Document:

exv10w12

Exhibit 10.12

WORKERS’ COMPENSATION SECOND EXCESS OF LOSS

REINSURANCE AGREEMENT

LEBANON MUTUAL INSURANCE COMPANY

Cleona, Pennsylvania

EFFECTIVE: January 1, 2008

EXPIRATION: January 1, 2009

 

 

WORKERS’ COMPENSATION SECOND EXCESS OF LOSS REINSURANCE AGREEMENT

	 	 	 	 	 	 	 
	ARTICLE	 	DESCRIPTION	 	PAGE
	 
	1

	 	Business Covered
	 	 	1	 
	2

	 	Term
	 	 	1	 
	3

	 	Territory
	 	 	1	 
	4

	 	Exclusions
	 	 	2	 
	5

	 	Reinsurance Premium
	 	 	3	 
	6

	 	Retention and Limit
	 	 	3	 
	7

	 	Reinstatement
	 	 	3	 
	8

	 	Other Reinsurance
	 	 	4	 
	9

	 	Commutation
	 	 	4	 
	10

	 	Definition of Loss Occurrence
	 	 	5	 
	11

	 	Net Retained Lines
	 	 	5	 
	12

	 	Ultimate Net Loss
	 	 	5	 
	13

	 	Loss Notice and Settlement
	 	 	6	 
	14

	 	Taxes
	 	 	7	 
	15

	 	Federal Excise Tax
	 	 	7	 
	16

	 	Offset
	 	 	7	 
	17

	 	Currency
	 	 	7	 
	18

	 	Access to Records
	 	 	7	 
	19

	 	Errors and Omissions
	 	 	7	 
	20

	 	Insolvency
	 	 	8	 
	21

	 	Arbitration
	 	 	8	 
	22

	 	Service of Suit
	 	 	9	 
	23

	 	Unauthorized Reinsurance
	 	 	10	 
	24

	 	Choice of Law and Jurisdiction
	 	 	11	 
	25

	 	Original Conditions
	 	 	11	 
	26

	 	Entire Agreement
	 	 	12	 
	27

	 	Intermediary
	 	 	12	 

Attachments:

Terrorism Definition

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

			
	 	 	 
	 
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January 3, 2008
	 	

 

 

WORKERS’ COMPENSATION SECOND EXCESS OF LOSS

REINSURANCE AGREEMENT

issued to

LEBANON MUTUAL INSURANCE COMPANY

Cleona, Pennsylvania

(hereinafter referred to as the “Company”)

by

The REINSURERS executing

Interests and Liabilities Contracts

attached to this Agreement

(hereinafter referred to as the “Reinsurer”)

ARTICLE 1— BUSINESS COVERED

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

ARTICLE 2 — TERM

This Agreement shall take effect 12:01 a.m., Eastern Standard lime, January 1, 2008 and shall apply
to all losses occurring on and after this date, and shall remain in force until 12:01 a.m. Eastern
Standard Time, January 1, 2009.

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

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

ARTICLE 3 — TERRITORY

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

					
	 	 	 	 	 
	 
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ARTICLE 4 — EXCLUSIONS 

This Agreement does not cover:

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

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

	10.	 	Amusement Parks, Carnivals, Circuses, Professional Athletes and Performers;
	 
	11.	 	Employers’ Liability, Jones Act and Maritime Act;
	 
	12.	 	Cumulative Trauma; the term “cumulative trauma” shall mean an injury that fulfills all of the
following conditions:
	 
	 	 	It is not traceable to a definite compensable accident occurring during the employee’s
present or past employment;
	 
	 	 	It has occurred from, and has been aggravated by, a repetitive employment related
activity;
	 
	 	 	It has resulted in a disability or death;
	 
	13.	 	Extra Contractual Obligations and/or Excess of Policy Limits;
	 
	 	 	The terms “Extra Contractual Obligations and/or Excess of Policy Limits” are defined as those
liabilities not covered under any other provisions of Agreement and which arise from the
handling of any claim on the policies reinsured hereunder, such liabilities including but not
limited to compensatory, exemplary and punitive damages or fines or statutory penalties

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

	14.	 	Terrorism Definition, attached hereto.

ARTICLE 5 — REINSURANCE PREMIUM 

The premium for the reinsurance afforded by this Agreement shall be calculated by applying a rate
of 2.100% to the Subject Gross Net Earned Premium Income accounted for by the Company on business
the subject matter of this Agreement for the term of this Agreement subject to a minimum premium of
$41,400.

A deposit premium of $46,000 shall be paid to the Reinsurer on January 1, 2008.

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

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

ARTICLE 6 — RETENTION AND LIMIT

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

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

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

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

ARTICLE 7 — REINSTATEMENT

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

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

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

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

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

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

ARTICLE 8 — OTHER REINSURANCE

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

ARTICLE 9 — COMMUTATION

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

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

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

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

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

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

ARTICLE 10 — DEFINITION OF LOSS OCCURRENCE

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

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

ARTICLE 11— NET RETAINED LINES (BRMA 32B)

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

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

					
	 	 	 	 	 
	 
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ARTICLE 12 — ULTIMATE NET LOSS

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

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

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

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

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

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

ARTICLE 13 — LOSS NOTICE AND SETTLEMENT

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

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

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

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

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

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

ARTICLE 14 — TAXES (BRMA 50B)

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

ARTICLE 15 — FEDERAL EXCISE TAX (BRMA 17A)

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

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

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

ARTICLE 16 — OFFSET (BRMA 36D)

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

ARTICLE 17 — CURRENCY

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

ARTICLE 18 — 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.

					
	 	 	 	 	 
	 
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ARTICLE 19 — ERRORS AND OMISSIONS (BRMA 14C)

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

ARTICLE 20 — INSOLVENCY (BRMA 19B)

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

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

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

ARTICLE 21 — ARBITRATION (BRMA 6E)

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

Each party shall appoint an arbitrator within thirty (30) days of being requested to do so, and the
two named shall select a third arbitrator before entering upon the arbitration. If either party

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

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

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

ARTICLE 22 — SERVICE OF SUIT (BRMA 49E)

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

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

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

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

ARTICLE 23 — UNAUTHORIZED REINSURANCE (BRMA 55C)

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

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

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

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

	(a)	 	to reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under
the terms of this Agreement and which has not been otherwise paid;
	 
	(b)	 	to make refund of any sum which is in excess of the actual amount required to pay the

					
	 	 	 	 	 
	 
	A8CFGX002_2925684

January 3, 2008
	 	Page 10 of 12
	 	

 

 

	 	 	Reinsurer’s Obligations under this Agreement;

	(c)	 	to fund an account with the Company for the Reinsurer’s Obligations. Such cash deposit shall
be held in an interest bearing account separate from the Company’s other assets, and interest
thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer;
	 
	(d)	 	to pay the Reinsurer’s share of any other amounts the Company claims are due under this
Agreement.

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

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

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

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

ARTICLE 24 — CHOICE OF LAW AND JURISDICTION 

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

ARTICLE 25 — ORIGINAL CONDITIONS

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

					
	 	 	 	 	 
	 
	A8CFGX002_2925684

January 3, 2008
	 	Page 11 of 12
	 	

 

 

in any way to provide coverage outside the terms and conditions set forth in this Agreement.

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

ARTICLE 26 — ENTIRE AGREEMENT (BRMA 74B)

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

ARTICLE 27 — INTERMEDIARY

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

					
	 	 	 	 	 
	 
	A8CFGX002_2925684

January 3, 2008
	 	Page 12 of 12
	 	

 

 

TERRORISM DEFINITION

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

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

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

					
	 	 	 	 	 
	 
	A8CFGX002_2925684

January 3, 2008
	 	 
	 	

 

 

NUCLEAR INCIDENT EXCLUSION CLAUSE — LIABILITY — REINSURANCE

U.S.A.

	(1)	 	This reinsurance does not cover any loss or liability accruing to the Reassured as a member
of, or subscriber to, any association of insurers or reinsurers formed for the purpose of
covering nuclear energy risks or as a direct or indirect reinsurer of any such member,
subscriber or association.
	 
	(2)	 	Without in any way restricting the operation of paragraph (1) of this Clause it is understood
and agreed that for all purposes of this reinsurance all the original policies of the
Reassured (new, renewal and replacement) of the classes specified in Clause II of this
paragraph (2) from the time specified in Clause III in this paragraph (2) shall be deemed to
include the following provision (specified as the Limited Exclusion Provision):

Limited Exclusion Provision.*

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

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

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

			
	 	 	 
	 
	A8CFGX002_2925684

January 3, 2008
	 	

 

 

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

Broad Exclusion Provision.*

It is agreed that the policy does not apply:

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

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

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

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

	 	IV.	 	As used in this endorsement:
	 
	 	 	 	“Hazardous properties” include radioactive, toxic or explosive properties; “nuclear
material” means source material, special nuclear material or byproduct material; “source
material,” “special nuclear material,” and “byproduct material” have the

			
	 	 	 
	 
	A8CFGX002_2925684

January 3, 2008
	 	

 

 

	 	 	 	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.

			
	 	 	 
	 
	A8CFGX002_2925684

January 3, 2008
	 	

 

 

 

			
	*	 	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.

			
	 	 	 
	 
	A8CFGX002_2925684

January 3, 2008
	 	

 

 

			
	CONTINUATION OF CONTRACT NO. A8CFGX002
	 	DATED 02 January 2008

CONTRACT No. A8CFGX002

Please quote in all communications

LEBANON MUTUAL INSURANCE COMPANY

137 WEST PENN AVENUE

CLEONA, PENNSYLVANIA 17042-1322

FINAL SUMMARY OF REINSURANCE TERMS

In accordance with your instructions, we have effected the following. Please check this document
carefully and advise us immediately if it is not in accordance with your requirements or if the
security stated hereon is not acceptable. You are respectfully reminded of the ongoing importance
of disclosing all material information to Reinsurers/Insurers. Failure to do so could prejudice
your coverage under this Reinsurance/Insurance.

RISK DETAILS

	 	 	 	 	 
	REINSURED

	 	:
	 	LEBANON MUTUAL INSURANCE COMPANY
	 

	 	 	 	Cleona, Pennsylvania
	 
	 	 	 	 
	PERIOD

	 	:
	 	This Agreement shall take effect 12:01 a.m., Eastern Standard Time, January 1, 2008 and shall
apply to all losses occurring on and after this date, and shall remain in force until 12:01 a.m.
Eastern Standard Time, January 1, 2009.
	 
	 	 	 	 
	TYPE

	 	:
	 	WORKERS’ COMPENSATION SECOND EXCESS OF LOSS REINSURANCE AGREEMENT
	 
	 	 	 	 
	CLASS

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

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

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

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

 
			
	 	 	 
	 
	Page 1 of 3 	

 

 

			
	CONTINUATION OF CONTRACT NO. A8CFGX002
	 	DATED 02 January 2008

	 	 	 	 	 
	 

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

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

	 	:
	 	The premium for the reinsurance afforded by this Agreement shall be calculated by
applying a rate of 2.10% to the Subject Gross Net Earned Premium Income accounted for by the Company
on business the subject matter of this Agreement for the term of this Agreement subject to a minimum
premium of $41,400.
	 
	 	 	 	 
	 

	 	 	 	A deposit premium of $46,000 shall be paid to the Reinsurer on January 1, 2008.
	 
	 	 	 	 
	 

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

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

	 	:
	 	One (1) reinstatement at additional premium calculated pro rata as to amount and 100%
as to time.
	 
	 	 	 	 
	LOSS EXPENSE

	 	:
	 	Included within the Ultimate Net Loss.
	 
	 	 	 	 
	GENERAL CONDITIONS

	 	:
	 	See attached Contract wording.
	 
	 	 	 	 
	WORDING

	 	:
	 	As attached.
	 
	 	 	 	 
	INFORMATION

	 	:
	 	2008 Estimated Subject Net Earned Premium: USD2,185,246.

	 	 	 	 	 
	Memorandum of Changes 2007 to 2008_3106421
	 	Page 2 of 3
	 	
	ABCFGX002 — Lebanon WC wnd XOL program	 	 	 
	12/03/2007	 	 	 

 

 

			
	CONTINUATION OF CONTRACT NO. A8CFGX002
	 	DATED 02 January 2008

FINAL SUMMARY OF REINSURANCE TERMS

	 	 	 
	REINSURED:

	 	LEBANON MUTUAL INSURANCE COMPANY
	CONTRACT:

	 	WORKERS’ COMPENSATION EXCESS OF LOSS REINSURANCE
	EFFECTIVE:

	 	January 1, 2008

Federal Excise tax is not applicable.

EFFECTED WITH:

	 	 	 	 	 
	 
	 	 	 	Federal ID & NAIC #
	 
	 	 	 	 
	100.00%
	 	CSafety National Casualty Corporation	 	43-0727872
	 
	 	St. Louis, Missouri	 	1515
	100.00%
	 	TOTAL	 	 
	 	 	 	 	 

	 	 	 	 	 
	For and on behalf of
	 	 	 	 
	BMS Intermediaries, Inc.
	 	 	 	 
	 
	 	 	 	 
	/s/

	 	January 2, 2008	 	 
	 

	 	 

	 	 
	Authorized Signature

	 	Date	 	 
	Authorized Signature
	 	 	 	 
	 
	 	 	 	 
	For and on behalf of
	 	 	 	 
	Lebanon Mutual Insurance Company
	 	 	 	 
	 
	 	 	 	 
	/s/ Rollin P. Rissinger

	 	January 2, 2008	 	 
	 

	 	 

	 	 
	Authorized Signature

	 	Date	 	 
	Authorized Signature
	 	 	 	 

	 	 	 	 	 
	Memorandum of Changes 2007 to 2008_3106421
	 	Page 3 of 3
	 	
	ABCFGX002 — Lebanon WC wnd XOL program	 	 	 
	12/03/2007	 	 	 

 

 

MEMORANDUM OF CHANGES

LEBANON MUTUAL INSURANCE COMPANY

Workers’ Compensation Second Excess of Loss Treaty

Effective January 1, 2008

The following changes have been made to the 2007 expiring wording (in addition to amending any
applicable dates, percentages and figures):

	 	 	 	 	 
	BUSINESS COVERED

	 	:
	 	Amended the language of this article to clarify the business being
covered.
	 
	 	 	 	 
	REINSURANCE PREMIUM

	 	:
	 	(Previously entitled PREMIUM.)
	 
	 	 	 	 
	 

	 	 	 	In the third paragraph, deleted the phrase “less returns and
cancellations and” as Net Earned Premium is already net of these
items.
	 
	 	 	 	 
	 

	 	 	 	In the fourth paragraph, added the word “premium” after the word
“additional”.
	 
	 	 	 	 
	RETENTION AND LIMIT

	 	:
	 	In the last paragraph, added the phrase “or subsequent amendments
thereto” after “(TRIA”).
	 
	 	 	 	 
	COMMUTATION

	 	:
	 	In the fifth paragraph, amended “Princeton, New Jersey” to read
“Cleona, Pennsylvania”.
	 
	 	 	 	 
	NET RETAINED LINES

	 	:
	 	Expiring language was amended as we are using BRMA clauses whenever
possible. The language used is BRMA 32B.
	 
	 	 	 	 
	ULTIMATE NET LOSS

	 	:
	 	In the third paragraph, amended the word “occurrence” to read
“Ultimate Net Loss”.
	 
	 	 	 	 
	LOSS NOTICE AND 

SETTLEMENT

	 	:
	 	In the last paragraph, amended the word “reinsurers” to its
singular form and amended the word “their” to “its”.
	 
	 	 	 	 
	TAXES

	 	:
	 	Expiring language was amended as we are using BRMA clauses whenever
possible. The language used is BRMA 50B.
	 
	 	 	 	 
	OFFSET

	 	:
	 	Expiring language was amended as we are using BRMA clauses whenever
possible. The language used is BRMA 36D.
	 
	 	 	 	 
	ACCESS TO RECORDS

	 	:
	 	Expiring language was amended as we are using BRMA clauses whenever
possible. The language used is BRMA 1D.
	 
	 	 	 	 
	INSOLVENCY

	 	:
	 	Expiring language was amended as we are using BRMA clauses whenever
possible. The language used is BRMA 19B.

 
	 	 	 	 	 
	Memorandum of Changes 2007 to 2008_3106421
	 	Page 1 of 2
	 	
	ABCFGX002 — Lebanon WC wnd XOL program	 	 	 
	12/03/2007	 	 	 

 

 

	 	 	 	 	 
	SERVICE OF SUIT

	 	:
	 	Expiring language was amended as we are using BRMA clauses whenever
possible. The language used is BRMA 49E.
	 
	 	 	 	 
	CHOICE OF LAW AND 

JURISDICTION

	 	:
	 	(Previously entitled GOVERNING LAW.)
	 
	 	 	 	 
	 

	 	 	 	Amended language of Article to BMS standard language which includes
reference to the “Service of Suit” article.
	 
	 	 	 	 
	ORIGINAL CONDITIONS

	 	:
	 	This Article was added to the agreement.
	 
	 	 	 	 
	ENTIRE AGREEMENT

	 	:
	 	This Article was added to the agreement. The language used is BRMA 74B.
	 
	 	 	 	 
	INTERMEDIARY

	 	:
	 	Amended to read “BMS Intermediaries, Inc.” through the article.

PLEASE NOTE:

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

Punctuation and capitalization corrections have been made throughout the agreement.

Reference to BRMA article numbers have been added, where applicable.

 
	 	 	 	 	 
	Memorandum of Changes 2007 to 2008_3106421
	 	Page 2 of 2
	 	
	ABCFGX002 — Lebanon WC wnd XOL program	 	 	 
	12/03/2007exv10w13

Exhibit 10.13

COMMERCIAL LIMITED ASSIGNMENT DISTRIBUTION PROGRAM
AGREEMENT

Between

Pennsylvania General Insurance Company, Servicing Carrier

And

Lebanon Mutual Insurance Company, Excused Carrier

PENNSYLVANIA

     This Agreement (“Agreement”), made effective as of the 1st day of January, 2006 between
Pennsylvania General Insurance Company (hereinafter called “Servicing Carrier”), an insurance
company authorized to write insurance in Pennsylvania, and Lebanon Mutual Insurance Company
(hereinafter called the “Excused Carrier”), an insurance company authorized to write insurance
in Pennsylvania, having offices at 137 West Penn Avenue, PO Box 2005, Cleona, PA 17042.

Preamble

     I. The Servicing Carrier has been approved by the Pennsylvania Assigned Risk Plan
Governing Committee as a Servicing Carrier under the Commercial Limited Assignment Distribution
Program (hereinafter called the “CLAD program”).

     II. The Excused Carrier is eligible and elects to be excused from its obligations to
accept certain new assignments under the Pennsylvania Assigned Risk Plan (hereinafter
called “PA ARP”), and the Excused Carrier desires to enter into this Agreement with the
Servicing Carrier.

     NOW, THEREFORE, in consideration of the mutual covenants herein contained, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1

 

Transfer of PA ARP Assignments

     1.1 The Servicing Carrier hereby agrees to accept assignments from PA ARP that
would otherwise be made to the Excused Carrier during the term of this Agreement, on
the class of business covered by this Agreement, subject to the limitation set forth in
this Agreement and as required by law.

     1.2 The class of business covered by this Agreement is those risks as defined in
Commercial Automobile Part, Section 19 of the PA ARP Plan Manual, submitted to the PA
ARP on or after January 1, 2006.

     1.3 The amount of assignments which the Servicing Carrier will accept under the
terms hereof shall be the quota of assignments during the term of this Agreement which
the Excused Carrier is required by law to write in the Commonwealth of Pennsylvania.

	 	1.4	 	Each party (an Indemnitor) shall indemnify and hold harmless the
other party, its affiliates, and their respective officers, directors,
employees and agents (collectively the Indemnitee) from and against any and
all losses, obligations, costs, liabilities, damages, fines, actions, suits,
causes of action, claims, demands, settlements, judgments or any other
expenses, including, but not limited to, reasonable attorney’s fees and
expenses, which are asserted against, imposed upon or incurred or suffered by
such Indemnitee, and which arise out of or result from:

	 	a.	 	The failure of the Indemnitor, its affiliates or
any of their respective officers, directors, employees or agents
properly to discharge any of their duties or obligations hereunder, or
to observe or comply with any terms, conditions and limitations
contained in this Agreement pertaining to its authority or rights
hereunder.
	 
	 	b.	 	The breach or failure to observe any covenant,
condition, warranty, representation, or limitation contained in
this Agreement by the

2

 

	 	 	 	Indemnitor, its affiliates or any of their respective officers,
directors, employees or agents;
	 
	 	c.	 	The violation of any law, rule, regulation, order or
other legal authority in connection with this Agreement by the
Indemnitor, its affiliates or any of their respective officers,
directors, employees or agents; and
	 
	 	d.	 	The negligence, gross negligence, bad faith or
willful or wanton behavior in connection with this Agreement by the
Indemnitor, its affiliates or any of their respective officers,
directors, employees or agents.

Contributory or comparative negligence or other fault of the Indemnitee shall not be excused by
reason of the indemnification provided herein. The Indemnitor will not be required to indemnify
the Indemnitee for losses resulting in whole or in part from the Indemnitee’s negligence or
other fault. The Indemnitee shall notify the Indemnitor within ninety (90) days of receipt of
any claim or lawsuit for which it seeks indemnity pursuant to this provision and, at the option
of the Indemnitor, the Indemnitor shall control the defense of any such lawsuit. If the
Indemnitee fails to notify the Indemnitor of any action within such ninety (90) day period
arid/or fails to cooperate with the Indemnitor in the defense of such action, the Indemnitor
shall be relieved of its indemnification obligations hereunder. If the Indemnitor assumes the
defense of any such action, it shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such action absent the
Indemnitor’s approval of such expense.

This Article shall survive termination of the Agreement.

Buy-Out Fee and Terms of Payment

     2. The Excused Carrier shall pay to the Servicing Carrier a fee (the “Buy-Out Fee”) by
application of the factor set forth in Exhibit A to the Excused Carrier’s total quota of
assignments (in premium dollars) under the PA ARP for the term of this Agreement. The

3

 

estimated Buy-Out Fee, which is paid on a QUARTERLY basis, is to be paid within thirty (30)
days after billing beginning with the effective date of this contract and QUARTERLY thereafter,
is based on the Excused Carrier’s then current PA ARP basic quota share of the Other than
Private Passenger (OTPP) estimated premium volume as calculated using the PA ARP published
estimate of premium volume by calendar year. When the PA ARP issues the Plan Annual Report the
initial fee shall be adjusted to represent the E;ccused Carrier’s actual PA ARP share and the
actual premium volume of the OTPP portion_of the PA ARP. This subsequent adjustment may result
in additional charge or refund which shall be calculated and paid to the applicable party
within thirty (30) days following the PA ARP’s publication of the actual premium volume for the
applicable calendar year.

Representation and Warranties

     3.1 The Servicing Carrier hereby warrants and represents that is has been approved by the
Pennsylvania Assigned Risk Plan Governing Committee to act as a Servicing Carrier under the CLAD
Program.

     3.2 The Excused Carrier hereby warrants and represents that it is eligible for
participation in the CLAD Program as an Excused Carrier.

Duration of Agreement: Cancellation

     4.1 This Agreement shall become effective on the date set forth at the beginning of this
Agreement, or on the date this Agreement is approved by the Pennsylvania Assigned Risk Plan
Governing Committee, whichever is later, and shall continue in force and effect until
December 31, 2006.

     4.2 Beginning on January 1, 2007 the Agreement shall be automatically renewed for
successive one (1) year terms unless either party sends the other written notice of non-
renewal at least ninety (90) days prior to the renewal effective date.

4

 

     4.3 Notwithstanding the foregoing provisions, this Agreement shall terminate at such
earlier date as may be required by law, including, without limitation, any provisions of the
Pennsylvania Insurance Law, the regulations of the Pennsylvania Insurance Department, the
rules of PA ARP, or the lawful order or decree of the Pennsylvania Insurance Department or
the PA ARP, provided, however, that the period within which either party hereto may object
to or appeal from any such order or decree shall have expired.

     4.4 The termination provisions hereof shall not be construed to affect the period for
which the Servicing Carrier must write insurance for assureds assigned to it under this
Agreement, it being understood that the rules of the PA ARP, presently require that the
Servicing Carrier issue policies to each assured assigned to it under this Agreement for a
period of three (3) years.

Notice

     5.1 Any notice required or permitted to be given hereunder shall be given in writing,
shall be signed by the party giving notice and shall be delivered by certified or registered
mail, return receipt requested, to the address of the party to whom the notice is directed
as set forth below, or to such other person or address of whom such party shall have given
notice.

	 	 	 	 	 	 	 
	If to Servicing Carrier:

	 	 	 	If to Excused Carrier:
	 	 
	 
	 	 	 	 	 	 
	Pennsylvania General Insurance Company

	 	 	 	Lebanon Mutual Insurance Company	 	 
	c/o OneBeacon Insurance Group

	 	 	 	137 West Penn Ave.	 	 
	One Beacon Street

	 	 	 	P.O. Box 2005	 	 
	Boston, MA 02108

	 	 	 	Cleona, PA 17042	 	 
	 
	 	 	 	 	 	 
	Attn: General Counsel

	 	 	 	Attn: President	 	 
	 
	 	 	 	 	 	 
	With a copy to:

	 	 	 	With a copy to:	 	 
	 
	 	 	 	 	 	 
	Pennsylvania General Insurance Company
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	c/o AutoOne Insurance
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	201 Old Country Road
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Melville, NY 11747
	 	 	 	 	 	 
	 

	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 
	Attn: President

	 	 	 	Attn:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 

5

 

     5.2 Notwithstanding the provisions of Section 5.1 above, a notice shall be deemed to
have been properly given if the party to which it is directed signs a copy of such notice
and returns it to the party giving notice.

Successors and Assigns

     6. This Agreement cannot be assigned without the written consent of both parties.

Entire Agreement Amendment

     7.1 This Agreement, together with Exhibit A attached hereto, constitutes the entire
agreement among the parties hereto with respect to the rights established herein.

     7.2 This Agreement may not be changed orally, and any modification, amendment or repeal
of this Agreement must be in writing and shall be signed by the party against whom it is to
be enforced.

     7.3 This Agreement supersedes all prior agreements among the parties with respect to
the subject matter hereof, and all prior agreements are of no further force or effect.

Arbitration

     8.1 All disputes or differences arising out of the interpretation of this Agreement
shall be submitted to the decision of two arbitrators, one to be chosen by each party, and in
the event of the arbitrators failing to agree, to the decision of an umpire to be chosen by
the arbitrators. The arbitrators and umpire shall be disinterested active or retired
executive officials of fire or casualty insurance or reinsurance companies. If either of the
parties fails to appoint an arbitrator within one (1) month after being required by the other
party in writing to do so, or if the arbitrators fail to appoint an umpire within one (1)
month of a

 

 

request in writing by either party for them to do so, such arbitrators or umpire, as the case
may be, shall at the request of either party be appointed by a Justice of the Supreme Court
of the State of New York.

     8.2 The arbitration proceeding shall take place in New York, New York. The applicant
shall submit its case within one (1) month after the appointment of the arbitrators, and the
respondent shall submit its reply within one (1) month after the receipt of the applicant’s
case. The arbitrators and umpire are relieved from all judicial formality and may abstain
from following the strict rules of law. They shall settle any dispute under this Agreement
according to an equitable rather than a strictly legal interpretation of its terms.

     8.3 Their written decision shall be provided to both parties and shall be final and not
subject to appeal.

     8.4 Each party shall bear the expenses of his arbitrator and shall jointly and equally
share with the other the expenses of the umpire and of the arbitration.

     8.5 This article shall survive the termination of this Agreement.

Gender, Singular and Plural

     9. The use of any one or more genders shall be construed to include all other genders,
unless the context clearly indicates that less than all the genders are intended. The use
of the singular or of the plural shall be construed to include both the singular and the
plural unless the context clearly indicates that only the singular or the plural is
intended.

Captions

     10. Captions in this Agreement are inserted for ease of reference only and shall not
be used in construing the terms of this Agreement.

7

 

Severability

     11. If any part of this Agreement is determined to be invalid, the validity of
this Agreement shall not be affected and the parties agree that all remaining parts
shall remain in full force and effect.

Governing Law

     12. This Agreement shall be governed and construed in accordance with the laws
of the State of New York, except all obligations of the Excused Carrier and the
Servicing Carrier to PA ARP will be governed and construed by Pennsylvania law.

     IN WITNESS WHEROF, we have executed this instrument on the date first written above.

	 	 	 	 	 	 	 	 	 	 	 
	Servicing Carrier:	 	 	 	Excused Carrier:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Pennsylvania General Insurance Company	 	 	 	Lebanon Mutual Insurance Company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Carey D. Benson
	 	 	 	By:
	 	/s/ Rollin P. Rissinger, Jr.	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Name:

	 	Carey D. Benson
	 	 	 	Name:
	 	Rollin P. Rissinger, Jr.	 	 
	Title:

	 	Senior Vice President
	 	 	 	Title:
	 	Pres./Sec.	 	 
	Date:

	 	12/8/05
	 	 	 	Date:
	 	12/7/05	 	 

 

 

COMMERCIAL LIMITED ASSIGNMENT DISTRIBUTION (CLAD)

PROGRAM AGREEMENT

PENNSYLVANIA

Amendment A

This Amendment (“Amendment”), to the COMMERCIAL LIMITED ASSIGNMENT DISTRIBUTION PROGRAM
AGREEMENT (“Agreement”), is made effective as of the 1st day of October, 2006
(“effective date”), between Pennsylvania General Insurance Company and AutoOne Insurance
Company, insurance companies authorized to write insurance in Pennsylvania, and Lebanon Mutual
Insurance Company, (hereinafter called the “Excused Carrier”), an insurance company authorized
to write insurance in Pennsylvania, having offices at 137 West Penn Avenue, PO Box 2005,
Cleona, PA 17042.

Preamble

     I. AutoOne Insurance Company is authorized to write insurance in Pennsylvania and has been
approved by the Governing Committee of the Pennsylvania Assigned Risk Plan to act as a
Servicing Carrier under the Commercial Limited Assignment Distribution Program (hereinafter
called the “CLAD program”).

     H. The Parties wish to replace Pennsylvania General Insurance Company with AutoOne
Insurance Company as the Servicing Carrier with no other changes to their agreement.

THEREFORE, the Agreement is hereby modified as follows:

     1. All references to Pennsylvania General Insurance Company are hereby
replaced with AutoOne Insurance Company.

     2. AutoOne Insurance Company hereinafter is the Servicing Carrier as set forth
in the Agreement.

1

 

     3 AutoOne Insurance Company hereby assumes all duties and obligations,
makes all representations and provides all warranties as the Servicing Carrier as set forth in
the Agreement.

     4 If there is a conflict between the Agreement and this Amendment, the terms
set forth in this Amendment shall supersede and prevail.

IN WITNESS WHEROF, this Amendment has been executed by and between the parties hereto on the
date first written above.

	 	 	 	 	 	 	 	 	 	 	 
	Servicing Carrier:	 	 	 	Excused Carrier:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Pennsylvania General Insurance Company/

AutoOne Insurance Company	 	 	 	Lebanon Mutual Insurance Company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Paul F. DiFrancesco
	 	 	 	By:
	 	/s/ Rollin P. Rissinger, Jr.	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Name:

	 	Paul F. DiFrancesco
	 	 	 	Name:
	 	Rollin P. Rissinger, Jr.	 	 
	Title:

	 	Vice President
	 	 	 	Title:
	 	President	 	 
	Date:

	 	 10.27.06
	 	 	 	Date:
	 	10/24/06	 	 

2

 

COMMERCIAL LIMITED ASSIGNMENT DISTRIBUTION PROGRAM
AGREEMENT

Between

Pennsylvania General Insurance Company, Servicing Carrier

And

Lebanon Mutual Insurance Company, Excused Carrier

PENNSYLVANIA

EXHIBIT A — BUY-OUT FEE

	a.	 	The percentage to be used in calculating the Buy-Out Fee for all
accounting years beginning on or after January 1, 2006, shall be 12 % payable
quarterly.
	 
	b.	 	In the event, however, the application of this percentage, inclusive
of any subsequent adjustments to the estimated premium volume, produces a total
buyout fee of less than $1,500, the above percentage will be increased such
that the annual buy-out fee will equal $1,500.
	 
	c.	 	The estimated Buy-Out Fee for all accounting years beginning on or
after January 1, 2006, shall be in quarterly installments, to be paid within
thirty (30) days of billing.

	 	 	 	 	 	 	 	 	 	 	 
	Servicing Carrier:	 	 	 	Excused Carrier:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Pennsylvania General Insurance Company	 	 	 	Lebanon Mutual Insurance Company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Carey D. Benson
	 	 	 	By:
	 	/s/ Rollin P. Rissinger, Jr.	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Name:

	 	Carey D. Benson
	 	 	 	Name:
	 	Rollin P. Rissinger, Jr.	 	 
	Title:

	 	Senior Vice President
	 	 	 	Title:
	 	Pres./Sec.	 	 
	Date:

	 	12/8/05
	 	 	 	Date:
	 	12/7/05	 	 

9

 

COMMERCIAL LIMITED ASSIGNMENT DISTRIBUTION PROGRAM
AGREEMENT

Between

AutoOne Insurance Company, Servicing Carrier

And

Lebanon Mutual Insurance Company, Excused Member

PENNSYLVANIA

EXHIBIT A — 2007 BUY-OUT FEE

	 	a.	 	The percentage to be used in calculating the Buy-Out Fee for all
accounting years beginning on or after January 1, 2008, shall be 10.0% payable
quarterly.
	 
	 	b.	 	In the event, however, the application of this percentage, inclusive of
any subsequent adjustments to the estimated premium volume, produces a total buy-
out fee of less than $1,500, the above percentage will be increased such that the

annual buy-out fee will equal $1,500.
	 
	 	c.	 	The estimated Buy-Out Fee for all accounting years beginning on or
after January
1, 2008, shall be in quarterly installments, to be paid within thirty (30) days of
billing.

	 	 	 	 	 	 	 	 	 	 	 
	Servicing Carrier:	 	 	 	Excused Carrier:	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	AutoOne Insurance Company	 	 	 	Lebanon Mutual Insurance Company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Paul F. DiFrancesco
	 	 	 	By:
	 	/s/ Rollin P. Rissinger, Jr.	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Name:

	 	Paul F. DiFrancesco
	 	 	 	Name:
	 	Rollin P. Rissinger, Jr.	 	 
	Title:

	 	President
	 	 	 	Title:
	 	Pres./Sec.	 	 
	Date:

	 	11-26-07
	 	 	 	Date:
	 	11/7/2007	 	 

10

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