;

 

2.             To reimburse itself for the
Reinsurer’s share of any other amounts claimed to be due hereunder, unless paid
in cash by the Reinsurer;

 

17

 

 

3.             To fund a cash account in an amount
equal to the Reinsurer’s share of any ceded outstanding loss and loss
adjustment expense reserves (including incurred but not reported loss reserves)
funded by means of a letter of credit which is under non-renewal notice, if
said letter of credit has not been renewed or replaced by the Reinsurer 10 days
prior to its expiration date;

 

4.             To refund to the Reinsurer any sum
in excess of the actual amount required to fund the Reinsurer’s share of the
Company’s ceded outstanding loss and loss adjustment expense reserves
(including incurred but not reported loss reserves), if so requested by the
Reinsurer.

 

In the event the amount
drawn by the Company on any letter of credit is in excess of the actual amount
required for B(1) or B(3), or in the case of B(2), the actual amount determined
to be due, the Company shall promptly return to the Reinsurer the excess amount
so drawn.

 

Article XXI - Insolvency

 

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

 

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

 

C.            It is further understood and agreed
that, in the event of the insolvency of one or more of the reinsured companies,
the reinsurance under this Contract shall be payable directly by the Reinsurer
to the company or to its liquidator, receiver or statutory successor, except as

 

18

 

provided by Section
4118(a) of the New York Insurance Law or except (1) where this Contract
specifically provides another payee of such reinsurance in the event of the
insolvency of the company or (2) where the Reinsurer with the consent of the
direct insured or insureds has assumed such policy obligations of the company
as direct obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of the company to such payees.

 

Article
XXII - Arbitration (BRMA 6J)

 

A.            As a condition precedent to any
right of action hereunder, in the event of any dispute or difference of opinion
hereafter arising with respect to this Contract, it is hereby mutually agreed
that such dispute or difference of opinion shall be submitted to arbitration.
One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an
Umpire shall be chosen by the two Arbiters before they enter upon arbitration,
all of whom shall be active or retired disinterested executive officers of
insurance or reinsurance companies or Lloyd’s London Underwriters. In the event
that either party should fail to choose an Arbiter within 30 days following a
written request by the other party to do so, the requesting party may choose
two Arbiters who shall in turn choose an Umpire before entering upon
arbitration. If the two Arbiters fail to agree upon the selection of an Umpire
within 30 days following their appointment, each Arbiter shall nominate three
candidates within 10 days thereafter, two of whom the other shall decline, and
the decision shall be made by drawing lots.

 

B.            Each party shall present its case to
the Arbiters within 30 days following the date of appointment of the Umpire.
The Arbiters shall consider this Contract as an honorable engagement rather
than merely as a legal obligation and they are relieved of all judicial
formalities and may abstain from following the strict rules of law. The
decision of the Arbiters shall be final and binding on both parties; but
failing to agree, they shall call in the Umpire and the decision of the
majority shall be final and binding upon both parties. Judgment upon the final
decision of the Arbiters may be entered in any court of competent jurisdiction.

 

C.            If more than one reinsurer is
involved in the same dispute, 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 one party, provided, however,
that nothing herein shall impair the rights of such reinsurers to assert
several, rather than joint, defenses or claims, nor be construed as changing
the liability of the reinsurers participating under the terms of this Contract
from several to joint.

 

D.            Each party shall bear the expense of
its own Arbiter, and shall jointly and equally bear with the other the expense
of the Umpire and of the arbitration. In the event that the two Arbiters are
chosen by one party, as above provided, the expense of the Arbiters, the Umpire
and the arbitration shall be equally divided between the two parties.

 

19

 

E.                                      Any arbitration proceedings shall take
place at a location mutually agreed upon by the parties to this Contract, but
notwithstanding the location of the arbitration, all proceedings pursuant
hereto shall be governed by the law of the state in which the Company has its
principal office.

 

Article XXIII - Service of Suit
(BRMA 49C)

 

(Applicable if the Reinsurer is not domiciled in the
United States of America, and/or is not authorized in any State, Territory or
District of the United States where authorization is required by insurance
regulatory authorities)

 

A.            It is agreed that in the event the
Reinsurer fails to pay any amount claimed to be due hereunder, the 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 Reinsurer’s
rights 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.

 

B.            Further, pursuant to any statute of
any state, territory or district of the United States which makes provision
therefor, the Reinsurer hereby designates the party named in its Interests and
Liabilities Agreement, or if no party is named therein, the Superintendent,
Commissioner or Director of Insurance or other officer specified for that
purpose in the statute, or his successor or successors in office, as its true
and lawful attorney upon whom may be served any lawful process in any action,
suit or proceeding instituted by or on behalf of the Company or any beneficiary
hereunder arising out of this Contract.

 

Article XXIV - Material Changes

 

A.            It is understood that no material
changes in business practices will take place during the term of this Contract
that would significantly change the underwriting results of the subject
business without prior approval by the Lead Reinsurer (i.e., American
Re-Insurance Company, A Delaware Corporation) including, but not limited to,
policyholder dividends, claims handling and/or settlement, business mix (i.e.,
hazard group, and class of insureds). If a material change in the Company’s
business practices is to occur during the period, the Reinsurer shall be
allowed to negotiate changes in the contractual terms of the Contract
retroactively to remedy the change.

 

B.            It is further agreed that the
Company will furnish statutory quarterly and annual financial statements to the
Reinsurer at the same time these reports are filed with regulatory authorities.

 

20

 

Article XXV - Agency Agreement

 

If more than one reinsured company is named as a party
to this Contract, the first named company shall be deemed the agent of the
other reinsured companies (subject to the provisions of Article XXI) for
purposes of sending or receiving notices required by the terms and conditions
of this Contract, and for purposes of remitting or receiving any monies due any
party.

 

Article XXVI - Intermediary (BRMA 23A)

 

Benfield Blanch Inc. is hereby recognized as the
Intermediary negotiating this Contract for all business hereunder. All
communications (including but not limited to notices, statements, premium,
return premium, commissions, taxes, losses, loss adjustment expense, salvages
and loss settlements) relating thereto shall be transmitted to the Company or
the Reinsurer through Benfield Blanch Inc., 3600 West 80th Street, Minneapolis,
Minnesota 55431. Payments by the Company to the Intermediary shall be deemed to
constitute payment to the Reinsurer. Payments by the Reinsurer to the
Intermediary shall be deemed to constitute payment to the Company only to the
extent that such payments are actually received by the Company.

 

 

In Witness Whereof, the Company by its duly authorized
representative has executed this Contract as of the date undermentioned at:

 

North Palm Beach, Florida this 28th day of May in the year 2002.

 

 

 

	
   

  	
  /s/ Debra Cerre-Ruedisili, President

  
	
   

  	
  AmCOMP Preferred Insurance Company (for and on
  behalf of the

  “Company”)

  

 

21

 

Schedule
A

 

Excess
Workers’ Compensation

Reinsurance Contract

Effective: January 1, 2002

 

issued to

 

AmCOMP Preferred
Insurance Company

North Palm Beach,
Florida

AmCOMP Assurance
Corporation

North Palm Beach,
Florida

and

any and all
insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

 

	
   

  	
   

  	
  First

  Excess

  	
   

  	
  Second

  Excess

  	
   

  	
  Third

  Excess

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Company’s Retention

  	
   

  	
  $

  	
  1,000,000

  	
   

  	
  $

  	
  2,000,000

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Reinsurer’s Per Occurrence Limit

  	
   

  	
  $

  	
  1,000,000

  	
   

  	
  $

  	
  3,000,000

  	
   

  	
  $

  	
  5,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Reinsurer’s Terrorism Per Occurrence Limit

  	
   

  	
  $

  	
  1,000,000

  	
   

  	
  $

  	
  3,000,000

  	
   

  	
  $

  	
  10,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Reinsurer’s Total Terrorism Limit

  	
   

  	
  $

  	
  1,000,000

  	
   

  	
  $

  	
  3,000,000

  	
   

  	
  $

  	
  10,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Annual Minimum Premium

  	
   

  	
  $

  	
  3,280,500

  	
   

  	
  $

  	
  2,308,500

  	
   

  	
  $

  	
  1,215,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Premium Rate

  	
   

  	
  2.70

  	
  %

  	
  1.90

  	
  %

  	
  1.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Annual Deposit Premium

  	
   

  	
  $

  	
  3,645,000

  	
   

  	
  $

  	
  2,565,000

  	
   

  	
  $

  	
  1,350,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Quarterly Deposit Premium

  	
   

  	
  $

  	
  911,250

  	
   

  	
  $

  	
  641,250

  	
   

  	
  $

  	
  337,500

  	
   

  
														

 

The figures listed above for each excess layer shall
apply to each Subscribing Reinsurer in the percentage share for that excess
layer as expressed in its Interests and Liabilities Agreement attached hereto.

 

 

U.S.A.

 

NUCLEAR
INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE

(Approved
by Lloyd’s Underwriters’ Fire and Non-Marine Association)

 

(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 with respect to which an insured 

     (bodily injury or property damage

under the policy is also an insured under a nuclear energy liability policy
issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy
Liability Underwriters or Nuclear Insurance Association of Canada, or would be
an insured under any such policy but for its termination upon exhaustion of its
limit of liability.

 

II.            Family Automobile Policies
(liability only), Special Automobile Policies (private passenger automobiles,
liability only), Farmers Comprehensive Personal Liability Policies (liability
only), Comprehensive Personal Liability Policies (liability only) or policies
of a similar nature; and the liability portion of combination forms related to
the four classes of policies stated above, such as the Comprehensive Dwelling
Policy and the applicable types of Homeowners Policies.

 

III.           The inception dates and thereafter of
all original policies as described in II above, whether new, renewal or
replacement, being policies which either

(a)           become effective on or after 1st May,
1960, or

(b)           become effective before that date and
contain the Limited Exclusion Provision set out above;

provided this paragraph
(2) shall not be applicable to Family Automobile Policies, Special Automobile
Policies, or policies or combination policies of a similar nature, issued by
the Reassured on New York risks, until 90 days following approval of the
Limited Exclusion Provision by the Governmental Authority having jurisdiction
thereof.

 

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

 

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

 

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

 

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.

 

1

 

II.            Under any Medical Payments Coverage,
or under any Supplementary Payments Provision

relating to  (immediate medical or
surgical relief to expenses incurred with respect

                  (first
aid,

to  (bodily injury, sickness, disease
or death resulting from the hazardous properties of

     (bodily injury

nuclear material and arising out of the operation of a nuclear facility by any
person or organization.

 

III.           Under any Liability Coverage to   (injury,
sickness, disease, death or destruction

                                                      (bodily
injury or property damage

resulting from the hazardous properties of nuclear material, if

 

(a)           the nuclear material (1) is at any
nuclear facility owned by, or operated by or on behalf of, an insured or (2)
has been discharged or dispersed therefrom;

(b)           the nuclear material is contained in
spent fuel or waste at any time possessed, handled, used, processed, stored,
transported or disposed of by or on behalf of an insured; or

(c)           the  (injury, sickness, disease, death or destruction arises out
of the 

       (bodily injury or property damage

furnishing by an insured of services, materials, parts or equipment in
connection with the planning, construction, maintenance, operation or use of
any nuclear facility, but if such facility is located within the United States
of America, its territories, or possessions or Canada, this exclusion (c)
applies

only to   (injury to or
destruction of property at such nuclear facility

              (property
damage to such nuclear facility and any property thereat.

 

IV.        As used in this endorsement;

 

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

 

(a)           any nuclear reactor,

 

(b)           any equipment or device designed or
used for (1) separating the isotopes of uranium or plutonium, (2) processing or
utilizing spent fuel, or (3) handling processing or packaging waste,

 

(c)           any equipment or device used for the
processing, fabricating or alloying of special nuclear material if at any time
the total amount of such material in the custody of the insured at the premises
where such equipment or device is located consists of or contains more than 25
grams of plutonium or uranium 233 or any combination thereof, or more than 250
grams of uranium 235,

 

(d)           any structure, basin, excavation,
premises or place prepared or used for the storage or disposal of waste,

and includes the site on which any of the foregoing is located, all operations
conducted on such site and all premises used for such operations; “nuclear
reactor” means any apparatus designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass of fissionable
material;

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

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

(  includes all forms of radioactive contamination of
property.

 

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

(i) Garage and Automobile
Policies issued by the Reassured on New York risks, or

(ii) statutory liability
insurance required under Chapter 90, General Laws of Massachusetts, until 90
days following approval of the Broad Exclusion Provision by the Governmental
Authority having jurisdiction thereof.

 

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

 

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

 

2

 

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 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 named in such contract or not 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 limit 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 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; or

 

(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 named in
such contract or not and whether or not it is 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; or

 

(c)           to bodily injury or property damage
resulting directly or indirectly from the nuclear energy hazard arising from:

 

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

 

(2)           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

 

1

 

(3)           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 useable
for any scientific, medical, agricultural, commercial or industrial purpose)
used, distributed, handled or sold by an Insured.

As used in this Policy:

 

(I)            The term “nuclear energy hazard”
means the radioactive, toxic, explosive or other hazardous properties of
radioactive material;

 

(II)           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;

 

(III)         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.

 

(IV)         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.

 

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

 

2

 

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 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 Clause No. 1B - Liability, No. 2
- Physical Damage, No. 3 - Boiler
and Machinery and paragraph (1) of this clause, it is understood and agreed
that for all purposes as respects the reinsurance assumed by the Reinsurer from
the Reassured, all original insurance policies or contracts of the Reassured (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.

 

 

POLLUTION
EXCLUSION CLAUSE - GENERAL LIABILITY - REINSURANCE

 

 

A.            This reinsurance excludes all loss
and/or liability accruing to the reinsured company as a result of:

 

1.             bodily injury or property damage
arising out of the actual, alleged or threatened discharge, dispersal, release
or escape of pollutants:

 

a.             at or from premises owned, rented
or occupied by a named insured;

 

b.             at or from any site or location
used by or for a named insured or others for the handling, storage, disposal,
processing or treatment of waste;

 

c.             which are at any time transported,
handled, stored, treated, disposed of, or processed as waste by or for a named
insured or any person or organization for whom a named insured may be legally
responsible; or

 

d.             at or from any site or location on
which a named insured or any contractors or subcontractors working directly or
indirectly on behalf of a named insured are performing operations:

 

(i)            if the pollutants are brought on or
to the site or location in connection with such operations; or

 

(ii)           if the operations are to test for,
monitor, clean up, remove, contain, treat, detoxify or neutralize the
pollutants;

 

2.             any governmental direction or
request that a named insured test for, monitor, clean up, remove, contain,
treat, detoxify or neutralize pollutants.

 

B.            Subparagraphs A(1)(a) and A(1)(d)(i)
above do not apply to bodily injury or property damage caused by heat, smoke or
fumes from a hostile fire.

 

C.            “Hostile fire” means a fire which
becomes uncontrollable or breaks out from where it was intended to be.

 

D.            “Pollutants” means any solid,
liquid, gaseous or thermal irritant or contaminant, including smoke, vapor,
soot, fumes, acids, alkalis, chemicals and waste.  Waste includes material to be recycled,
reconditioned or reclaimed.

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