Document:

Exhibit
10.4

 

Addendum II

to

Quota Share Reinsurance Agreement

(Effective January 1, 2002)

between

COAST NATIONAL INSURANCE COMPANY (“Coast National”)

SECURITY NATIONAL INSURANCE COMPANY (“Security National”)

BRISTOL WEST INSURANCE COMPANY (“Bristol”)

BRISTOL WEST CASUALTY INSURANCE COMPANY (“Bristol”)

(hereinafter called the “Company”)

and

THE PARTICIPANTS SUBSCRIBING TO THE RESPECTIVE

INTERESTS AND LIABILITIES AGREEMENTS TO WHICH THIS AGREEMENT

IS ATTACHED

(hereinafter called the “Reinsurer”)

 

It is understood and
agreed by the parties hereto that effective September 1, 2003 the second
paragraph in Article XIV is amended to read as follows:

 

It is agreed that the
Maximum Subject Net Premium for Security National for Underwriting Years 2002,
2003 and 2004, shall equal $50,000,000, $65,000,000 and $80,000,000
respectively unless otherwise agreed to by the Reinsurer.  However, for purposes of determining the
Maximum Subject Net Premium for Security National, the Florida “credit
business” premium shall not be included.

 

Nothing herein contained shall alter, vary or extend
any provision or condition of this Contract other than as above stated.

 

 

In Witness Whereof, the parties hereto have
caused this Addendum II to be signed in duplicate by their duly authorized
representatives.

 

 

	
  Anaheim, California,
  this             
  day of
               in
  the year 2003.

  
	
   

  
	
   

  
	
   

  	
  /s/ Alexis S. Oster

  	
   

  
	
   

  	
  Coast National
  Insurance Company

  	
   

  
	
   

  
	
   

  
	
  Davie, Florida, this
               day
  of             
  in the year 2003.

  
	
   

  
	
   

  
	
   

  	
  /s/ Alexis S. Oster

  	
   

  
	
   

  	
  Security National
  Insurance Company

  	
   

  
	
   

  
	
   

  
	
  Philadelphia,
  Pennsylvania, this
               day
  of             
  in the year 2003.

  
	
   

  
	
   

  
	
   

  	
  /s/ Alexis S. Oster

  	
   

  
	
   

  	
  Bristol West Insurance
  Company

  	
   

  
	
   

  
	
   

  
	
  Independence, Ohio,
  this             
  day of             
  in the year 2003.

  
	
   

  
	
   

  
	
   

  	
  /s/ Alexis S. Oster

  	
   

  
	
   

  	
  Bristol West Casualty
  Insurance Company

  	
   

  
	
   

  
	
   

  
	
  New York, New York,
  this             
  day of
               in
  the year 2003.

  
	
   

  
	
   

  
	
   

  	
  /s/ Robert J. Coords

  	
   

  
	
   

  	
  National Union Fire
  Insurance Company

  of Pittsburgh, PAExhibit 10.5

 

QUOTA SHARE AGREEMENT NO.

(hereinafter referred to as the
“Agreement”)

 

Among

 

Coast National Insurance Company

Westminster, California

and

Security National Insurance
Company

Davie, Florida

and

Bristol West Insurance Company

Philadelphia, Pennsylvania

and

Bristol West Casualty Insurance
Company

Independence, Ohio

(hereinafter collectively
referred to as the “Company”)

 

AND

 

ALEA London Ltd.

London, England

(hereinafter referred to as the
“Reinsurer”)

 

 

Table of Contents

 

	
  Article

  	
   

  
	
   

  	
   

  
	
  1.

  	
  Business
  Covered

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Commencement
  and Termination

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Special
  Termination

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Territory

  	
   

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Retention
  and Limit

  	
   

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Definitions

  	
   

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Exclusions

  	
   

  
	
   

  	
   

  	
   

  
	
  8.

  	
  Reinsurance
  Premium

  	
   

  
	
   

  	
   

  	
   

  
	
  9.

  	
  Ceding
  Commission

  	
   

  
	
   

  	
   

  	
   

  
	
  10.

  	
  Fee
  Income

  	
   

  
	
   

  	
   

  	
   

  
	
  11.

  	
  Reinsurer’s
  Margin

  	
   

  
	
   

  	
   

  	
   

  
	
  12.

  	
  Loss
  in Excess of Policy Limits and Extra Contractual Obligations

  	
   

  
	
   

  	
   

  	
   

  
	
  13.

  	
  Salvage
  and Subrogation

  	
   

  
	
   

  	
   

  	
   

  
	
  14.

  	
  Experience
  Account Balance

  	
   

  
	
   

  	
   

  	
   

  
	
  15.

  	
  Commutation
  and Profit Commission

  	
   

  
	
   

  	
   

  	
   

  
	
  16.

  	
  Reports
  and Remittances

  	
   

  
	
   

  	
   

  	
   

  
	
  17.

  	
  Offset

  	
   

  
	
   

  	
   

  	
   

  
	
  18.

  	
  Access
  to Records

  	
   

  
	
   

  	
   

  	
   

  
	
  19.

  	
  Amendments

  	
   

  
	
   

  	
   

  	
   

  
	
  20.

  	
  Errors
  and Omissions

  	
   

  
	
   

  	
   

  	
   

  
	
  21.

  	
  Federal
  Excise Tax

  	
   

  
	
   

  	
   

  	
   

  
	
  22.

  	
  Currency

  	
   

  
	
   

  	
   

  	
   

  
	
  23.

  	
  Reinsurer’s
  Security and Unauthorized Reinsurance

  	
   

  

 

 

	
  24.

  	
  Insolvency

  	
   

  
	
   

  	
   

  	
   

  
	
  25.

  	
  Arbitration

  	
   

  
	
   

  	
   

  	
   

  
	
  26.

  	
  Service
  of Suit

  	
   

  
	
   

  	
   

  	
   

  
	
  27.

  	
  Governing
  Law

  	
   

  
	
   

  	
   

  	
   

  
	
  28.

  	
  Other
  Conditions

  	
   

  

 

	
  Attachments:  Nuclear Incident Exclusion Clause –
  Liability—Reinsurance

  
	
  Nuclear Incident Exclusion
  Clause – Physical Damage – Reinsurance

  

 

 

Quota
Share

Reinsurance
Contract No.

(hereinafter
referred to as the Agreement)

 

Among

 

Coast
National Insurance Company

Westminster,
California

And

Security
National Insurance Company

Davie,
Florida

And

Bristol
West Insurance Company

Philadelphia,
Pennsylvania

And

Bristol
West Casualty Insurance Company

Independence,
Ohio

(hereinafter
referred to collectively as the “Company”)

 

AND

 

Alea
London, Ltd.

(hereinafter
referred to as the “Reinsurer”)

 

ARTICLE 1 – BUSINESS COVERED

 

A.                                    By this Agreement the Company obligates
itself to cede to the Reinsurer and the Reinsurer obligates itself to accept a
40% participation of the Company’s Ultimate Net Liability for losses occurring
on policies, contracts and binders of insurance or reinsurance (hereinafter
referred to as “Policies”) with a maximum term of 12 months, attaching during
the term of this Agreement and classified by the Company as Non-Standard
Automobile Liability and Physical Damage business produced and/or underwritten
by insurance companies of the Bristol West 
Insurance Group, Davie, Florida and more specifically defined as
follows:

 

1.                                      Policies issued and written by Coast
National Insurance Company;

 

2.                                      Policies issued and written by Security
National Insurance Company;

 

3.                                      Policies issued in the State of Texas,
written by State and County Mutual Fire Insurance Company, and assumed by Coast
National Insurance Company;

 

4.                                      Policies issued in the State of Texas,
written by Home State County Mutual Insurance Company, and assumed by Coast
National Insurance Company (hereinafter referred to as Home State Texas
Policies);

 

5.                                      Policies issued and written by Bristol West
Insurance Company; and

 

1

 

6.                                      Policies issued and written by Bristol West
Casualty Insurance Company.

 

B.                                    It is understood that the Polices reinsured
under this Agreement are deemed to include coverages required for non-resident
drivers under the motor vehicle financial responsibility law or the motor
vehicle compulsory insurance law or any similar law of any state or province,
if such Policies include or are deemed to include so-called “Out of State
Insurance” provisions.

 

C.                                    The liability of the Reinsurer with respect
to each cession hereunder shall commence obligatorily and simultaneously with
that of the Company, subject to the terms, conditions and limitations
hereinafter set forth.

 

ARTICLE 2 – COMMENCEMENT AND TERMINATION

 

A.                                    This Agreement shall become effective on
January 1, 2002, and shall remain in force until December 31, 2004,
both days inclusive.  However, with
respect to Bristol West Insurance Company, Bristol West Casualty Insurance
Company and Home State Texas Policies, this Agreement shall become effective
July 1, 2002 and shall remain in force until December 31, 2004 both
days inclusive.

 

B.                                    Upon expiration of this Agreement, the
Reinsurer shall continue to reinsure, subject to all other terms and conditions
of this Agreement, the Company’s Policies that are in force as of the effective
time and date of expiration until the natural expiration, cancellation, or next
premium anniversary of such Policies, whichever occurs first, but in no event
longer than 12 months from the effective date of expiration.  In no event shall the Reinsurer incur any
liability for Policies issued on or after the effective time and date of
expiration.

 

C.                                    At the Company’s option, upon expiration of this
Agreement, the Company may elect to terminate this Agreement on a cut-off
basis.  If the Company elects to
terminate this Agreement on a cut-off basis, the Reinsurer shall not be liable
for claims or losses taking place on or after the effective time and date of
expiration.  In this event, the
Reinsurer shall return to the Company that portion of unearned premium, if any,
held by the Reinsurer that relates to Policies in force at the effective time
and date of expiration.

 

ARTICLE 3 – SPECIAL TERMINATION

 

A.                                    If the Company fails to pay Ceded Premium or
Fee Income when due, the Reinsurer shall promptly notify the Company of the
balance due.  If the Company fails to
remit payments, including interest on the outstanding balance, within 30 days
of the date of such notice, the Reinsurer shall have the right to terminate
this Agreement.  The Company must
provide reasonably timely reports with such payments, however, inadvertent
failure to remit such reports shall not be grounds for termination under this
Article.  In such event, this Agreement
shall be terminated on a run-off basis with respect to Policies in-force as of
the effective date of termination and the Aggregate Limit shall be reduced to
an amount equal to Ceded Premium less Reinsurer’s Margin, effective as of the
last day for which

 

2

 

payment was
received.  This provision 3.A. shall not apply if the Reinsurer has
not posted the required security as described in the REINSURER’S SECURITY AND UNAUTHORIZED REINSURANCE Article.

 

B.                                    The Reinsurer shall have the right to
terminate this Agreement, on a cut-off basis by providing 30 days prior written
notice, if at any time during the term of this Agreement, the Company’s
Policyholders Surplus falls below 70% of the lesser of either:

 

1.                                      Its value as stated in the Company’s
12/31/01 Statutory Annual Statement; or

 

2.                                      Its value as stated in the Company’s 12/31
Statutory Annual Statement for the previous calendar year.

 

The values
in B.1. and B.2. above are hereinafter referred to
individually as the “Trigger Value”.

 

If the
Company’s Policyholder Surplus increases to at least 80% of the greater of the
Trigger Values above, within 30 days of the Reinsurer issuing written notice of
termination, such notice shall be rescinded. 
However, the Reinsurer shall retain the right to issue a notice of
termination if the Company’s Policyholders Surplus should at any time
thereafter fall below 70% of the lesser of the Trigger Values.  In the event of termination in accordance
with this provision 3.B., the
Reinsurer shall have no liability under this Agreement, for losses occurring on
or after the effective date of termination and shall pay to the Company, within
45 Business Days following the effective date of the termination, a Profit
Commission equal to the positive Experience Account Balance if any.

 

C.                                    The Reinsurer or the Company shall have the
right to terminate coverage under this Agreement with respect to an individual
entity or entities collectively referred to as the “Company” and that undergo a
Change in Control.  As used herein,
“Change in Control” shall be deemed to have occurred if:

 

1.                                      KKR, its affiliates, and the Management
Group shall at any time own in the aggregate, directly or indirectly,
beneficially and of record, less than 35% of the outstanding voting stock of
any entity or entities that are collectively referred to as the Company; and/or

 

2.                                      Any person, entity or group shall at any
time have acquired direct or indirect beneficial ownership of a percentage of
the outstanding voting stock of any of the individual entities collectively
referred to as the Company , which exceeds the percentage of such voting stock
then beneficially owned in the aggregate by KKR, its affiliates and the
Management Group;

 

unless in
the case of 3.C.1.  or 3.C.2.
above, KKR, its affiliates and the Management Group have, at such time, the
right or the ability by voting power, contract, or otherwise, to elect or
designate for election a majority of the Board of Directors of the affected
entity or entities.

 

3

 

As used
herein, “KKR” shall mean each of Kohlberg, Kravis Roberts and Co., L.P. and KKR
Associates, L.P.  “Management Group” as
used herein shall mean at any time, the Chairman of the Board, the President,
any Executive Vice President or Vice President, and the Chief Financial Officer
of the affected entity or entities.

 

D.                                    In the event of such cancellation due to 3.C.1. or 3.C.2.  above, the Reinsurer shall have no liability under or related to
this Agreement as respects the Ultimate Net Liability of the effected entity or
entities, after the end of the calendar quarter in which the Change of Control
occurred.  The Reinsurer shall, within
45 Business Days following the effective date of termination, pay the relevant
entity or entities a Profit Commission equal to that entity’s share of the
positive Experience Account Balance if any.

 

ARTICLE 4 –
TERRITORY

 

This
Agreement applies to Policies written in States in which the Company wrote
business, which is the subject matter of this Agreement, as of January 1,
2002.  The Reinsurer must approve
additional states in writing.

 

ARTICLE 5 –
RETENTION AND LIMIT

 

The
Company shall retain net for its own account the following:

 

A.                                    As respects Policies attaching during 2002
Underwriting Year, Coast National and Security National shall each retain
72.00% of their Ultimate Net Liability. 
Bristol West Insurance and Bristol West Casualty shall each retain 20%
of their respective Ultimate Net Liability. It shall be understood that 12% part of the 72% retained by Coast National and Security National is
ceded to Axa Re under a
Quota Share Reinsurance Agreement.  This results in a net retention by Coast National and Security National of 60.00% of their Ultimate Net Liability.

 

B.                                    As respects Policies attaching during the
2003 and 2004 Underwriting Years, the Company shall retain in the aggregate
between 40.00% and 75.00% of its Ultimate Net Liability.  The Company shall notify the Reinsurer in
writing of the actual percentage to be retained no later than 30 Business Days
prior to January 1 of each Underwriting Year.  If the Company fails to provide such notice to the Reinsurer, the
Company shall be deemed to retain 75% of its Ultimate Net Liability for the
Underwriting Year for which no notice was provided.

 

C.                                    Notwithstanding anything contained herein to
the contrary, the Company shall be responsible for Ultimate Net Liability
otherwise recoverable from the Reinsurer under this Agreement, above a Loss
Ratio of 80.00% and up to a Loss Ratio of 90.00% (hereinafter referred to as
the “Loss Corridor”.)

 

D.                                    The Company shall also be responsible for Ultimate
Net Liability, otherwise recoverable from the Reinsurer under this Agreement,
above a Loss Ratio of 105.00% (hereinafter referred to as the “Aggregate
Limit”.) The Company’s

 

4

 

Ultimate
Net Liability in the Loss Corridor shall be included in the calculation of
Ultimate Net Liability for the purpose of calculating the Aggregate Limit.

 

E.                                      The Company warrants that it shall retain
the Loss Corridor net and unreinsured, with the exception of agreement T2-2001-5417
between Inter-Ocean of Ireland Limited and Coast National and Security
National, effective January 1, 2001 and expiring December 31, 2003,
or a subsequent agreement thereto.  The
terms of any subsequent agreement must be reviewed and approved in writing by
the Reinsurer; such approval shall not be reasonably withheld.  Notwithstanding anything herein to the
contrary, the Company shall retain its quota share participation of Ultimate
Net Liability in the Loss Corridor net and unreinsured.

 

F.                                      The Reinsurer’s maximum limit of liability
for any one Underwriting Year shall in no event exceed 150.00% of Ceded Premium
for that Underwriting Year.

 

G.                                    The Reinsurer’s maximum limit of liability
for Ultimate Net Liability arising from Catastrophe Loss Occurrences in any one
Underwriting Year (hereinafter referred to as the Catastrophe Loss Occurrence
Limit”) shall in no event exceed the Reinsurer’s quota share participation of
the Catastrophe Loss Occurrence Limit which shall be equal to the Subject Net Premium
for the Underwriting Year in which the Catastrophe Loss Occurrence occurs
multiplied by 0.5%.

 

H.                                    The Reinsurer’s maximum aggregate limit of
liability for Ultimate Net Liability arising from all Catastrophe Loss
Occurrences which occur during the term of this Agreement (hereinafter referred
to as the “Catastrophe Aggregate Limit”) shall in no event exceed the Subject
Net Premium for the term of the Agreement multiplied by 0.4%.

 

I.                                         Any Ultimate Net Liability incurred by the
Company arising from a Terrorist Event shall be deemed a Catastrophe Loss
Occurrence.

 

ARTICLE 6 – DEFINITIONS

 

As used herein:

 

A.                                    “Allocated Loss Adjustment Expenses” shall
mean all expense incurred by the Company in connection with the investigation,
settlement, defense or litigation, including court costs and post-judgment
interest, of any claim or loss which is the subject matter of Business Covered,
including the allocated cost of the Company’s in-house legal department, in
accordance with NAIC Annual Statement instructions  but shall otherwise exclude the salaries and expenses of the
Company’s employees, office expenses and any other overhead expenses.

 

B.                                    “Business Day” shall mean any day during
which the banks in both London and New York are open for business.

 

C.                                    “Catastrophe Loss Occurrence” shall mean all
Loss Occurrences arising from one event.

 

D.                                    “Ceded Premium” shall mean the Subject Net
Premium applicable to Policies, which are the subject matter of this Agreement.

 

5

 

E.                                      “Interest” shall mean interest for the
overdue period calculated at 6.00% per annum.

 

F.                                      “Loss Occurrence” shall mean all damage,
injury or loss covered by one or more Policies reinsured under this Agreement,
which is a direct consequence of one particular accident, disaster or casualty
that takes place in its entirety at a specific time and place and is traceable
to the same single act, omission, mistake, error or series of acts, omissions,
mistakes or errors.

 

G.                                    “Loss Ratio” shall mean the Company’s Ultimate
Net Liability divided by Subject Net Premium. 
For the avoidance of doubt, the Loss Ratio shall be calculated for the
term of the Agreement in the aggregate and not for each individual Underwriting
Year.

 

H.                                    “Subject Net Premium” shall mean gross and
additional premiums less return premiums.

 

I.                                         “Terrorist Event” shall mean a disaster,
accident, casualty or loss; or series of disasters, accidents, casualties or
losses arising out of an event or series of related events, regardless of time,
space or geography, that:

 

1.                                      Directly result in loss or loss expense that
would otherwise be covered by this Agreement;

 

2.                                      Occur in time of either peace or war;

 

3.                                      Occur on land, sea, in the air, in space or
any combination thereof;

 

and are
directly caused by, conducted by, engaged in, or coordinated by any hostile or
unfriendly person or persons, organization, group, sub-group, power, authority
or force, whether governmental, quasi-governmental, military, quasi-military,
civilian, ethnic, religious, quasi-religious, or otherwise; and that are
directly occasioned by, directly caused by, directly result from, directly
arise from, or directly relate to:

 

1.                                      Any war, civil war, religious war, ethnic
war, racial war, or tribal war, whether declared or undeclared, whether
recognized or unrecognized, whether solemn, public, perfect, mixed or private;

 

2.                                      Any war, warlike, hostile or unfriendly
acts, actions or activities against a government of any country, any political
sub-division, or public authority thereof, or any of its religious, public or
private organizations, businesses or citizens;

 

3.                                      Any terroristic or violent acts, actions, or
activities against a government of any country, any political sub-division or
public authority thereof, or any of its religious, public or private
organizations, businesses or citizens;

 

4.                                      Any invasion of any country, any political
sub-division, public authority, territory or part thereof;

 

6

 

5.                                      Any acts, actions, or activities of foreign
enemies, whether governmental, quasi-governmental, ethnic, religious,
quasi-religious, or otherwise against a government of a country, any political
sub-division or public authority thereof, or any of its religious, public or
private organizations, businesses or citizens;

 

6.                                      Any acts, actions or activities of military
power, usurped power, or martial law;

 

7.                                      Any acts, actions or activities of military
power, usurped power or martial law;

 

8.                                      Any confiscation by act or order of any
governmental or quasi-governmental authority or activities;

 

9.                                      Defending, hindering or combating against an
actual, expected or impending act, action, activity or attack caused by,
resulting from or occasioned by any of the above.

 

The term
“act, action or activity” as used herein shall include but not be limited to:

 

1.                                      Murder or infliction of bodily injury;

 

2.                                      Hostage taking, hijacking or kidnapping;

 

3.                                      Extortion, theft, or robbery;

 

4.                                      Causing any fire or flood;

 

5.                                      Infecting, interfering with or disrupting
any (a) communication or
information system, including the release or insertion of any virus, worm, or
Trojan horse into any communication or information system; or (b) supply of water, power, oil, gas or
other fundamental resource;

 

6.                                      Use of any weapon or explosive, including
bombs or bombing;

 

7.                                      Use of release of any contaminant,
pollutant, biological, chemical, gaseous, poisonous, or other hazardous
materials or weapons that may harm or endanger any person, property, animals or
the environment;

 

8.                                      Seizure, blockage, damage to, or destruction
of public or private property including governmental and infrastructure
facilities;

 

9.                                      Seizure, blockage, damage to, or destruction
of any means of public or private transport including subways, buses, trains,
planes, ships, boats, ferries, and all other aircraft and watercraft;

 

10.                               Seizure, blockage, damage to, or destruction
of tunnels, roads, streets and highways, or other places of public use;

 

7

 

11.                               Threatening to commit any of the above acts,
actions or activities.

 

Any loss
and loss expense arising from any of the above is included regardless of any
other cause or event contributing concurrently or in any sequence to the loss
or event, the public declarations and descriptions, written or oral, of the
senior officials or leadership of the executive or legislative branch of any
government or political subdivision, or public authority thereof directly or
indirectly affected by any of the above events, acts, actions, activities, or
conditions shall be conclusively determinative of the existence or
non-existence of any of the above events, acts, actions, activities or
conditions.

 

It shall
not be a Terrorist Event if the Company can reasonably establish to the
reasonable satisfaction of the Reinsurer that the acts, actions, or activities
were not conducted for the purposes of (a) furthering
the political, ideological, philosophical, racial, ethnic, social or religious
causes or objectives of the perpetrators, (b)
overthrowing or influencing the actions or policies of any government, or (c) intimidating or putting the public or
any part or section of the public in fear.

 

J.                                      “Ultimate Net Liability” shall mean the
remaining portion of the Company’s gross liability on each Policy reinsured
under this Agreement after deducting recoveries from all other reinsurance,
whether specific or general and whether collectible or not. Notwithstanding the
foregoing, it is understood that the stop loss outlined in Article 5
Section E shall not inure to the benefit of this Agreement.  “Ultimate Net Liability shall include:

 

1.                                      ALAE;

 

2.                                      ULAE not to exceed a maximum limit equal to
10.00% of Ceded Premium; and

 

3.                                      80.00% of the Reinsurer’s quota share
participation with respect to the ECO/XPL, not to exceed $3,000,000 in the
aggregate for all Policies during the term of this Agreement.

 

K.                                    “Unallocated Loss Adjustment Expenses” shall
mean salaries and expenses of Company employees, office expenses and any other
overhead expenses.

 

L.                                     “Underwriting Year” shall mean each 12-month
period from January 1 to December 31, both days inclusive.  However, as respects Bristol West Insurance
Company, Bristol West Casualty Insurance Company and the Home State Texas Policies,
the first Underwriting Year shall be the period from July 1, 2002 until
December 31, 2002, both days inclusive. 
In the event this Agreement is terminated, the final Underwriting Year
shall be the period from the beginning of the then current Underwriting Year
through the effective date of termination. 
All premiums and losses from Policies attaching in an Underwriting Year
shall be credited or charged, respectively, to that Underwriting Year,
regardless of the date the premiums earn or the losses occur.

 

8

 

M.                                  “Unearned Premium Reserves” shall mean Ceded
Premium less collected Ceded Premium.

 

ARTICLE 7 – EXCLUSIONS

 

This Agreement does not apply to
and specifically excludes the following:

 

A.                                    All lines of business not specified in the BUSINESS COVERED Article.

 

B.                                    All excess of loss reinsurance assumed by
the Company.

 

C.                                    Garagekeepers legal liability.

 

D.                                    Vendors single interest.

 

E.                                      Vehicles principally used as ambulances,
fire and police units.

 

F.                                      Commercial vehicles rated as such, and all
automobile fleets, except for such business written in the State of Florida
subject to a maximum subject premium of $2,000,000.

 

G.                                    Mobile homes.

 

H.                                    Automobile dealers.

 

I.                                         Nuclear incidents as described in the  Nuclear Incident Exclusion Clauses –
Liability and Physical Damage - Reinsurance attached to and forming part of
this Agreement.

 

J.                                      Reinsurance issued for the account of other
insurance companies, except for reinsurance issued to Home State County Mutual
Insurance Company and reinsurance issued to State and Country Mutual Fire
Insurance Company, and except for intercompany reinsurance arrangements between
Coast National Insurance Company, Security National Insurance Company, Bristol
West Insurance Company and Bristol West Casualty Insurance Company.

 

K.                                    Vehicles used in racing or speed events.

 

L.                                     Taxis, limousines, buses, and livery cabs.

 

M.                                  Any damages, loss, liability, costs or
expenses of any nature arising out of the actual, alleged or threatened
discharge, dispersal, seepage, migration, contamination release or escape of
“pollutants”.  As used herein,
“pollutants” shall mean any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and
waste. Waste includes materials to be recycled. Reconditioned or reclaimed.

 

N.                                    Loss or liability accruing to the Company
directly or indirectly from any insurance or reinsurance written by or through
any pool, association, or syndicate, including

 

9

 

pools, associations or syndicates in which membership by the Company is
required under any statute or regulation

 

O.                                   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 or from reimbursement
of any person for any such liability. 
“Insolvency fund” includes any guaranty fund, insolvency fund, plan,
pool, association, fund or other arrangement, however denominated, established
or governed, which provides for any assessment of or payment or assumption by
any person of part or all of any claim, debt, charge, fee, or other obligation
of an insurer, or its successors or assigns, which has been declared by any
competent authority to be insolvent, or which is otherwise deemed unable to
meet any claim, debt, charge, fee or other obligation in whole or in part.

 

P.                                     Loss or damage caused by or resulting from
war, invasion, hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or confiscation by
order of any government or public authority However this exclusion 7.P. shall not apply to loss or damage
covered under a standard War Exclusion in the Policy.

 

Q.                                   Loss or liability directly or indirectly
arising from a Terrorist Event.

 

ARTICLE 8 – REINSURANCE PREMIUM

 

A.                                    The Company shall cede to the Reinsurer its
quota share participation percentage of the Subject Net Premium for Policies
reinsured by this Agreement. .

 

B.                                    The Company’s aggregate total maximum
Subject Net Premium for Underwriting Years 2002, 2003 and 2004 shall be
$450,000,000; $575,000,000; and $650,000,000, respectively.  As respects, Security National, the maximum
Subject Net Premium for Underwriting Years 2002, 2003 and 2004, shall be
$50,000,000; $65,000,000; and $80,000,000, respectively.  For Policies written in the State of Texas,
the maximum Subject Net Premium for Underwriting Years 2002, 2003 and 2004,
shall be $20,000,000; $35,000,000; and $45,000,000, respectively.

 

C.                                    The Company’s estimated aggregate Subject
Net Premium for Underwriting Years 2002, 2003, and 2004 shall be $375,000,000;
$500,000,000; and $550,000,000, respectively.

 

ARTICLE 9 – CEDING COMMISISON

 

A.                                    The Reinsurer shall allow a ceding
commission of 25.00% of Ceded Premium. The Company shall allow the Reinsurer
return commission on return premiums at the same rate.  Such commission allowance includes provision
for all acquisition costs, taxes, fees and all other expenses of whatever
nature, except loss adjustment expense.

 

10

 

B.                                    The Company has the option at the beginning
of any calendar quarter, to increase or decrease the Ceding Commission provided
that the Fee Income is increased or decreased by the same dollar amount.  The Company must give the Reinsurer 30
Business Days prior written notice of its decision to exercise such option.

 

ARTICLE 10 – FEE INCOME

 

A.                                    The Company shall pay the Reinsurer a Fee
Income equal to 8.00% of Ceded Premium, in addition to the Ceded Premium.  Such Fee Income shall be remitted with the
Company’s payment of Ceded Premium.

 

B.                                    The Company has the option at the beginning
of any calendar quarter, to increase or decrease the Fee Income provided that
the Ceding Commission is increased or decreased by the same dollar amount.  The Company must give the Reinsurer 30
Business Days prior written notice of its decision to exercise such option.

 

ARTICLE 11 – REINSURER’S MARGIN

 

The Reinsurer’s Margin shall equal 3.00% of
Ceded Premium and shall be due and payable with the submission of the Loss
Reports as provided in the REPORTS AND
REMITTANCES Article.

 

ARTICLE 12 – LOSS IN EXCESS OF POLICY
LIMITS AND EXTRA CONTRACTUAL OBLIGATIONS

 

A.                                    “Loss in Excess of Policy Limits” as used in
this Agreement shall mean any amount paid or payable by the Company in excess
of its Policy limits, but otherwise within the terms of a Policy reinsured by
this Agreement, as a result of a claim against it by its insured to recover
damages the insured is legally obligated to pay because of the Company’s
alleged or actual negligence or bad faith in rejecting a settlement within
Policy limits, or in discharging its duty to defend or prepare the defense in
the trial of a lawsuit against its insured, or in discharging its duty to
prepare or prosecute an appeal consequent upon such a lawsuit.

 

B.                                    “Extra Contractual Obligation” as used in
this Agreement shall mean any liability for damages, arising out of Policies
reinsured by this Agreement, other than Losses in Excess of Policy Limits, paid
or payable by the Company as a result of a claim against it by its insured,
which claim alleges negligence or bad faith in rejecting a settlement within
Policy limits, or in discharging its duty to defend or prepare the defense in
the trial of a lawsuit against its insured, or in discharging its duty to
prepare or prosecute an appeal consequent upon such a lawsuit.

 

11

 

C.                                    For the purposes of this Article, “payable”
means the existence of a judgment that the Company does not intend to appeal,
or the existence of a settlement offer that the Company has accepted, or when a
release has been obtained by the Company as respects any Loss in Excess of
Policy Limits and/or Extra Contractual Obligation.

 

D.                                    Any Loss in Excess of Policy Limits or Extra
Contractual Obligation shall be deemed to have occurred on the same date as the
loss covered under the Company’s Policy and shall constitute part of the
original loss.  All payments by the
Reinsurer to indemnify the Company for a Loss in Excess of Policy Limits or an
Extra Contractual Obligation shall be subject to the terms and conditions of
this Agreement.

 

E.                                      However, this Article shall not apply
to any Loss in Excess of Policy Limits or any Extra Contractual Obligation
incurred by the Company due to any fraudulent and/or criminal act by a member
of the Board of Directors or a corporate officer 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.

 

F.                                      Recoveries, whether collectible or not,
including any retentions and/or deductibles, from any form of insurance or
reinsurance that protects the Company against any loss or liability covered
under this Article shall inure to the benefit of this Agreement.

 

G.                                    The Company shall be indemnified in
accordance with this Article to the extent permitted by applicable law.

 

ARTICLE 13– SALVAGE AND SUBROGATION

 

In the event a right of the Company to
salvage or subrogation survives the Company’s disposition of any claim
hereunder, the Company will enforce its right to salvage and/or subrogation and
will prosecute all claims arising out of such right.  Should the Company refuse or neglect to enforce this right, the
Reinsurer is hereby empowered and authorized to instigate appropriate action in
the name of the Company.

 

If the amount recovered from salvage or
subrogation exceeds the recovery expense, such expense will be borne by each
party in proportion to its benefit from the recovery.  If the recovery expense exceeds the amount recovered, the amount
recovered (if any) will be applied to the reimbursement of recovery expense and
the remaining expense will be borne by each party in proportion to its
liability for the loss before recovery was attempted.

 

ARTICLE 14–EXPERIENCE ACCOUNT BALANCE

 

The Experience Account Balance
shall be comprised of the following cumulative amounts:

 

A.                                    Ceded Premium received; plus

 

12

 

B.                                    Fee Income received, less

 

C.                                    Ceding Commission; less

 

D.                                    Reinsurer’s Margin; less

 

E.                                      Ultimate Net Liability paid by the
Reinsurer.

 

The Reinsurer shall
calculate the Experience Account Balance within 30 days following the end of
each calendar quarter.

 

ARTICLE 15– COMMUTATION AND PROFIT COMMISSION

 

The Company shall have the sole
option to commute this Agreement on December 31, 2004 or any
December 31 thereafter by giving the Reinsurer 30 Business Days prior
written notice.  Commutation shall
constitute a full and final release of the Reinsurer from all past, present
and/or future liabilities under or related to this Agreement.  Within 45 Business Days after such
commutation, the Reinsurer shall pay the Company a profit commission equal to
the positive Experience Account Balance if any.

 

ARTICLE16– REPORTS AND REMITTANCES

 

A.                                    Within 30 Business Days after the end of
each calendar month, the Company shall provide a written report (hereinafter
referred to as the “Loss Report”) to the Reinsurer that includes the following
information in the aggregate as well as by each entity comprising the Company:

 

1.                                      Ceded Premium written for the month;

 

2.                                      Ceded Premium collected for the month;

 

3.                                      Cumulative Ceded Premium written;

 

4.                                      Cumulative Ceded Premium collected;

 

5.                                      Ultimate Net Liability paid by the Company
during the month, separating ALAE and ULAE;

 

6.                                      Cumulative Ultimate Net Liability paid by
the Company, separating ALAE and ULAE;

 

7.                                      Ultimate Net Liability outstanding,
including incurred but not reported amounts, separating ALAE and ULAE.

 

13

 

The Company
shall remit Ceded Premium due the Reinsurer with the Loss Report; provided that
if the security required pursuant to the REINSURER’S
SECURITY AND UNAUTHORIZED REINSURANCE Article is not in place
at the end of the relevant quarter, the Company may withhold payment of Ceded
Premium, less the Reinsurer’s Margin, until the required security is posted.
The Reinsurer shall remit any balance due the Company within 30 Business Days
of receiving the Loss Report.

 

B.                                    Within 30 Business Days after the end of
each calendar quarter, the Company shall provide to the Reinsurer a written
report including actuarial data as determined by the Reinsurer.

 

C.                                    Late payments made by either party will
include Interest for the period in which the payment is overdue.  This provision shall be effective as
respects the reporting periods following the effective date of this Agreement.

 

ARTICLE17– OFFSET

 

The Company and the Reinsurer may offset any
undisputed balance or amount due from one party to the other under this
Agreement or any other agreement heretofore or hereafter entered into between
the Company and the Reinsurer, whether acting as assuming reinsurer or ceding
company.  If the Company is comprised of
more than one entity, the Reinsurer may consider all such entities to be the
Company for the purposes of offset.  In
the event of insolvency of either the Company or the Reinsurer, offset shall be
permitted in accordance with the terms of this Article and as otherwise
permitted by law.

 

ARTICLE 18– ACCESS TO RECORDS

 

The Company shall comply with any reasonable
request by the Reinsurer for any information relating to this Agreement.  In addition, the Reinsurer or its authorized
representatives shall have the right to inspect, at any reasonable time at the
office of the Company or any other mutually agreed location, all records of the
Company in any way relating to this Agreement in whatever form such records are
maintained.  This Article shall
survive the termination of this Agreement.

 

ARTICLE19–AMENDMENTS

 

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

 

14

 

ARTICLE 20– ERRORS AND OMISSIONS

 

Inadvertent delays, errors or omissions of a
clerical nature made in connection with this Agreement or any transaction
hereunder shall not relieve either party from any liability which would have
attached to it hereunder had such delay, error or omission not been made;
provided always that such error or omission is rectified immediately upon
discovery.  In no event shall the
liability of the Reinsurer exceed the limits specified herein or be extended to
cover any risks, perils, or classes of business generally or specifically
excluded herein.

 

ARTICLE 21 – FEDERAL EXCISE TAX

 

If the Reinsurer is required by
the Internal Revenue Service to pay Federal Excise Tax on Ceded Premium, then
the Reinsurer shall indemnify the Company, for Federal Excise Tax paid up to
1.0% of Ceded Premium.

 

ARTICLE 22– CURRENCY

 

Whenever the word “Dollars” or the “$” appear in this Agreement, they
shall be construed to mean United States Dollars and all transactions under
this Agreement shall be in United States Dollars.

 

ARTICLE 23 – REINSURER’S SECURITY AND
UNAUTHORIZED REINSURANCE

 

A.                                    The Company and the Reinsurer shall fund the
Trust Account established pursuant to the Trust Agreement dated as of
January 1, 2002 and attached as Exhibit A to this Agreement as follows:

 

1.                                      Upon execution of the Trust Agreement, the
Reinsurer shall pay $6 Million in immediately available funds into the Trust
Account; and the Company, on behalf of the Reinsurer, shall pay an amount equal
to:

 

a.                                       Fee Income and Ceded Premium; less

 

b.                                       Ceding Commission and Reinsurer’s Margin;
less

 

c.                                       Ultimate Net Liability paid by the Company
on behalf of the Reinsurer;

 

for the
period January 1, 2002 through May 30, 2002, in immediately available
funds into the Trust Account.

 

2.                                      From and after the execution of the Trust
Agreement, on dates that Ceded Premium and Fee Income are due the Reinsurer,
the Company, on behalf of the Reinsurer shall pay in immediately available
funds into the Trust Account an amount equal to:

 

15

 

a.                                       Fee Income plus Ceded Premium, less Ceding
Commission and Reinsurer’s Margin; less

 

b.                                       Ultimate Net Liability paid by the Company
on behalf of the Reinsurer.

 

3.                                      From and after the execution of the Trust
Agreement, the Reinsurer will fund the Trust Account with such additional funds
in the form of cash, Letters of Credit and Eligible Securities (as defined in
the Trust Agreement) with a market value (face value in the case of Letters of
Credit) as is necessary for the sum of amounts held in the Trust Account to
equal the lesser of:

 

a.                                       The Reinsurer’s Obligations, as defined
herein, plus $6 Million; or

 

b.                                       The maximum estimated obligations for the
remaining term of this Agreement as reasonably estimated in good faith by the
Company and agreed to by the Reinsurer.

 

The
resulting amount shall hereinafter be referred to as the “Required Amount”.

 

The term
“Reinsurer’s Obligations” shall mean the Reinsurer’s share of losses and loss
adjustment expenses paid by the Company that are due but not yet recovered from
the Reinsurer; reserves for losses reported and outstanding; reserves for
losses incurred but not reported; reserves for allocated and unallocated loss
adjustment expenses to the extent ceded to the Reinsurer under this Agreement;
reserves for unearned premiums (in each case as required by the relevant
insurance regulatory authority); and to the extent it is a positive number, the
Adjusted Profit Commission.  For the
avoidance of doubt, such required amounts shall be net of balances due to the
Reinsurer by the Company, including but not limited to Unearned Premium
Reserves net of Ceding Commission. 
Adjusted Profit Commission shall mean earned Ceded Premiums; plus Earned
Fee Income; less Ceding Commissions; less Reinsurer’s Margin; less Ultimate Net
Liability paid by the Reinsurer.

 

B.                                    The Company or its authorized agent will
prepare and forward to the Reinsurer on a current monthly basis, a statement
showing the Required Amount as of the end of the preceding month.  If the Required Amount exceeds the then
existing balance of the security provided in the Trust Account, the Reinsurer
will, within 30 days of receiving such statement, increase the amount held in
the Trust Account (including Letters of Credit) to the Required Amount, less
amounts due to be paid into the Trust Account by the Company on behalf of the
Reinsurer as specified in A.2.
above.  If the balance in the Trust
Account is greater than the Required Amount, the Company will, within 30 days,
release the excess security to the Reinsurer in the manner provided in the
Trust Agreement.

 

16

 

C.                                    Notwithstanding the above, if this Agreement
is commuted or terminated for any reason the Company shall immediately (and not
less than 10 days following commutation or termination or notice thereof, whichever
is earlier) prepare and forward to the Reinsurer a statement showing the
Reinsurer’s Obligations.  If the
Reinsurer’s share thereof is less than the then existing balance of the Trust
Account (including the Letters of Credit) the Company will immediately release
the excess security to the Reinsurer.

 

D.                                    The Company may withdraw, at any time and
from time to time, amounts held in the Trust Account (including draws on any
Letters of Credit), without diminution or restriction because of the insolvency
of either the Company or the Reinsurer in the manner and for the purposes
specified in Sections 2. and 3. of the Trust Agreement.

 

E.                                      The Company shall be responsible for all
compensation of the Trustee and all costs to establish any Letters of Credit
posted to the Trust Account, subject to the limitations specified in
Section 8. of the Trust
Agreement.

 

F.                                      All payments of interest, dividends or other
income in respect of assets shall be paid to the Reinsurer in accordance with
the terms of Section 5. of
the Trust Agreement.

 

G.                                    All other matters regarding the
administration of the Trust Account shall be governed by the terms of the Trust
Agreement.

 

ARTICLE 24– INSOLVENCY

 

A.                                    In the event of the insolvency of the
Company, the reinsurance provided by this Agreement shall be payable by the
Reinsurer 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 such insolvency or, except as provided in Sections
4118(a)(1)(A) and 111(c) of the New York Insurance Law.

 

B.                                    The Reinsurer shall be given written notice
of the pendency of each claim or loss that may involve the reinsurance provided
by this Agreement, indicating the Policy reinsured within a reasonable time
after such claim is filed in the conservation or liquidation proceeding or in
the receivership. The Reinsurer may investigate such claim or loss and
interpose, at its own expense, in the proceedings where such claim or loss is
to be adjudicated, any defense or defenses that it may deem available to the
Company, its liquidator, receiver, conservator or statutory successor.  The expense thus incurred by the Reinsurer
shall be chargeable, subject to court approval, against the insolvent Company
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.

 

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

 

17

 

D.                                    In addition to the offset provisions set
forth in the OFFSET Article, any
debts or credits, liquidated or unliquidated, in favor of or against either
party on the date of the receivership or liquidation order (except where the
obligation was purchased by or transferred to be used as an offset) are deemed
mutual debts or credits and shall be set off with the balance only to be
allowed or paid.  Although such claim on
the part of either party against the other may be unliquidated or undetermined
in amount on the date of the entry of the receivership or liquidation order,
such claim will be regarded as being in existence as of such date, and any
claims then in existence and held by the other party may be offset against it.

 

E.                                      It is further understood and agreed that, in
the event of the insolvency of the Company, the reinsurance under this
Agreement shall be payable directly by the Reinsurer to the Company or to its
liquidator, receiver, conservator or statutory successor, except as provided by
Section 4118(a) of the New York Insurance Law or except (1) where this Agreement specifically
provides another payee of such reinsurance in the event of the insolvency of
the Company and (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.

 

F.                                      Nothing contained in this Article is
intended to change the relationship or status of the parties to this Agreement
or to enlarge upon the rights or obligations of either party hereunder except
as provided herein.

 

ARTICLE 25 – ARBITRATION

 

A.                                    As a condition precedent to any right of
action hereunder, any dispute arising out of the interpretation, performance or
breach of this Agreement, including the formation or validity thereof, shall be
submitted for decision to a panel of two arbitrators and an umpire.

 

B.                                    All notices in connection with the arbitration   will be in writing and sent certified or
registered mail, return receipt requested. 
The term “days” as used herein shall mean calendar days.  Notice requesting arbitration will reference
this Article, will state issues to be resolved in the view of the claimant, and
will appoint the arbitrator selected by the claimant.  Within 30 days after receipt of such notice, the respondent will
notify the claimant of any additional issues to be resolved and of the name of
its appointed arbitrator.  As time is of
the essence, if the respondent fails to appoint its arbitrator within 30 days
after receipt of notice requesting arbitration, the claimant is authorized to
and will appoint the second arbitrator.

 

C.                                    Unless otherwise mutually agreed, each
member of the arbitration panel shall be a disinterested active or former
executive of insurance or reinsurance companies or with expertise or experience
in the area being arbitrated.

 

18

 

D.                                    Before instituting the hearing, the two
appointed arbitrators will choose an impartial umpire.  If the two arbitrators fail to agree on the
appointment of an umpire within 30 days after the appointment of the second
arbitrator, within 10 days thereafter, the two arbitrators will request the
American Arbitration Association (AAA) to appoint an umpire with the
qualifications set forth above in this Article without regard to the AAA’s
Commercial Arbitration Rules.  If the
AAA fails to appoint an umpire within 30 days after its receipt of the
arbitrators’ request, either party may apply to a court of competent
jurisdiction to appoint an umpire with the qualifications set forth above in
this Article.  The umpire will
immediately notify each party of his selection.  In the event of resignation or death of any member of the
arbitration panel, a replacement will be appointed in the same manner as the
resigning or deceased member was appointed.

 

E.                                      Within 30 days after notice of appointment
of the umpire, the claimant and respondent will each submit an initial brief to
the panel.  Within 45 days after notice
of appointment of the umpire, the panel shall meet and determine timely periods
for the submission of reply briefs and amended briefs, discovery procedures and
a schedule for the hearing.

 

F.                                      The panel shall be relieved of all judicial
formality and the umpire shall be the final judge of the panel’s procedures,
the rules of evidence, privilege, and production and the excessive and
relevancy of any witnesses and documents upon the petition of any participating
party.  The panel will be authorized to
issue interim orders and awards in the interest of fairness and the prompt and
orderly resolution of issues in dispute. 
To the extent permitted by law, the umpire and the panel will be
empowered to issue orders to enforce their decisions.

 

G.                                    Unless the panel agrees otherwise,
arbitration shall take place in New York, New York, but the venue may be
changed when deemed by the panel to be in the best interest of the arbitration
proceeding.  Insofar as the arbitration
panel looks to substantive law, it shall consider the law of the State of New
York.

 

H.                                    The panel shall make its award with regard
to the terms expressed in the Agreement, the original intent of the parties to
the extent reasonably ascertainable, and the custom and practice of the
insurance and reinsurance business.  The
panel will make its award within 30 days after the close of the hearing.  Each award by the panel will be in writing
and may state grounds for the award, will be by a majority of the panel’s
members, and will be final and binding on all parties to the proceeding.  Any party may apply to a court of competent
jurisdiction for an order confirming the award, and a judgment of that court
will thereupon be entered on the award. If such an order is issued, the
attorney’s fees of the party so applying and court costs will be paid by the
party against whom confirmation is sought.

 

19

 

I.                                         On request of the Company made within 30
days after the umpire’s appointment, the panel may order a consolidated hearing
between the Company and all affected Reinsurers if the panel is satisfied in
its discretion that a consolidated hearing would be in the interest of fairness
and a prompt resolution of the issues in dispute. If the panel orders a
consolidated hearing, all other affected Reinsurers will join and participate
in the arbitration within a time frame established by the umpire and will be
bound by the panel’s award unless excused by the panel in its discretion. Any
Reinsurer may decline to actively participate in a consolidated arbitration if
prior to the hearing, that Reinsurer provides the panel with a written
statement satisfactory to the panel agreeing to be bound by the panel’s award
in the same manner and to the same extent as if it had actively participated in
the arbitration.

 

J.                                      If the panel issues an order of
consolidation, the arbitrator appointed by the original Reinsurer may be
replaced with an arbitrator appointed by the participating Reinsurer having the
largest percentage of participation affected by the dispute, provided that the
replacement arbitrator, if any, is appointed within 30 days after the notice of
consolidation.  In the event two or more
participating Reinsurers affected by the dispute have the same largest
participation, those Reinsurers will agree among themselves as to the
replacement arbitrator, if any, to be appointed.  The umpire will finally determine any dispute over replacement of
the original arbitrator.  All Reinsurers
subject to an order of consolidation will constitute and act as one party for
purposes of this Article and communications shall be made by the Company
to each of the Reinsurers constituting the one party; provided, however, that
nothing herein will be construed as changing the liability of the Reinsurers
from several to joint or impairing the rights of each reinsurer to asset
several, rather than joint defenses or claims.

 

K.                                    Each party shall bear the expense of the
arbitrator appointed on its behalf and all remaining costs of the arbitration
shall be finally allocated by the panel. 
Punitive, exemplary, and/or consequential damages will not be awarded,
nor will any award exceed the expressly stated limits of liability set forth in
this Agreement.  Notwithstanding the
foregoing, however, the panel may additionally award the actual costs and
expenses of arbitration, as it deems appropriate, including attorneys’ fees, to
the extent permitted by law.

 

ARTICLE 26 – SERVICE OF SUIT

 

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.

 

20

 

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

 

ARTICLE 27– GOVERNING LAW

 

This Agreement and all proceedings pursuant
thereto will be governed by the law of the State of New York, except as to
rules regarding credit for reinsurance in which case the rules of all
applicable States will apply. Notwithstanding the foregoing, however, this
Article is not intended to override or conflict with the parties’
obligation to arbitrate their disputes in accordance with the terms and site
set forth in the ARBITRATION Article,
or to govern or in any way affect the basis(es) for the decision(s) of an
arbitration panel acting pursuant to the Arbitration Article.

 

ARTICLE 28 – OTHER CONDITIONS

 

A.                                    It shall be a condition precedent to the
Reinsurer’s liability hereunder that the Company shall release and discharge OP
Re Ireland Limited and, without limitation, its past, present and future
directors, officers, employees, successors and assigns from and all past,
present and future claims, causes of action, liabilities and obligations
arising under or related directly or indirectly to a quota share agreement
covering the Company’s business.

 

B.                                    Coast National Insurance Company shall be
deemed the agent of the other reinsured entities comprising the Company for
purposes of sending or receiving notices required by the terms and conditions
of this Agreement, and for purposes of remitting or receiving any monies due
any party.

 

21

 

C.                                    The Reinsurer shall have the right to assign
its rights and obligations under or related to this Agreement to any of its
subsidiaries and/or affiliates upon giving the Company 10 Business Days written
notice, provided such subsidiary and/or affiliate is rated at least “A-” by
A.M. Best.

 

In Witness
Whereof, the
parties hereto have caused this Agreement to be executed in duplicate this
            day of
                  ,
2002:

 

ACCEPTED:

 

 

COAST NATIONAL
INSURANCE COMPANY

SECURITY
NATIONAL INSURANCE COMPANY

BRISTOL WEST
INSURANCE COMPANY

BRISTOL WEST
CASUALTY INSURANCE COMPANY

 

 

	
  /s/ Gregory Hammond

  	
   

  	
  /s/ Alexis S. Oster

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   Gregory Hammond

  	
   

  	
  Alexis S. Oster

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  Secretary

  	
   

  	
  Secretary

  	
   

  
	
   

  	
   

  
	
  Attested by:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ALEA LONDON
  LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Alison Polley

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   Alison Polley

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   V. P. Actuary

  	
   

  
	
   

  	
   

  
	
   

  	
  Attested by:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
											

 

22

 

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 member of, or subscriber to, any
association of insurers or reinsurers formed for the purpose of covering
nuclear energy risks or as a direct or indirect reinsurer of any such member,
subscriber or association.

 

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

 

Limited Exclusion Provision. *

 

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

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

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

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

 

*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 that include a Limited Exclusion Provision
or a Broad Exclusion Provision containing those words.

 

 

(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.

 

II.             Under
any Medical Payments Coverage, or under any Supplementary Payments Provision
relating to (intermediate medical or
surgical relief   (first aid,
to expenses incurred with respect to (bodily
injury, sickness, disease or death  
(bodily injury   resulting from
the hazardous properties of nuclear

 

 

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

 

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

 

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

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

(c)          the (injury, sickness, disease, death or destruction
(bodily injury or property damage arises out of the furnishing by an insured of
services, materials, parts or equipment in connection with the planning,
construction, maintenance, operation or use of any nuclear facility, but if
such facility is located within the United States of America, its territories,
or possessions or Canada, this exclusion (c) applies only to (injury to or destruction of property at such nuclear
facility  (property damage to
such nuclear facility and any property 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 all original polices 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.

 

 

U.S.A.

 

NUCLEAR
INCIDENT EXCLUSION CLAUSE – PHYSICAL DAMAGE – REINSURANCE

 

(1)                                  This Reinsurance does not cover any loss or
liability accruing to the Reassured, directly or indirectly and whether as
Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the
purpose of covering Atomic or Nuclear Energy risks.

 

(2)                                  Without in any way restricting the operation
of paragraph (1) of this Clause, this Reinsurance does not cover any loss or
liability accruing to the Reassured, directly or indirectly and whether as
Insurer or Reinsurer, from any insurance against Physical Damage (including
business interruption or consequential loss arising out of such Physical
Damage) to:

 

I.                 Nuclear reactor power plants including all auxiliary property on the
site, or

II.             Any
other nuclear reactor installation, including laboratories handling radioactive
materials in connection with reactor installations, and “critical facilities”
as such, or

III.         Installations
for fabricating complete fuel elements or for processing substantial quantities
of “special nuclear material,” and for reprocessing, salvaging, chemically
separating, storing or disposing of “spent” nuclear fuel or waste materials, or

IV.         Installations
other than those listed in paragraph (2) III above using substantial quantities
of radioactive isotopes or other products of nuclear fission.

 

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

 

(a)          where
Reassured does not have knowledge of such nuclear reactor power plant or
nuclear installation, or

 

(b)         where
said insurance contains a provision excluding coverage for damage to property
caused by or resulting from radioactive contamination, however caused.  However, on and after 1st
January 1960 this sub-paragraph (b) shall only apply provided the said
radioactive contamination exclusion provision has been approved by the
Governmental Authority having jurisdiction thereof.

 

4.                                       Without in any way restricting the
operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not
cover any loss or liability by radioactive contamination accruing to the
Reassured, directly or indirectly, and whether as Insurer or Reinsurer, when
such radioactive contamination is a named hazard specifically insured against.

 

 

5.                                       It is understood and agreed that this Clause
shall not extend to risks using radioactive isotopes in any form where the
nuclear exposure is not considered by the Reassured to be the primary hazard.

 

6.                                       The term “special nuclear material” shall
have the meaning given it in the Atomic Energy Act of 1954 or by any law
amendatory thereof.

 

7.                                       Reassured to be sole judge of what
constitutes:

 

(a)                                  substantial quantities, and

(b)                                 the extent of installation, plant or site.

 

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

 

(a)   all policies issued by the Reassured on or
before 31st December 1957 shall be free from the application of the
other provisions of this Clause until expiry date or 31st December
1960, whichever first occurs whereupon all the provisions of this Clause shall
apply.

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

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