Document:

exv10w9

Exhibit 10.9

CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

Wilkes-Barre, Pennsylvania

	 	 	 	 	 

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CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

TABLE OF CONTENTS

	 	 	 	 	 
	Article	 	 	 	Page
	 
	 	Preamble	 	4
	1
	 	Business Covered	 	4
	2
	 	Retention and Limit	 	5
	3
	 	Term	 	5
	4
	 	Special Termination	 	6
	5
	 	Territory	 	7
	6
	 	Exclusions	 	7
	7
	 	Special Acceptance	 	13
	8
	 	Premium	 	13
	9
	 	Reinstatement	 	14
	10
	 	Definitions	 	15
	11
	 	Excess Terrorism Recovery	 	18
	12
	 	Extra Contractual Obligations/Excess of Policy Limits	 	19
	13
	 	Net Retained Liability	 	20
	14
	 	Original Conditions	 	20
	15
	 	No Third Party Rights	 	20
	16
	 	Notice of Loss and Loss Settlements	 	20
	17
	 	Offset	 	21
	18
	 	Commutation	 	21
	19
	 	Late Payments	 	22
	20
	 	Currency	 	23
	21
	 	Unauthorized Reinsurance	 	23
	22
	 	Taxes	 	26
	23
	 	Access to Records	 	26
	24
	 	Confidentiality	 	26
	25
	 	Indemnification and Errors and Omissions	 	27
	26
	 	Insolvency	 	28
	27
	 	Arbitration	 	29
	28
	 	Service of Suit	 	30
	29
	 	Severability	 	31
	30
	 	Governing Law	 	31
	31
	 	Entire Agreement	 	31
	32
	 	Non-Waiver	 	32
	33
	 	Intermediary	 	32
	34
	 	Mode of Execution	 	32
	 
	 	Company Signing Block	 	33

	 	 	 	 	 

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CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

TABLE OF CONTENTS

	 	 	 	 	 
	Attachments	 	 	 	Page
	 
	 	Nuclear Incident Exclusion Clause — Liability — Reinsurance — U.S.A.	 	34

	 	 	 	 	 

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CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

(the “Contract”)

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

Wilkes-Barre, Pennsylvania

(collectively, the “Company”)

by

THE SUBSCRIBING REINSURER(S) IDENTIFIED

IN THE INTERESTS AND LIABILITIES AGREEMENT(S)

ATTACHED TO AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

Whenever the word “Company” is used in this Contract, such term shall mean each and all affiliated
companies which are or may hereafter be under common control provided notice be given to the
Reinsurer of any newly-affiliated companies which may hereafter come under common control as soon
as practicable, with full particulars as to how such affiliation is likely to affect this Contract.
In the event that either party maintains that such affiliation calls for altering the terms of this
Contract and an agreement for alteration not being arrived at, then the Business Covered of such
newly-affiliated company is covered at existing terms for a period not to exceed 90 days after
notice by either party that it does not wish to cover the business of the newly-affiliated company
at the existing terms.

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Company in respect of the liability that may accrue to the
Company as a result of loss or losses under Policies classified by the Company as Casualty, in
force at the inception of this Contract, or written or renewed during the term of this Contract by
or on behalf of the Company, subject to the terms and conditions herein contained.

	 	 	 	 	 

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ARTICLE 2

RETENTION AND LIMIT

First Excess

The Reinsurer shall be liable in respect of each Loss Occurrence, for the Ultimate Net Loss over
and above an initial Ultimate Net Loss of $1,000,000 each Loss Occurrence, subject to limits of
liability to the Reinsurer of $4,000,000 each Loss Occurrence, and $4,000,000 for all losses
occurring during the term of this Contract arising from Acts of Terrorism.

Second Excess

The Reinsurer shall be liable in respect of each Loss Occurrence, for the Ultimate Net Loss over
and above an initial Ultimate Net Loss of $5,000,000 each Loss Occurrence, subject to a limit of
liability to the Reinsurer of $5,000,000 each Loss Occurrence. Acts of Terrorism as defined herein
are not covered under the Second Excess.

ARTICLE 3

TERM

	A.	 	This Contract shall take effect at 12:01 a.m., Eastern Standard Time, January 1, 2011, and
shall remain in effect until 12:01 a.m., Eastern Standard Time, January 1, 2012, applying to
losses occurring during the term of this Contract.
	 
	B.	 	The Reinsurer shall have no liability for losses occurring after expiration of this Contract.
	 
	C.	 	However, at the Company’s option, the Reinsurer shall remain liable hereunder in respect of
Policies in force at expiration, until the earlier of the expiration or next renewal of such
Policies. In such event, the Company shall pay to the Reinsurer an additional premium equal
to the rate set forth in the Premium Article, multiplied by the Gross Net Earned Premium
Income during the runoff period, payable within 30 days after the end of each quarter.
	 
	D.	 	In the event this Contract expires on a run-off basis, the Reinsurer’s liability hereunder
shall continue if the Company is required by statute or regulation to continue coverage, until
the earliest date on which the Company may cancel the Policy.

	 	 	 	 	 

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ARTICLE 4

SPECIAL TERMINATION

	A.	 	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any
time by giving written notice to the Subscribing Reinsurer in the event of any of the
following circumstances:

	 	1.	 	The Subscribing Reinsurer ceases underwriting operations.
	 
	 	2.	 	A state insurance department or other legal authority orders the Subscribing
Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under
regulatory supervision.
	 
	 	3.	 	The Subscribing Reinsurer has become insolvent or has been placed into liquidation
or receivership (whether voluntary or involuntary), or there have been instituted against
it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator,
trustee in bankruptcy, or other agent known by whatever name, to take possession of its
assets or control of its operations.
	 
	 	4.	 	The Subscribing Reinsurer’s policyholders’ surplus (or the equivalent under the
Subscribing Reinsurer’s accounting system) as reported in such financial statements of
the Subscribing Reinsurer as designated by the Company, has been reduced by 20% of the
amount thereof at any date during the prior 12-month period (including the period prior
to the inception of this Contract).
	 
	 	5.	 	The Subscribing Reinsurer has merged with or has become acquired or controlled by
any company, corporation, or individual(s) not controlling the Subscribing Reinsurer’s
operations at the inception of this Contract.
	 
	 	6.	 	The Subscribing Reinsurer has retroceded its entire liability under this Contract
without the Company’s prior written consent, except for retrocessions to members of the
Subscribing Reinsurer’s holding company group.
	 
	 	7.	 	The Subscribing Reinsurer has been assigned an A.M. Best’s rating of less than “A-”
and/or an S&P rating of less than “BBB+.” However, as respects Underwriting Members of
Lloyd’s, London, a Lloyd’s Market Rating of less than “A-” by A.M. Best and/or less than
“BBB+” by S&P shall apply.

	B.	 	Termination shall be effected on a run-off or cut-off basis as set forth in the Term Article,
at the sole discretion of the Company. The reinsurance premium due the Subscribing Reinsurer
hereunder (including any minimum reinsurance premium) shall be pro rated based on the period
of the Subscribing Reinsurer’s participation hereon, and the Subscribing Reinsurer shall
immediately return any excess reinsurance premium received. Reinstatement premium, if any,
shall be calculated based on the Subscribing Reinsurer’s

	 	 	 	 	 

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	 	 	reinsurance premium earned during the period of the Subscribing Reinsurer’s participation
hereon.
	 
	C.	 	Additionally, in the event of any of the circumstances listed in paragraph A of this Article,
the Company shall have the option to commute the Subscribing Reinsurer’s liability for losses
on Policies covered by this Contract. In the event the Company and the Subscribing Reinsurer
cannot agree on the commutation amount, they shall appoint an actuary and/or appraiser to
assess such amount and shall share equally any expense of the actuary and/or appraiser. If
the Company and the Subscribing Reinsurer cannot agree on an actuary and/or appraiser, the
Company and the Subscribing Reinsurer each shall nominate three individuals, of whom the other
shall decline two, and the final appointment shall be made by drawing lots. Payment by the
Subscribing Reinsurer of the amount of liability ascertained shall constitute a complete and
final release of both parties in respect of liability arising from the Subscribing Reinsurer’s
participation under this Contract.
	 
	D.	 	The Company’s option to require commutation under paragraph C above shall survive the
termination or expiration of this Contract.

ARTICLE 5

TERRITORY

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

ARTICLE 6

EXCLUSIONS

	A.	 	This Contract shall not cover:

	 	1.	 	Reinsurance treaty business, including pro rata and excess of loss, assumed by the
Company, but not to include business from affiliated companies;
	 
	 	2.	 	Business written on a co-indemnity basis not controlled by the Company;
	 
	 	3.	 	Loss or liability excluded by the provisions of the “Nuclear Incident Exclusion
Clause — Liability — Reinsurance — USA” attached to and forming part of this Contract;
	 
	 	4.	 	Liability assumed by the Company as a member of a Syndicate, Pool or Underwriting
Association; however, this does not apply to participation in assigned risk plans;
	 
	 	5.	 	Any liability of the Company arising by contract, operation of law, or otherwise,
from its participation or membership, whether voluntary or involuntary, in any insolvency
fund. “Insolvency Fund” includes any guaranty fund, insolvency fund, plan, pool,
association, fund or other arrangement, howsoever denominated, established or

	 	 	 	 	 

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	 	 	 	governed, which provides for any assessment of or payment or assumption by the Company
of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or
its successors or assigns, which has been declared by any competent authority to be
insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or
other obligation in whole or in part;
	 
	 	6.	 	Financial Guarantee and Insolvency;
	 
	 	7.	 	Loss resulting from an Act of Terrorism that involves the use, release, or escape
of nuclear materials, or directly or indirectly results in nuclear reaction or radiation
or radioactive contamination, or that is carried out by means of the dispersal or
application of pathogenic or poisonous biological or chemical materials that are
released;
	 
	 	8.	 	Regarding interests which at time of loss or damage are on shore, any loss or
damage which is occasioned by 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. This War Exclusion Clause shall not
however, apply to interests which at time of loss or damage are within the territorial
limits of the United States of America (comprising the 50 states of the Union and the
District of Columbia and including bridges between the U.S.A. and Mexico, provided they
are under United States ownership), Canada, St. Pierre and Miquelon, provided such
interests are insured under Policies, endorsements, or binders containing a standard war
or hostilities or warlike operations exclusion clause;
	 
	 	9.	 	Umbrella Liability;
	 
	 	10.	 	Public Utilities;
	 
	 	11.	 	Pharmaceutical and Medical Device Manufacturers;
	 
	 	12.	 	Operation, navigation, or handling of ships, or vessels owned by the insured other
than:

	 	a.	 	Yachts, small pleasure crafts, sports fishing vessels, and
	 
	 	b.	 	Vessels operating exclusively in inland and/or coastal waters where
legal liability on such vessels is incidental to the coverage provided either under
a general liability Policy or under a comprehensive form of a Policy;

	 	13.	 	Ownership, maintenance or use of aircraft and aircraft flight operations, but this
exclusion does not apply to Workers’ Compensation/Employers’ Liability coverage;

	 	14.	 	Repair, cleaning or demolition of any vessel or barge used as petroleum tanker;

	 	 	 	 	 

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	 	15.	 	Loss or liability excluded by whichever standard Insurance Services Office
pollution exclusion(s) is included in the Policy under which such loss or liability
arises.
	 
	 	 	 	Notwithstanding the above, the Reinsurer agrees that this exclusion shall not apply to
original Policies written in any state where the Standard ISO Pollution Exclusion(s)
have not been approved or are not permitted to be included in or attached to original
Policies.
	 
	 	 	 	Further, the Reinsurer agrees that this exclusion shall not apply in any case where the
Company has attached the Standard ISO Pollution Exclusion(s) to an original Policy but
has sustained a loss as a result of that exclusion being deemed invalid or inapplicable
by a court of law.
	 
	 	 	 	Notwithstanding all of the foregoing, the Reinsurer agrees that this exclusion does not
apply to environmental restoration coverage provided under an MCS-90 Endorsement
attached to a commercial automobile Policy written in accordance with the Motor Carrier
Act of 1980.
	 
	 	 	 	Furthermore, the Reinsurer agrees that this exclusion does not apply to overspraying of
anhydrous ammonia, fertilizers and agricultural chemicals, nor shall this exclusion
apply to operations involving anhydrous ammonia, liquefied petroleum gas (LPG), or
propane (including the transportation thereof) where the Company has attached the
Solutions 2000 Liability PMAG-16 Pollution Exclusion Amendment to an original Policy.
Furthermore, this exclusion does not apply to pollutants from mobile equipment where the
Company has attached the Solutions 2000 Liability PMAG-16 Pollution Exclusion Amendment
to an original Policy.
	 
	 	 	 	Furthermore, the Reinsurer agrees that this exclusion does not apply to overspraying of
anhydrous ammonia, fertilizers and agricultural chemicals, nor shall this exclusion
apply to operations involving anhydrous ammonia, liquefied petroleum gas (LPG), or
propane (including the transportation thereof) where the Company has attached the
Solutions 2000 Liability PMAG-18 Pollution Exclusion Amendment to an original
Policy. Furthermore, this exclusion does not apply to pollutants from a covered auto
where the Company has attached the Solutions 2000 Liability PMAG-18 Pollution Exclusion
Amendment to an original Policy.
	 
	 	 	 	Furthermore, the Reinsurer agrees that this exclusion does not apply to operations
meeting all standards of any statute, ordinance, regulation or license requirement of
any federal, state or local government which apply to those operations, where the
Company has attached the Solutions 2000 Liability PMAG-04 “Pesticide or Fertilizer
Applicator Amended Exclusions with Amendment of Limits of Insurance” to an original
Policy. Furthermore, this exclusion does not apply to fields on which the insured, or
any contractor or subcontractor working on the behalf of the insured, is performing
operations, where the Company has attached the Solutions 2000 Liability

	 	 	 	 	 

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	 	 	 	PMAG-04 “Pesticide or Fertilizer Applicator Amended Exclusions with Amendment of
Limits of Insurance” to an original Policy.
	 
	 	16.	 	Manufacture, handling, transit or use of explosives, unless incidental to routine
agriculture operation;
	 
	 	17.	 	Manufacture of liquefied petroleum gas or petroleum;
	 
	 	18.	 	Buses other than buses used to transport employees of the insured or property;
	 
	 	19.	 	Loss or liability, whether direct or indirect, arising from the hazard of asbestos
including the manufacturing, mining, storage, distribution, transportation, fabrication,
installation or removal of asbestos or products containing asbestos;
	 
	 	20.	 	All mining operations;
	 
	 	21.	 	Products guarantee and/or recall and/or integrity impairment when written as such;
	 
	 	22.	 	Blasting;
	 
	 	23.	 	Nursing Homes;
	 
	 	24.	 	All Workers’ Compensation business classified by the Company as Employee Leasing
Corporations, Professional Employment Organizations (PEOs), Temporary Agencies, Police,
Firefighters and EMT Workers, whether professional or volunteer;
	 
	 	25.	 	Policies issued as excess coverage, other than insurance over a self-insured
retention;
	 
	 	26.	 	Manufacturing of fireworks, fuses, nitroglycerine, celluloid and pyroxylin;
	 
	 	27.	 	Concerns when engaged in the demolition of buildings more than three stories in
height except the insured’s own structures;
	 
	 	28.	 	Operation of animal shows, riding academies, circuses, carnivals, amusement parks
or amusement devices; equestrian exposures of guides and outfitters are not excluded;
	 
	 	29.	 	Municipalities, when written as such, but this exclusion does not apply as
respects:

	 	a.	 	School districts;
	 
	 	b.	 	Municipally-owned buildings or properties;
	 
	 	c.	 	Municipalities named as an additional insured;

	 	30.	 	Auto Liability:

	 	a.	 	As a taxicab, public livery or bus;

					
	 	 	 	 	 
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	 	b.	 	Public emergency vehicles such as fire trucks or police cars;
	 
	 	c.	 	Ambulances;
	 
	 	d.	 	Rent-a-car and leasing operations;
	 
	 	e.	 	Vehicles carrying passengers for hire or reward;
	 
	 	f.	 	Automobiles used in organized speed contests including but not limited
to racing, rallies, and speed trials;
	 
	 	g.	 	As a long haul public freight carrier or common carrier, except for
incidental hauling of goods of others;

	 	 	 	However, this exclusion shall not exclude automobiles, buses and/or vans used to
transport hotel/hospitality guests;
	 
	 	31.	 	Products Liability:

	 	a.	 	The manufacture, sale or retail or wholesale distribution of aircraft,
aircraft parts;
	 
	 	b.	 	The manufacture of extracts, drugs, medicines, cosmetics or hair, scalp
or skin preparations;
	 
	 	c.	 	The manufacture of automobiles, buses, trucks and trailers,
recreational vehicles, motorcycles or the manufacture of components critical to
vehicle safety;
	 
	 	d.	 	Products liability written without an annual aggregate limit;

	 	32.	 	Malpractice or Professional Liability, except:

	 	a.	 	Druggists’ Liability;
	 
	 	b.	 	Printers’ Liability;
	 
	 	c.	 	Barbers’ and Beauticians’ Liability (including nail salons);
	 
	 	d.	 	Agricultural Consultants’ Liability;
	 
	 	e.	 	Funeral Directors’ or Morticians’ Professional Liability;
	 
	 	f.	 	Pastoral Professional Liability written in conjunction with a liability
risk;
	 
	 	g.	 	Incidental malpractice written in conjunction with a liability risk;

					
	 	 	 	 	 
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	 	h.	 	Opticians;
	 
	 	i.	 	Hearing Aid Providers;
	 
	 	j.	 	Florists;
	 
	 	k.	 	Veterinarians;
	 
	 	l.	 	Animal Services;

	 	33.	 	Bridge construction when over three stories, over navigable waters, or over 100
feet in length;
	 
	 	34.	 	Construction or maintenance of tunnels or subways more than 50 feet in length,
dams, levees, cofferdams (except dams and levees constructed on farm premises which are
incidental to farm operations), or with respect to business classified as commercial
business, towers over two stories high;
	 
	 	35.	 	Elevator construction and installation, except construction or installation of
grain elevator facilities or related equipment;
	 
	 	36.	 	Occupational Accident when written as such;
	 
	 	37.	 	As respects Workers’ Compensation, and not Commercial General Liability Coverage,
risks having maritime exposures or exposures including but not limited to:

	 	a.	 	Risks subject to the U.S. Longshore and Harbor Worker’s Compensation
Act (except incidental which is defined as less than 10% of Workers Compensation
Policy premium);
	 
	 	b.	 	Operation of docks, quays, wharves, or drydocks;
	 
	 	c.	 	Operations subject to the Jones Act;
	 
	 	d.	 	Operations subject to the Outer Continental Shelf Act;

	 	38.	 	Roofing Contractors;
	 
	 	39.	 	Scaffolding installations (except residential and commercial up to three stories);
	 
	 	40.	 	Tower, steeple, chimney, or shaft construction and work.

	B.	 	If any business falling within the scope of one or more of the exclusions is assigned to the
Company under an Assigned Risk Plan, such exclusion(s) shall not apply to the portion of the
limits of liability prescribed by the Assigned Risk Plan which come within the Company’s
retention and limits of liability of the Reinsurer.

					
	 	 	 	 	 
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	C.	 	If without the knowledge and contrary to the instructions of its supervisory underwriting
personnel, insurance coverages are provided involving one or more of the above exclusions,
except A(1), A(2), A(3), A(4), A(5), A(6), A(7), A(8), A(11), A(15), A(16), A(19), A(24), and
A(25) either by an inadvertent acceptance or by an existing insured extending its operations,
the reinsurance coverage provided hereunder shall apply from inception and for a period of 30
days or longer if required by law, but not to exceed the lesser of 18 months or Policy
anniversary after said supervisory underwriting personnel receives knowledge thereof and
promptly notifies the Reinsurer upon discovery.

	D.	 	Any exclusion listed above other than exclusions A(1), A(2), A(3), A(4), A(5), A(6), A(7),
A(8), A(11), A(15), A(16), A(19), A(24), and A(25), shall be automatically waived as respects
a Policy issued by the Company on a risk with respect to which only a minor or incidental part
of the operations covered involves the exclusion. An incidental part of an insured’s regular
operations shall mean not greater than 10% of the insured’s regular operations.

ARTICLE 7

SPECIAL ACCEPTANCE

Business that is not within the scope of this Contract may be submitted to Hannover
Rückversicherung AG (the “Lead Reinsurer”) for special acceptance hereunder, and such business, if
accepted by the Lead Reinsurer shall be covered hereunder, subject to the terms and conditions of
this Contract, except as modified by the special acceptance. Any special acceptance agreed to by
the Lead Reinsurer shall be binding on all Subscribing Reinsurers hereon. The Lead Reinsurer shall
be deemed to have accepted a risk, if it has not responded within five days after receiving the
underwriting information on such risk. Any renewal of a special acceptance agreed to for a
predecessor contract to this Contract, shall automatically be covered hereunder.

ARTICLE 8

PREMIUM

First Excess

	A.	 	The Company shall pay the Reinsurer a deposit premium of $1,171,665 for the term of this
Contract, to be paid in the amount of $292,916.25 on the first day of each calendar quarter.

	B.	 	As soon as practicable following the expiration of this Contract, the Company shall furnish
to the Reinsurer a statement of the Gross Net Earned Premium Income for the term of this
Contract and calculate a premium at a rate of 2.700% multiplied by the Company’s Gross Net
Earned Premium Income. Should the premium so calculated exceed the deposit premium paid in
accordance with paragraph A above, the Company shall immediately pay

					
	 	 	 	 	 
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	 	 	the Reinsurer the difference. Should the premium so calculated be less than the deposit
premium paid in accordance with paragraph A above, the Reinsurer shall immediately pay the
Company the difference, subject to a minimum premium for the term of this Contract of
$937,332.

Second Excess

	A.	 	The Company shall pay the Reinsurer a deposit premium of $416,592 for the term of this
Contract, to be paid in the amount of $104,148 on the first day of each calendar quarter.

	B.	 	As soon as practicable following the expiration of this Contract, the Company shall furnish
to the Reinsurer a statement of the Gross Net Earned Premium Income for the term of this
Contract and calculate a premium at a rate of 0.960% multiplied by the Company’s Gross Net
Earned Premium Income. Should the premium so calculated exceed the deposit premium paid in
accordance with paragraph A above, the Company shall immediately pay the Reinsurer the
difference. Should the premium so calculated be less than the deposit premium paid in
accordance with paragraph A above, the Reinsurer shall immediately pay the Company the
difference, subject to a minimum premium for the term of this Contract of $333,274.

The Company shall furnish the Reinsurer with such information as may be required by the Reinsurer
for completion of its NAIC annual statements.

ARTICLE 9

REINSTATEMENT

First Excess

Loss payments under this Contract shall reduce the limit of coverage afforded by the amounts paid,
but the limit of coverage shall be reinstated from the time of the occurrence of the loss, and for
each amount so reinstated, the Company agrees to pay, simultaneously with the Reinsurer’s loss
payment, an additional premium calculated at pro rata of 100% of the Reinsurer’s premium for the
First Excess for the term of this Contract, being pro rata only as to the fraction of the
Reinsurer’s limit of liability under the First Excess (i.e., the fraction of $4,000,000) so
reinstated. Nevertheless, the Reinsurer’s liability under the First Excess shall not exceed
$4,000,000 in respect of any one Loss Occurrence, and shall not exceed $12,000,000 in respect of
all losses covered under this Contract.

Second Excess

Loss payments under this Contract shall reduce the limit of coverage afforded by the amounts paid,
but the limit of coverage shall be reinstated from the time of the occurrence of the loss, and for
each amount so reinstated, the Company agrees to pay, simultaneously with the Reinsurer’s

					
	 	 	 	 	 
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loss payment, an additional premium calculated at pro rata of 100% of the Reinsurer’s premium for
the Second Excess for the term of this Contract, being pro rata only as to the fraction of the
Reinsurer’s limit of liability under the Second Excess (i.e., the fraction of $5,000,000) so
reinstated. Nevertheless, the Reinsurer’s liability under the Second Excess shall not exceed
$5,000,000 in respect of any one Loss Occurrence, and shall not exceed $10,000,000 in respect of
all losses covered under this Contract.

If at the time of a loss settlement hereon the reinsurance premium, as calculated in accordance
with the Premium Article, is unknown, the above calculation of reinstatement premium shall be based
upon the deposit premium, subject to adjustment when the reinsurance premium is finally
established.

ARTICLE 10

DEFINITIONS

	 	 	 	 	 	 	 

	A.

	 	 	1.	 	 	“Ultimate Net Loss” means the actual loss paid by the
Company or which the Company becomes liable to pay, such
loss to include Loss Adjustment Expense, 90% of any Extra
Contractual Obligation and 90% of any Loss in Excess of
Policy Limits as defined in the Extra Contractual
Obligations/Excess of Policy Limits Article.
	 
	 	 	 	 	 	 
	 

	 	 	2.	 	 	Salvages and all recoveries, including recoveries under all reinsurances that inure
to the benefit of this Contract (whether recovered or not), shall be first deducted from
such loss to arrive at the amount of liability attaching hereunder.
	 
	 	 	 	 	 	 
	 

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

	 	 	4.	 	 	The Company shall be deemed to be “liable to pay” a loss when a judgment has been
rendered that the Company does not plan to appeal, and/or the Company has obtained a
release, and/or the Company has accepted a proof of loss.
	 
	 	 	 	 	 	 
	 

	 	 	5.	 	 	Nothing in this clause shall be construed to mean that losses are not recoverable
hereunder until the Company’s “Ultimate Net Loss” has been ascertained.

	B.	 	“Loss Adjustment Expense” means costs and expenses incurred by the Company in connection with
the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a
specific claim or loss, or alleged loss, including but not limited to:

	 	1.	 	court costs;
	 
	 	2.	 	costs of supersedeas and appeal bonds;
	 
	 	3.	 	monitoring counsel expenses;

					
	 	 	 	 	 
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	 	4.	 	legal expenses and costs incurred in connection with coverage questions and legal
actions connected thereto, including but not limited to declaratory judgment actions;
	 
	 	5.	 	post-judgment interest;
	 
	 	6.	 	pre-judgment interest, unless included as part of an award or judgment;
	 
	 	7.	 	a pro rata share of salaries and expenses of Company field employees, calculated in
accordance with the time occupied in adjusting such loss, and expenses of other Company
employees who have been temporarily diverted from their normal and customary duties and
assigned to the field adjustment of losses covered by this Contract; and
	 
	 	8.	 	subrogation, salvage and recovery expenses.

	 	 	“Loss Adjustment Expense” does not include salaries and expenses of the Company’s employees,
except as provided in subparagraph (7) above, and office and other overhead expenses.

	C.	 	“Loss Occurrence” means any one accident, casualty, disaster, or occurrence or series of
accidents, casualties, disasters, or occurrences arising out of or following on one event.
Without limiting the generality of the foregoing, the same shall be held to include:

	 	1.	 	As regards Products Bodily Injury Liability and Products Property Damage Liability,
all loss or losses included under the definition of occurrence as set forth in the
Company’s original Policies.
	 
	 	2.	 	As regards Bodily Injury Liability other than Products, all claims against any one
insured for all injuries to one or more than one person resulting from infection,
contagion, poisoning, or contamination proceeding from, or traceable to, the same
causative agency.
	 
	 	3.	 	As regards Property Damage Liability other than Products, all loss or losses during
a Policy year caused by a series of operations, events, or occurrences arising out of
operations at any one specific site which cannot be attributed to any single one of such
operations, events, or occurrences, but rather to the cumulative effect thereof. The
date of such Loss Occurrence shall be deemed to be the date on which the first individual
loss occurred.
	 
	 	4.	 	As regards Workers’ Compensation and Employer’s Liability, all loss resulting from
an occupational or other disease suffered by an employee, which disease arises out of the
employment and for which the employer is liable. The date of loss as respects each such
employee shall be deemed to be the date when compensable disability commences. However,
if, during a Policy year, the Company should sustain more than one loss arising out of
such an occupational or other disease of one specific kind

					
	 	 	 	 	 
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	 	 	 	or class, suffered by more than one employee of one insured, all such losses shall be
deemed to arise out of one Loss Occurrence, and the date of such Loss Occurrence shall
be deemed to be the date on which the first individual loss became compensable.

	D.	 	“Occupational Disease” means any bodily injury (including resulting death) or disease
suffered by an employee which fulfills all of the following conditions:

	 	1.	 	It is not traceable to a definite compensable accident occurring during the
employee’s present or past employment;
	 
	 	2.	 	It is not traceable to an event of 24 hours or less in duration;
	 
	 	3.	 	It has been caused by exposure to conditions present in the workers’ occupational
environment;
	 
	 	4.	 	It has resulted in a disability or death.

	E.	 	“Cumulative Injury” means any bodily injury (including resulting death) or disease suffered
by an employee which fulfills all of the following conditions:

	 	1.	 	It is not traceable to a definite compensable accident occurring during the
employee’s present or past employment;
	 
	 	2.	 	It is not traceable to an event of 24 hours or less in duration;
	 
	 	3.	 	It has occurred from, and has been aggravated by, a repetitive employment-related
activity.

	F.	 	“Gross Net Earned Premium Income” means gross earned premium of the Company for the classes
of business reinsured hereunder, less the earned portion of premiums ceded by the Company for
reinsurance that inures to the benefit of this Contract.

	G.	 	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted
or held covered provisionally or otherwise, by or on behalf of the Company.

	H.	 	“Act of Terrorism” shall mean any act, including both Certified Acts of Terrorism in
accordance with the Terrorism Risk Insurance Act of 2002, the Terrorism Risk Insurance
Extension Act of 2005 and the Terrorism Risk Insurance Program Reauthorization Act of 2007 and
any subsequent extension and those not certified in respect of action, or threat of action
designed to influence the government de jure or de facto of any nation or any political
division thereof, or in pursuit of any political, religious, ideological or similar purpose to
intimidate the public or a section of the public of any nation by any person or group(s) of
persons whether acting alone or on behalf of or in connection with any organization(s) or
government(s) de jure or de facto and which:

	 	1.	 	involves violence against one or more persons; or

					
	 	 	 	 	 
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	 	2.	 	involves damage to property; or
	 
	 	3.	 	endangers life other than that of the person committing the action; or
	 
	 	4.	 	creates a risk to health or safety of the public or a section of the public; or
	 
	 	5.	 	is designed to interfere with or to disrupt an electronic system; or
	 
	 	6.	 	involves loss, damage, cost, or expense directly or indirectly caused by,
contributed to by, resulting from, or arising out of or in connection with any action in
controlling, preventing, suppressing, retaliating against, or responding to any Act of
Terrorism.

	 	 	Loss or damage occasioned by riot, strikes, civil commotion, vandalism or malicious mischief
as those terms have been interpreted by United States Courts to apply to insurance Policies
shall not be construed to be Acts of Terrorism.

	I.	 	“Ex-gratia Settlements” means all settlements of losses tendered but not covered under the
Company’s Policies, which Policies are otherwise reinsured hereunder, other than losses in
Excess of Policy Limits and Extra Contractual Obligations as defined herein. Ex-gratia
Settlements shall not include:

	 	1.	 	Settlements of losses that are arguably within the contemplation of coverage under
the Company’s Policies reinsured hereunder;
	 
	 	2.	 	Settlements made to avoid costs that could be incurred in connection with potential
or actual litigation relating to coverage issues arising under the Company’s Policies
reinsured hereunder;
	 
	 	3.	 	Losses already excluded under this Contract.

ARTICLE 11

EXCESS TERRORISM RECOVERY

	A.	 	A pro rata share of the amount, if any, by which financial assistance paid to the Company
under the Terrorism Risk Insurance Act of 2002 as amended (“TRIA”) for Acts of Terrorism
occurring during any one Program Year, combined with the Company’s total private-sector
reinsurance recoveries for such Acts of Terrorism, exceeds the amount of Insured Losses paid
by the Company for such Acts of Terrorism, shall be reimbursed by the Company to the
Reinsurer. Such pro rata share shall be calculated by dividing:

	 	1.	 	the Reinsurer’s payment under this Contract of Insured Losses for the Program Year;
by
	 
	 	2.	 	the Company’s total private-sector reinsurance recoveries arising from all Act(s)
of Terrorism covered under TRIA during the Program Year.

					
	 	 	 	 	 
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	B.	 	Payment shall be made as promptly as possible after the Company’s receipt of any recovery
in excess of its Insured Losses. The Company shall provide the Reinsurer with all necessary
data respecting the transactions covered under this Article.
	 
	C.	 	Such payment to the Reinsurer shall apply unless disallowed by the U.S. Department of the
Treasury.
	 
	D.	 	“Act of Terrorism”, “Insured Losses” and “Program Year” shall follow the definitions provided
in TRIA.

ARTICLE 12

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

	A.	 	This Contract shall cover Extra Contractual Obligations, as provided in the definition of
Ultimate Net Loss. “Extra Contractual Obligations” shall be defined as those liabilities not
covered under any other provision of this Contract and that arise from the handling of any
claim on business covered hereunder, such liabilities 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, fraud or bad faith in rejecting an offer of settlement or in the
preparation of the defense or in the trial of any action against its insured or reinsured or
in the preparation or prosecution of an appeal consequent upon such action.
	 
	B.	 	This Contract shall cover Loss in Excess of Policy Limits, as provided in the definition of
Ultimate Net Loss. “Loss in Excess of Policy Limits” shall be defined as Loss in excess of
the Policy limit, having been incurred because of, but not limited to, failure by the Company
to settle within the Policy limit or by reason of alleged or actual negligence, fraud or bad
faith in rejecting an offer of settlement or in the preparation of the defense or in the trial
of any action against its insured or reinsured or in the preparation or prosecution of an
appeal consequent upon such action.
	 
	C.	 	An Extra Contractual Obligation and/or Loss in Excess of Policy Limits 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.
	 
	D.	 	For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word “Loss”
shall mean any amounts for which the Company would have been contractually liable to pay had
it not been for the limit of the original Policy.
	 
	E.	 	Loss Adjustment Expense in respect of Extra Contractual Obligations and/or Loss in Excess of
Policy Limits shall be covered hereunder in the same manner as other Loss Adjustment Expense.
	 
	F.	 	However, this Article shall not apply where the loss has been incurred due to final legal
adjudication of fraud of a member of the Board of Directors or a corporate officer of the

					
	 	 	 	 	 
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	 	 	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.
	 
	G.	 	In no event shall coverage be provided to the extent not permitted under law.

ARTICLE 13

NET RETAINED LIABILITY

	A.	 	This Contract applies only to that portion of any loss that the Company retains net for its
own account (prior to deduction of any reinsurance that inures solely to the benefit of the
Company).
	 
	B.	 	The amount of the Reinsurer’s liability hereunder in respect of any loss or losses shall not
be increased by reason of the inability of the Company to collect from any other reinsurer(s),
whether specific or general, any amounts that may have become due from such reinsurer(s),
whether such inability arises from the insolvency of such other reinsurer(s) or otherwise.

ARTICLE 14

ORIGINAL CONDITIONS

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

ARTICLE 15

NO THIRD PARTY RIGHTS

This Contract is solely between the Company and the Reinsurer, and in no instance shall any
insured, claimant or other third party have any rights under this Contract except as may be
expressly provided otherwise herein.

ARTICLE 16

NOTICE OF LOSS AND LOSS SETTLEMENTS

	A.	 	The Company shall advise the Reinsurer promptly of all
losses which, in the opinion of the Company, may result
in a claim hereunder and of all subsequent developments
thereto which, in the opinion of the Company, may
materially affect the position of the Reinsurer.

					
	 	 	 	 	 
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	 	 	Inadvertent omission or oversight in giving such notice shall in no way affect the liability
of the Reinsurer. However, the Reinsurer shall be informed of such omission or oversight
promptly upon its discovery.
	 
	B.	 	Prompt notice shall be given to the Reinsurer by the Company of any Loss Occurrence wherein
the Company’s reserve exceeds 50% of the Company’s loss retention. In addition, the Company
shall promptly advise the Reinsurer of all bodily injury losses involving the following major
injuries:

	 	1.	 	Fatality;
	 
	 	2.	 	Spinal cord injuries (quadriplegia, paraplegia);
	 
	 	3.	 	Brain damage (seizure, coma or physical/mental impairment);
	 
	 	4.	 	Severe burn injuries resulting in disfigurement or scarring;
	 
	 	5.	 	Total or partial blindness in one or both eyes;
	 
	 	6.	 	Amputation of a limb;
	 
	 	7.	 	Major organ (such as heart, lungs).

	C.	 	As respects losses subject to this Contract, all loss settlements made by the Company,
whether under strict Policy terms or by way of compromise, shall be binding upon the
Reinsurer, and the Reinsurer agrees to pay or allow, as the case may be, its share of each
such settlement immediately upon receipt of proof of loss.

ARTICLE 17

OFFSET

Each party hereto shall have, and may exercise at any time and from time to time, the right to
offset any and all balances due from a party to the other arising under this Contract. In the
event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the
provisions of any applicable law governing offset entitlement.

ARTICLE 18

COMMUTATION

	A.	 	As respects Workers’ Compensation any loss or losses known to the Company that have not been
finally settled and that may cause a claim under this Contract, the loss(es) may be commuted
at the option of the Company not less than seven years after expiration of this Contract. In
such event, the Company and the Reinsurer shall determine the commutation

					
	 	 	 	 	 
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	 	 	value of the outstanding loss(es). In the event the Company and the Reinsurer cannot agree on
the commutation value, the Reinsurer and the Company shall mutually appoint an independent
actuary who shall investigate and determine the commutation value. In the event the Reinsurer
and the Company cannot reach an agreement on an independent actuary, each party shall appoint
an actuary within 30 days after receipt of the written request for commutation. Upon such
appointment, the two actuaries shall appoint a third actuary. If the two actuaries fail to
agree on the selection of a third actuary within 30 days of their appointment, each of them
shall name three individuals, of whom the other shall decline two, and the decision shall be
made by drawing lots. The actuaries shall then investigate and capitalize such loss(es). All
actuaries shall be fellows of the Casualty Actuarial Society or the American Academy of
Actuaries, and shall be disinterested in the outcome of the commutation. If the Company does
not agree with the commutation value, the Company shall have no obligation to commute.
	 
	B.	 	The Reinsurer’s proportion of the amount so determined shall be considered the Reinsurer’s
total liability for the loss(es) and the lump sum payment thereof shall constitute a complete
release of both parties from liability hereunder for the loss(es).

ARTICLE 19

LATE PAYMENTS

	A.	 	In the event any payment due from the Reinsurer to the Company after the expiration of this
Contract is not received by the Intermediary by the payment due date, the Company may, by
notifying the Intermediary in writing, require the Reinsurer to pay, and the Reinsurer agrees
to pay, an interest penalty on the amount past due calculated for each such payment on the
last business day of each month as follows:

	 	1.	 	The number of full days that have expired since the overdue date or the last
monthly calculation, whichever the lesser; times
	 
	 	2.	 	1/365th of the sum of the six-month United States Treasury Bill rate as quoted in
The Wall Street Journal on the first business day of the month for which the calculation
is made, plus 1%; times
	 
	 	3.	 	The amount past due, including accrued interest.

	 	 	Interest shall accumulate until payment of the original amount due plus interest penalties has
been received by the Intermediary.
	 
	B.	 	This Article applies only to amounts for which the demand for payment is received by the
Reinsurer after the Company has paid the entire reinsurance premium for the term of this
Contract, as provided in the Premium Article.

					
	 	 	 	 	 
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	C.	 	The due date shall be the date on which the demand for payment is received by the Reinsurer,
and the amount shall be deemed to be overdue 30 days thereafter.
	 
	D.	 	If the information contained in the Company’s demand for payment is insufficient or not in
accordance with the conditions of this Contract, then within 30 days the Reinsurer shall
request from the Company all additional information necessary to validate its claim and the
payment due date as defined in paragraph C shall be deemed to be the date upon which the
Reinsurer received the requested additional information. This paragraph is only for the
purpose of establishing when a payment is overdue, and shall not alter the provisions of the
Notice of Loss and Loss Settlements Article or other pertinent contractual stipulations.
	 
	E.	 	Should the Reinsurer dispute a claim presented by the Company and the timeframe set out in
paragraph C be exceeded, interest as stipulated in paragraph A shall be payable for the entire
overdue period, but only for the amount of the final settlement with the Reinsurer.
	 
	F.	 	In the event arbitration is necessary to settle a dispute, the panel shall have the authority
to make a determination awarding interest to the Company. Interest, if any, awarded by the
panel shall supersede the interest amounts outlined herein.
	 
	G.	 	Any interest owed pursuant to this Article may be waived by the Company. Waiver of such
interest, however, shall not affect the Company’s rights to other interest amounts due as a
result of this Article.

ARTICLE 20

CURRENCY

	A.	 	Where the word “Dollars” and/or the sign “$” appear in this Contract, they shall mean United
States Dollars.
	 
	B.	 	For purposes of this Contract, where the Company receives premiums or pays losses in
currencies other than United States Dollars, such premiums or losses shall be converted into
United States Dollars at the actual rates of exchange at which these premiums or losses are
entered in the Company’s books.

ARTICLE 21

UNAUTHORIZED REINSURANCE

	A.	 	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit
with any insurance regulatory authority having jurisdiction over the Company’s reserves.
	 
	B.	 	The Company agrees, in respect of its Policies or bonds falling within the scope of this
Contract, that when it files with its insurance regulatory authority, or sets up on its books
liabilities as required by law, it shall forward to the Reinsurer a statement showing the

					
	 	 	 	 	 
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	 	 	proportion of such liabilities applicable to the Reinsurer. The “Reinsurer’s Obligations”
shall be defined as follows:

	 	1.	 	unearned premium (if applicable);
	 
	 	2.	 	known outstanding losses that have been reported to the Reinsurer and Loss
Adjustment Expense relating thereto;
	 
	 	3.	 	losses and Loss Adjustment Expense paid by the Company but not recovered from the
Reinsurer;
	 
	 	4.	 	losses incurred but not reported and Loss Adjustment Expense relating thereto;
	 
	 	5.	 	all other amounts for which the Company cannot take credit on its financial
statements unless funding is provided by the Reinsurer.

	C.	 	The Reinsurer’s Obligations shall be funded by funds withheld, cash advances, Trust Agreement
or a Letter of Credit (LOC). 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.
	 
	D.	 	When funding by an LOC, the Reinsurer agrees to apply for and secure timely delivery to the
Company of a clean, irrevocable and unconditional LOC 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 Obligations. Such LOC shall be
issued for a period of not less than one year, and shall be automatically extended for one
year from its date of expiration or any future expiration date unless 30 days (or such other
time period as may be 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 LOC extended for any additional period.
	 
	E.	 	The Reinsurer and the Company agree that any funding provided by the Reinsurer pursuant to
the provisions of this Contract may be drawn upon at any time, notwithstanding any other
provision of this Contract, and be utilized by the Company 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:

	 	1.	 	to reimburse the Company for the Reinsurer’s Obligations, the payment of which is
due under the terms of this Contract and that has not been otherwise paid;
	 
	 	2.	 	to make refund of any sum that is in excess of the actual amount required to pay
the Reinsurer’s Obligations under this Contract (or in excess of 102% of the Reinsurer’s
Obligations, if funding is provided by a Trust Agreement);

					
	 	 	 	 	 
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	 	3.	 	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. Any taxes payable on accrued interest shall be paid out of the assets
in the account that are in excess of the Reinsurer’s Obligations (or in excess of 102% of
the Reinsurer’s Obligations, if funding is provided by a Trust Agreement). If the assets
are inadequate to pay taxes, any taxes due shall be paid by the Reinsurer;
	 
	 	4.	 	to pay the Reinsurer’s share of any other amounts the Company claims are due under
this Contract.

	F.	 	If the amount drawn by the Company is in excess of the actual amount required for E(1) or
E(3), or in the case of E(4), 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.
	 
	G.	 	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.
	 
	H.	 	At annual intervals, or more frequently at the discretion of the Company, 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 LOC or other method of funding, in the
following manner:

	 	1.	 	If the statement shows that the Reinsurer’s Obligations exceed the balance of the
LOC as of the statement date, the Reinsurer shall, within 30 days after receipt of the
statement, secure delivery to the Company of an amendment to the LOC increasing the
amount of credit by the amount of such difference. Should another method of funding be
used, the Reinsurer shall, within the time period outlined above, increase such funding
by the amount of such difference.
	 
	 	2.	 	If, however, the statement shows that the Reinsurer’s Obligations are less than the
balance of the LOC (or that 102% of the Reinsurer’s Obligations are less than the trust
account balance if funding is provided by a Trust Agreement), as of the statement date,
the Company shall, within 30 days after receipt of written request from the Reinsurer,
release such excess credit by agreeing to secure an amendment to the LOC reducing the
amount of credit available by the amount of such excess credit. Should another method of
funding be used, the Company shall, within the time period outlined above, decrease such
funding by the amount of such excess.

					
	 	 	 	 	 
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ARTICLE 22

TAXES

	A.	 	In consideration of the terms under which this Contract is issued, the Company undertakes not
to claim any deduction of the premium hereon when making Canadian tax returns or when making
tax returns, other than Income or Profits Tax returns, to any state or territory of the United
States of America or to the District of Columbia.

	B.	1.	 	Each Subscribing 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 the
Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax.
	 
	 	2.	 	In the event of any return of premium becoming due hereunder, the Subscribing
Reinsurer shall deduct the applicable percentage of the premium from the amount of the
return, and the Company or its agent should take steps to recover the Tax from the U.S.
Government.

ARTICLE 23

ACCESS TO RECORDS

The Reinsurer or its duly authorized representatives shall have the right to visit the offices of
the Company to inspect, examine, audit, and verify any of the Policy, accounting or claim files
(“Records”) relating to business reinsured under this Contract during regular business hours after
giving five working days’ prior notice. This right shall be exercisable during the term of this
Contract or after the expiration of this Contract. Notwithstanding the above, the Reinsurer shall
not have any right of access to the Records of the Company if it is not current in all undisputed
payments due the Company.

ARTICLE 24

CONFIDENTIALITY

	A.	 	The Reinsurer hereby acknowledges that the documents, information and data provided to it by
the Company, whether directly or through an authorized agent, in connection with the placement
and execution of this Contract (“Confidential Information”) are proprietary and confidential
to the Company. Confidential Information shall not include documents, information or data
that the Reinsurer can show:

	 	1.	 	are publicly known or have become publicly known through no unauthorized act of the
Reinsurer;

					
	 	 	 	 	 
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	 	2.	 	have been rightfully received from a third person without obligation of
confidentiality; or
	 
	 	3.	 	were known by the Reinsurer prior to the placement of this Contract without an
obligation of confidentiality.

	B.	 	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential
Information to any third parties, including any affiliated companies, except:

	 	1.	 	when required by retrocessionaires subject to the business ceded to this Contract;
	 
	 	2.	 	when required by regulators performing an audit of the Reinsurer’s records and/or
financial condition; or
	 
	 	3.	 	when required by external auditors performing an audit of the Reinsurer’s records
in the normal course of business.

	 	 	Further, the Reinsurer agrees not to use any Confidential Information for any purpose not
related to the performance of its obligations or enforcement of its rights under this
Contract.
	 
	C.	 	Notwithstanding the above, in the event that the Reinsurer is required by court order, other
legal process or any regulatory authority to release or disclose any or all of the
Confidential Information, the Reinsurer agrees to provide the Company with written notice of
same at least 10 days prior to such release or disclosure and to use its best efforts to
assist the Company in maintaining the confidentiality provided for in this Article.
	 
	D.	 	The provisions of this Article shall extend to the officers, directors and employees of the
Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 25

INDEMNIFICATION AND ERRORS AND OMISSIONS

	A.	 	The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the
obligations of the Company under any Policy. The Company shall be the sole judge as to:

	 	1.	 	what shall constitute a claim or loss covered under any Policy;
	 
	 	2.	 	the Company’s liability thereunder;
	 
	 	3.	 	the amount or amounts that it shall be proper for the Company to pay thereunder.

	B.	 	The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and
liability(ies) of the Company under any Policy.

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

ARTICLE 26

INSOLVENCY

	A.	 	If more than one reinsured company is referenced within the definition of “Company” in the
Preamble to this Contract, this Article shall apply severally to each such company. Further,
this Article and the laws of the domiciliary state shall apply in the event of the insolvency
of any company covered hereunder. In the event of a conflict between any provision of this
Article and the laws of the domiciliary state of any company covered hereunder, that
domiciliary state’s laws shall prevail.
	 
	B.	 	In the event of the insolvency of the Company, this reinsurance (or the portion of any risk
or obligation assumed by the Reinsurer, if required by applicable law) shall be payable
directly to the Company, or to its liquidator, receiver, conservator or statutory successor,
either: (1) on the basis of the liability of the Company, or (2) on the basis of claims filed
and allowed in the liquidation proceeding, whichever may be required by applicable statute,
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 that 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 and a majority in interest elect
to interpose defense to such claim, the expense shall be apportioned in accordance with the
terms of this reinsurance Contract as though such expense had been incurred by the Company.
	 
	D.	 	As to all reinsurance made, ceded, renewed or otherwise becoming effective under this
Contract, the reinsurance shall be payable as set forth above by the Reinsurer to the

					
	 	 	 	 	 
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	 	 	Company or to its liquidator, receiver, conservator or statutory successor, (except as
provided by Section 4118(a)(1)(A) of the New York Insurance Law, provided the conditions of
1114(c) of such law have been met, if New York law applies) or except (1) where the Contract
specifically provides another payee in the event of the insolvency of the Company, or (2)
where the Reinsurer, with the consent of the direct insured or insureds, has assumed such
Policy obligations of the Company as direct obligations of the Reinsurer to the payees under
such Policies and in substitution for the obligations of the Company to such payees. Then,
and in that event only, the Company, with the prior approval of the certificate of assumption
on New York risks by the Superintendent of Insurance of the State of New York, or with the
prior approval of such other regulatory authority as may be applicable, is entirely released
from its obligation and the Reinsurer shall pay any loss directly to payees under such Policy.

ARTICLE 27

ARBITRATION

	A.	 	Any dispute arising out of the interpretation, performance or breach of this Contract,
including the formation or validity thereof, shall be submitted for decision to a panel of
three arbitrators. Notice requesting arbitration shall be in writing and sent certified or
registered mail, return receipt requested.
	 
	B.	 	One arbitrator shall be chosen by each party and the two arbitrators shall then choose an
impartial third arbitrator who shall preside at the hearing. If either party fails to appoint
its arbitrator within 30 days after being requested to do so by the other party, the latter,
after 10 days’ prior notice by certified or registered mail of its intention to do so, may
appoint the second arbitrator.
	 
	C.	 	If the two arbitrators do not agree on a third arbitrator within 60 days of their
appointment, the third arbitrator shall be chosen in accordance with the procedures for
selecting the third arbitrator in force on the date the arbitration is demanded, established
by the AIDA Reinsurance and Insurance Arbitration Society — U.S. (ARIAS). The arbitrators
shall be persons knowledgeable about insurance and reinsurance who have no personal or
financial interest in the result of the arbitration. If a member of the panel dies, becomes
disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the
same manner as the departing member was chosen and the arbitration shall continue.
	 
	D.	 	Within 30 days after all arbitrators have been appointed, the panel shall meet and determine
timely periods for briefs, discovery procedures and schedules of hearings.
	 
	E.	 	The panel shall be relieved of all judicial formality and shall not be bound by the strict
rules of procedure and evidence. Notwithstanding anything to the contrary in this Contract,
the arbitrators may at their discretion, consider underwriting and placement information
provided by the Company to the Reinsurer, as well as any correspondence exchanged by

					
	 	 	 	 	 
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	 	 	the parties that is related to this Contract. The arbitration shall take place in
Wilkes-Barre, Pennsylvania, or at such other place as the parties shall agree. The decision of
any two arbitrators shall be in writing and shall be final and binding. The panel is
empowered to grant interim relief as it may deem appropriate.
	 
	F.	 	The panel shall interpret this Contract as an honorable engagement rather than as merely a
legal obligation and shall make its decision considering the custom and practice of the
applicable insurance and reinsurance business as promptly as possible after the hearings.
Judgment upon an award may be entered in any court having jurisdiction thereof.
	 
	G.	 	Each party shall bear the expense of its own arbitrator and shall jointly and equally bear
with the other party the cost of the third arbitrator. The remaining costs of the arbitration
shall be allocated by the panel. The panel may, at its discretion, award such further costs
and expenses as it considers appropriate, including but not limited to attorneys’ fees, to the
extent permitted by law.

ARTICLE 28

SERVICE OF SUIT

	A.	 	This Article applies only to those Subscribing Reinsurers not domiciled in the United States
of America, and/or not authorized in any state, territory and/or district of the United States
of America where authorization is required by insurance regulatory authorities.
	 
	B.	 	This Article shall not be read to conflict with or override the obligations of the parties to
arbitrate their disputes as provided for in the Arbitration Article. This Article is intended
as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an
alternative to the Arbitration Article for resolving disputes arising out of this Contract.
	 
	C.	 	In the event of the failure of the Reinsurer to pay any amount claimed to be due hereunder,
the Reinsurer, at the request of the Company, shall 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. The Reinsurer, once the
appropriate court is selected, whether such court is the one originally chosen by the Company
and accepted by the Reinsurer or is determined by removal, transfer, or otherwise, as provided
for above, shall comply with all requirements necessary to give said court jurisdiction and,
in any suit instituted against the Reinsurer upon this Contract, shall abide by the final
decision of such court or of any appellate court in the event of an appeal.
	 
	D.	 	Service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh
Avenue, New York, New York 10019-6829, or another party specifically

					
	 	 	 	 	 
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	 	 	designated in the applicable Interests and Liabilities Agreement attached hereto. The
above-named are authorized and directed to accept service of process on behalf of the
Reinsurer in any such suit.
	 
	E.	 	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 Contract, 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 29

SEVERABILITY

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

ARTICLE 30

GOVERNING LAW

This Contract shall be governed as to performance, administration and interpretation by the laws of
the Commonwealth of Pennsylvania, exclusive of conflict of law rules. However, with respect to
credit for reinsurance, the rules of all applicable states shall apply.

ARTICLE 31

ENTIRE AGREEMENT

This Contract sets forth all of the duties and obligations between the Company and the Reinsurer
and supersedes any and all prior or contemporaneous written agreements with respect to matters
referred to in this Contract. This Contract may not be modified or changed except by an amendment
to this Contract in writing signed by both parties.

					
	 	 	 	 	 
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ARTICLE 32

NON-WAIVER

The failure of the Company or the Reinsurer to insist on compliance with this Contract or to
exercise any right or remedy hereunder shall not constitute a waiver of any rights contained in
this Contract nor prevent either party from thereafter demanding full and complete compliance nor
prevent either party from exercising such remedy in the future.

ARTICLE 33

INTERMEDIARY

Guy Carpenter & Company, LLC, is hereby recognized as the Intermediary negotiating this Contract
for all business hereunder. All communications (including 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 Guy Carpenter &
Company, LLC, Two Logan Square, Philadelphia, Pennsylvania 19103-2772. Payments by the Company to
the Intermediary shall be deemed payment to the Reinsurer. Payments by the Reinsurer to the
Intermediary shall be deemed payment to the Company only to the extent that such payments are
actually received by the Company.

ARTICLE 34

MODE OF EXECUTION

	A.	 	This Contract may be executed by:

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

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

					
	 	 	 	 	 
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IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized
representative(s) this _____day of __________, in the year of 20_.

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

CASUALTY EXCESS OF LOSS REINSURANCE CONTRACT

					
	 	 	 	 	 
	Effective: January 1, 2011

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

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

	 	I.	 	It is agreed that the policy does not apply under any liability coverage, to

	 	 	 	injury, sickness, disease, death or destruction
	 
	 	 	 	bodily injury or property damage

	 	 	 	with respect to which an insured under the policy is also an insured under a nuclear
energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or
would be an insured under any such policy but for its termination upon exhaustion of its
limit of liability.
	 
	 	II.	 	Family Automobile Policies (liability only), Special Automobile Policies (private
passenger automobiles, liability only), Farmers Comprehensive Personal Liability Policies
(liability only), Comprehensive Personal Liability Policies (liability only) or policies
of a similar nature; and the liability portion of combination forms related to the four
classes of policies stated above, such as the Comprehensive Dwelling Policy and the
applicable types of Homeowners Policies.
	 
	 	III.	 	The inception dates and thereafter of all original policies as described in II
above, whether new, renewal or replacement, being policies which either

	 	(a)	 	become effective on or after 1st May, 1960, or
	 
	 	(b)	 	become effective before that date and contain the Limited Exclusion
Provision set out above;

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

					
	 	 	 	 	 
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	(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

	 	 	 	immediate medical or surgical relief
	 
	 	 	 	first aid,

					
	 	 	 	 	 
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	 	 	 	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 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;

					
	 	 	 	 	 
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	 	 	 	“source material”, “special nuclear material”, and “byproduct material” have the
meanings given them in the Atomic Energy Act of 1954 or in any law amendatory thereof;
“spent fuel” means any fuel element or fuel component, solid or liquid, which has been
used or exposed to radiation in a nuclear reactor; “waste” means any waste material (1)
containing byproduct material other than the tailings or wastes produced by the
extraction or concentration of uranium or thorium from any ore processed primarily for
its source material content and (2) resulting from the operation by any person or
organization of any nuclear facility included under the first two paragraphs of the
definition of nuclear facility; “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”
includes all forms of radioactive contamination of property. “property damage” includes
all forms of radioactive contamination of property.
	 
	 	V.	 	The inception dates and thereafter of all original policies affording coverages
specified in this paragraph (3), whether new, renewal or replacement, being policies
which become effective on or after 1st May, 1960, provided this paragraph (3) shall not
be applicable to

	 	(i)	 	Garage and Automobile Policies issued by the Reassured on New York
risks, or
	 
	 	(ii)	 	statutory liability insurance required under Chapter 90, General Laws
of Massachusetts,

					
	 	 	 	 	 
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	 	 	 	until 90 days following approval of the Broad Exclusion Provision by the Governmental
Authority having jurisdiction thereof.

					
	 	 	 	 	 
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	(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 or the Independent Insurance Conference of Canada.

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

NOTES: Wherever used herein the terms:

	 	 	 	 	 

	 

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

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

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

21/9/67

NMA 1590 (amended)

					
	 	 	 	 	 
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	 	Exhibit 10.10

UMBRELLA QUOTA SHARE AND EXCESS CESSIONS REINSURANCE CONTRACT

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

Wilkes-Barre, Pennsylvania

	 	 	 	 	 

	Effective: January 1, 2011

	 	 	 	DOC: January 21, 2011
	U6W20001

	 	1 of 37	 	 

 

 

UMBRELLA QUOTA SHARE AND EXCESS CESSIONS REINSURANCE CONTRACT

TABLE OF CONTENTS

	 	 	 	 	 
	Article	 	 	 	Page
	 	 	Preamble
	 	4
	1
	 	Business Covered	 	4
	2
	 	Retention and Limit	 	5
	3 
	 	Term	 	5
	4
	 	Special Termination	 	6
	5
	 	Territory	 	7
	6
	 	Exclusions	 	7
	7
	 	Special Acceptance	 	13
	8
	 	Premium	 	13
	9
	 	Ceding Commission	 	14
	10
	 	Reports and Remittances	 	14
	11
	 	Definitions	 	15
	12
	 	Excess Terrorism Recovery	 	17
	13
	 	Extra Contractual Obligations/Excess of Policy Limits	 	17
	14
	 	Net Retained Liability	 	18
	15
	 	Original Conditions	 	19
	16
	 	No Third Party Rights	 	19
	17
	 	Notice of Loss and Loss Settlements	 	19
	18
	 	Salvage and Subrogation	 	19
	19
	 	Late Payments	 	20
	20
	 	Offset	 	21
	21
	 	Currency	 	21
	22
	 	Unauthorized Reinsurance	 	21
	23
	 	Taxes	 	23
	24
	 	Access to Records	 	24
	25
	 	Confidentiality	 	24
	26
	 	Indemnification and Errors and Omissions	 	25
	27
	 	Insolvency	 	26
	28
	 	Arbitration	 	27
	29
	 	Service of Suit	 	28
	30
	 	Severability	 	29
	31
	 	Governing Law	 	29
	32
	 	Entire Agreement	 	30
	33
	 	Non-Waiver	 	30
	34
	 	Intermediary	 	30
	35
	 	Mode of Execution	 	30
	 
	 	Company Signing Block	 	32

	 	 	 	 	 

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UMBRELLA QUOTA SHARE AND EXCESS CESSIONS REINSURANCE CONTRACT

TABLE OF CONTENTS

	 	 	 	 	 
	Attachments	 	 	Page	 
	 	      Nuclear Incident Exclusion Clause — Liability -
Reinsurance — U.S.A.
	 	33	 

	 	 	 	 	 

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UMBRELLA QUOTA SHARE AND EXCESS CESSIONS REINSURANCE CONTRACT

(the “Contract”)

issued to

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

Wilkes-Barre, Pennsylvania

(collectively, the “Company”)

by

THE SUBSCRIBING REINSURER(S) IDENTIFIED

IN THE INTERESTS AND LIABILITIES AGREEMENT(S)

ATTACHED TO AND FORMING PART OF THIS CONTRACT

(the “Reinsurer”)

Whenever the word “Company” is used in this Contract, such term shall mean each and all affiliated
companies which are or may hereafter be under common control provided notice be given to the
Reinsurer of any newly-affiliated companies which may hereafter come under common control as soon
as practicable, with full particulars as to how such affiliation is likely to affect this Contract.
In the event that either party maintains that such affiliation calls for altering the terms of this
Contract and an agreement for alteration not being arrived at, then the Business Covered of such
newly-affiliated company is covered at existing terms for a period not to exceed 90 days after
notice by either party that it does not wish to cover the business of the newly-affiliated company
at the existing terms.

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Company in respect of the liability that may accrue to the
Company as a result of loss or losses under Policies classified by the Company as Umbrella
Liability, in force at the inception of this Contract, written or renewed during the term of this
Contract by or on behalf of the Company, subject to the terms and conditions herein contained.

	 	 	 	 	 

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ARTICLE 2

RETENTION AND LIMIT

Quota Share

The Company shall cede, and the Reinsurer shall accept as reinsurance, a 75% share of all business
reinsured hereunder up to a maximum cession of Ultimate Net Loss of $750,000 (being 75% of
$1,000,000) each loss, each Policy. The Reinsurer shall pay to the Company the Reinsurer’s quota
share of Loss Adjustment Expense covered under this Contract.

First Excess of Loss

The Reinsurer shall be liable in respect of each loss, each Policy, for the Ultimate Net Loss over
and above an initial Ultimate Net Loss of $1,000,000 each loss, each Policy, subject to a limit of
liability to the Reinsurer of $4,000,000 each loss, each Policy.

Second Excess of Loss

The Reinsurer shall be liable in respect of each loss, each Policy, for the Ultimate Net Loss over
and above an initial Ultimate Net Loss of $5,000,000 each loss, each Policy, subject to a limit of
liability to the Reinsurer of $5,000,000 each loss, each Policy.

Notwithstanding the other provisions of this Article, the Reinsurer’s liability for all Loss
Occurrences commencing during the term of this Contract resulting from Acts of Terrorism shall be
limited to $1,000,000.

ARTICLE 3

TERM

	A.	 	This Contract is effective at 12:01 a.m., Eastern Standard Time, January 1, 2011, and shall
remain in effect until 12:01 a.m., Eastern Standard Time, January 1, 2012, applying to losses
occurring during the term of this Contract.
	 
	B.	 	At expiration of this Contract, the Reinsurer shall remain liable for all Policies covered by
this Contract that are in force at expiration, until the termination, expiration or renewal of
such Policies, whichever occurs first.
	 
	C.	 	However, at expiration of this Contract, the Company shall have the option to require a
return of the ceded unearned premium, net of ceding commission, as of the date of expiration,
on business in force at that date, in which event the Reinsurer shall be released from
liability for losses occurring after expiration.

	 	 	 	 	 

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	D.	 	In the event this Contract expires on a run-off basis, the Reinsurer’s liability hereunder
shall continue if the Company is required by statute or regulation to continue coverage, until
the earliest date on which the Company may cancel the Policy.

ARTICLE 4

SPECIAL TERMINATION

	A.	 	The Company may terminate a Subscribing Reinsurer’s percentage share in this Contract at any
time by giving written notice to the Subscribing Reinsurer in the event of any of the
following circumstances:

	 	1.	 	The Subscribing Reinsurer ceases underwriting operations.
	 
	 	2.	 	A state insurance department or other legal authority orders the Subscribing
Reinsurer to cease writing business, or the Subscribing Reinsurer is placed under
regulatory supervision.
	 
	 	3.	 	The Subscribing Reinsurer has become insolvent or has been placed into liquidation
or receivership (whether voluntary or involuntary), or there have been instituted against
it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator,
trustee in bankruptcy, or other agent known by whatever name, to take possession of its
assets or control of its operations.
	 
	 	4.	 	The Subscribing Reinsurer’s policyholders’ surplus (or the equivalent under the
Subscribing Reinsurer’s accounting system) as reported in such financial statements of
the Subscribing Reinsurer as designated by the Company, has been reduced by 20% of the
amount thereof at any date during the prior 12-month period (including the period prior
to the inception of this Contract).
	 
	 	5.	 	The Subscribing Reinsurer has merged with or has become acquired or controlled by
any company, corporation, or individual(s) not controlling the Subscribing Reinsurer’s
operations at the inception of this Contract.
	 
	 	6.	 	The Subscribing Reinsurer has retroceded its entire liability under this Contract
without the Company’s prior written consent, except for retrocessions to members of the
Subscribing Reinsurer’s holding company group.
	 
	 	7.	 	The Subscribing Reinsurer has been assigned an A.M. Best’s rating of less than “A-”
and/or an S&P rating of less than “BBB+.” However, as respects Underwriting Members of
Lloyd’s, London, a Lloyd’s Market Rating of less than “A-” by A.M. Best and/or less than
“BBB+” by S&P shall apply.

	B.	 	Termination shall be effected on a run-off or cut-off basis as set forth in the Term Article,
at the sole discretion of the Company. The reinsurance premium due the Subscribing Reinsurer
hereunder (including any minimum reinsurance premium) shall be pro rated

	 	 	 	 	 

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	 	 	based on the period of the Subscribing Reinsurer’s participation hereon, and the Subscribing
Reinsurer shall immediately return any excess reinsurance premium received. Reinstatement
premium, if any, shall be calculated based on the Subscribing Reinsurer’s reinsurance premium
earned during the period of the Subscribing Reinsurer’s participation hereon.

	C.	 	Additionally, in the event of any of the circumstances listed in paragraph A of this Article,
the Company shall have the option to commute the Subscribing Reinsurer’s liability for losses
on Policies covered by this Contract. In the event the Company and the Subscribing Reinsurer
cannot agree on the commutation amount, they shall appoint an actuary and/or appraiser to
assess such amount and shall share equally any expense of the actuary and/or appraiser. If
the Company and the Subscribing Reinsurer cannot agree on an actuary and/or appraiser, the
Company and the Subscribing Reinsurer each shall nominate three individuals, of whom the other
shall decline two, and the final appointment shall be made by drawing lots. Payment by the
Subscribing Reinsurer of the amount of liability ascertained shall constitute a complete and
final release of both parties in respect of liability arising from the Subscribing Reinsurer’s
participation under this Contract.
	 
	D.	 	The Company’s option to require commutation under paragraph C above shall survive the
termination or expiration of this Contract.

ARTICLE 5

TERRITORY

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

ARTICLE 6

EXCLUSIONS

	A.	 	This Contract shall not cover:

	 	1.	 	Reinsurance treaty business, including pro rata and excess of loss, assumed by the
Company, but not to include business from affiliated companies;
	 
	 	2.	 	Business written on a co-indemnity basis not controlled by the Company;
	 
	 	3.	 	Loss or liability excluded by the provisions of the “Nuclear Incident Exclusion
Clause — Liability — Reinsurance — USA” attached to and forming part of this Contract;
	 
	 	4.	 	Liability assumed by the Company as a member of a Syndicate, Pool or Underwriting
Association; however, this does not apply to participation in assigned risk plans;
	 
	 	5.	 	Any liability of the Company arising by contract, operation of law, or otherwise,
from its participation or membership, whether voluntary or involuntary, in any insolvency

	 	 	 	 	 

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	 	 	 	fund. “Insolvency Fund” includes any guaranty fund, insolvency fund, plan, pool,
association, fund or other arrangement, howsoever denominated, established or governed,
which provides for any assessment of or payment or assumption by the Company 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;
	 
	 	6.	 	Financial Guarantee and Insolvency;
	 
	 	7.	 	Loss resulting from an Act of Terrorism that involves the use, release, or escape
of nuclear materials, or directly or indirectly results in nuclear reaction or radiation
or radioactive contamination, or that is carried out by means of the dispersal or
application of pathogenic or poisonous biological or chemical materials that are
released;
	 
	 	8.	 	Regarding interests which at time of loss or damage are on shore, any loss or
damage which is occasioned by 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. This War Exclusion Clause shall not
however, apply to interests which at time of loss or damage are within the territorial
limits of the United States of America (comprising the 50 states of the Union and the
District of Columbia and including bridges between the U.S.A. and Mexico, provided they
are under United States ownership), Canada, St. Pierre and Miquelon, provided such
interests are insured under Policies, endorsements, or binders containing a standard war
or hostilities or warlike operations exclusion clause;
	 
	 	9.	 	Public Utilities;
	 
	 	10.	 	Pharmaceutical and Medical Device Manufacturers;
	 
	 	11.	 	Operation, navigation, or handling of ships, or vessels owned by the insured other
than:

	 	a.	 	Yachts, small pleasure crafts, sports fishing vessels, and
	 
	 	b.	 	Vessels operating exclusively in inland and/or coastal waters where
legal liability on such vessels is incidental to the coverage provided either under
a general liability Policy or under a comprehensive form of a Policy;

	 	12.	 	Ownership, maintenance or use of aircraft and aircraft flight operations, but this
exclusion does not apply to Workers’ Compensation/Employers’ Liability coverage;
	 
	 	13.	 	Repair, cleaning or demolition of any vessel or barge used as petroleum tanker;

	 	 	 	 	 

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	 	14.	 	Loss or liability excluded by whichever standard Insurance Services Office
pollution exclusion(s) is included in the Policy under which such loss or liability
arises.
	 
	 	 	 	Notwithstanding the above, the Reinsurer agrees that this exclusion shall not apply to
original Policies written in any state where the Standard ISO Pollution Exclusion(s)
have not been approved or are not permitted to be included in or attached to original
Policies.
	 
	 	 	 	Further, the Reinsurer agrees that this exclusion shall not apply in any case where the
Company has attached the Standard ISO Pollution Exclusion(s) to an original Policy but
has sustained a loss as a result of that exclusion being deemed invalid or inapplicable
by a court of law.
	 
	 	 	 	Notwithstanding all of the foregoing, the Reinsurer agrees that this exclusion does not
apply to environmental restoration coverage provided under an MCS-90 Endorsement
attached to a commercial automobile Policy written in accordance with the Motor Carrier
Act of 1980.
	 
	 	 	 	Furthermore, the Reinsurer agrees that this exclusion does not apply to overspraying of
anhydrous ammonia, fertilizers and agricultural chemicals, nor shall this exclusion
apply to operations involving anhydrous ammonia, liquefied petroleum gas (LPG), or
propane (including the transportation thereof) where the Company has attached the
Solutions 2000 Liability PMAG-16 Pollution Exclusion Amendment to an original Policy.
Furthermore, this exclusion does not apply to pollutants from mobile equipment where the
Company has attached the Solutions 2000 Liability PMAG-16 Pollution Exclusion Amendment
to an original Policy.
	 
	 	 	 	Furthermore, the Reinsurer agrees that this exclusion does not apply to overspraying of
anhydrous ammonia, fertilizers and agricultural chemicals, nor shall this exclusion
apply to operations involving anhydrous ammonia, liquefied petroleum gas (LPG), or
propane (including the transportation thereof) where the Company has attached the
Solutions 2000 Liability PMAG-18 Pollution Exclusion Amendment to an original Policy.
Furthermore, this exclusion does not apply to pollutants from a covered auto where the
Company has attached the Solutions 2000 Liability PMAG-18 Pollution Exclusion Amendment
to an original Policy.
	 
	 	 	 	Furthermore, the Reinsurer agrees that this exclusion does not apply to operations
meeting all standards of any statute, ordinance, regulation or license requirement of
any federal, state or local government which apply to those operations, where the
Company has attached the Solutions 2000 Liability PMAG-04 “Pesticide or Fertilizer
Applicator Amended Exclusions with Amendment of Limits of Insurance” to an original
Policy. Furthermore, this exclusion does not apply to fields on which the insured, or
any contractor or subcontractor working on the behalf of the insured, is performing
operations, where the Company has attached the Solutions 2000 Liability

	 	 	 	 	 

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	 	 	 	PMAG-04 “Pesticide or Fertilizer Applicator Amended Exclusions with Amendment of Limits
of Insurance” to an original Policy.
	 
	 	15.	 	Manufacture, handling, transit or use of explosives, unless incidental to routine
agriculture operation;
	 
	 	16.	 	Manufacture of liquefied petroleum gas or petroleum;
	 
	 	17.	 	Buses other than buses used to transport employees of the insured or property;
	 
	 	18.	 	Loss or liability, whether direct or indirect, arising from the hazard of asbestos
including the manufacturing, mining, storage, distribution, transportation, fabrication,
installation or removal of asbestos or products containing asbestos;
	 
	 	19.	 	All mining operations;
	 
	 	20.	 	Products guarantee and/or recall and/or integrity impairment when written as such;
	 
	 	21.	 	Blasting;
	 
	 	22.	 	Nursing Homes;
	 
	 	23.	 	All Workers’ Compensation business classified by the Company as Employee Leasing
Corporations, Professional Employment Organizations (PEOs), Temporary Agencies, Police,
Firefighters and EMT Workers, whether professional or volunteer;
	 
	 	24.	 	Policies issued as excess coverage, other than insurance over a self-insured
retention;
	 
	 	25.	 	Manufacturing of fireworks, fuses, nitroglycerine, celluloid and pyroxylin;
	 
	 	26.	 	Concerns when engaged in the demolition of buildings more than three stories in
height except the insured’s own structures;
	 
	 	27.	 	Operation of animal shows, riding academies, circuses, carnivals, amusement parks
or amusement devices; equestrian exposures of guides and outfitters are not excluded;
	 
	 	28.	 	Municipalities, when written as such, but this exclusion does not apply as
respects:

	 	a.	 	School districts;
	 
	 	b.	 	Municipally-owned buildings or properties;
	 
	 	c.	 	Municipalities named as an additional insured;

	 	29.	 	Auto Liability:

	 	a.	 	As a taxicab, public livery or bus;

	 	 	 	 	 

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	 	b.	 	Public emergency vehicles such as fire trucks or police cars;
	 
	 	c.	 	Ambulances;
	 
	 	d.	 	Rent-a-car and leasing operations;
	 
	 	e.	 	Vehicles carrying passengers for hire or reward;
	 
	 	f.	 	Automobiles used in organized speed contests including but not limited
to racing, rallies, and speed trials;
	 
	 	g.	 	As a long haul public freight carrier or common carrier, except for
incidental hauling of goods of others;

	 	 	 	However, this exclusion shall not exclude automobiles, buses and/or vans used to
transport hotel/hospitality guests;
	 
	 	30.	 	Products Liability:

	 	a.	 	The manufacture, sale or retail or wholesale distribution of aircraft,
aircraft parts;
	 
	 	b.	 	The manufacture of extracts, drugs, medicines, cosmetics or hair, scalp
or skin preparations;
	 
	 	c.	 	The manufacture of automobiles, buses, trucks and trailers,
recreational vehicles, motorcycles or the manufacture of components critical to
vehicle safety;
	 
	 	d.	 	Products liability written without an annual aggregate limit;

	 	31.	 	Malpractice or Professional Liability, except:

	 	a.	 	Druggists’ Liability;
	 
	 	b.	 	Printers’ Liability;
	 
	 	c.	 	Barbers’ and Beauticians’ Liability (including nail salons);
	 
	 	d.	 	Agricultural Consultants’ Liability;
	 
	 	e.	 	Funeral Directors’ or Morticians’ Professional Liability;
	 
	 	f.	 	Pastoral Professional Liability written in conjunction with a liability
risk;
	 
	 	g.	 	Incidental malpractice written in conjunction with a liability risk;
	 
	 	h.	 	Opticians;

	 	 	 	 	 

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	 	i.	 	Hearing Aid Providers;
	 
	 	j.	 	Florists;
	 
	 	k.	 	Veterinarians;
	 
	 	l.	 	Animal Services;

	 	32.	 	Bridge construction when over three stories, over navigable waters, or over 100
feet in length;
	 
	 	33.	 	Construction or maintenance of tunnels or subways more than 50 feet in length,
dams, levees, cofferdams (except dams and levees constructed on farm premises which are
incidental to farm operations), or with respect to business classified as commercial
business, towers over two stories high;
	 
	 	34.	 	Elevator construction and installation, except construction or installation of
grain elevator facilities or related equipment;
	 
	 	35.	 	Occupational Accident when written as such;
	 
	 	36.	 	As respects Workers’ Compensation, and not Commercial General Liability Coverage,
risks having maritime exposures or exposures including but not limited to:

	 	a.	 	Risks subject to the U.S. Longshore and Harbor Worker’s Compensation
Act (except incidental which is defined as less than 10% of Workers Compensation
Policy premium);
	 
	 	b.	 	Operation of docks, quays, wharves, or drydocks;
	 
	 	c.	 	Operations subject to the Jones Act;
	 
	 	d.	 	Operations subject to the Outer Continental Shelf Act;

	 	37.	 	Roofing Contractors;
	 
	 	38.	 	Scaffolding installations (except residential and commercial up to three stories);
	 
	 	39.	 	Tower, steeple, chimney, or shaft construction and work.

	B.	 	If any business falling within the scope of one or more of the exclusions is assigned to the
Company under an Assigned Risk Plan, such exclusion(s) shall not apply to the portion of the
limits of liability prescribed by the Assigned Risk Plan which come within the Company’s
retention and limits of liability of the Reinsurer.
	 
	C.	 	If without the knowledge and contrary to the instructions of its supervisory underwriting
personnel, insurance coverages are provided involving one or more of the above

	 	 	 	 	 

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	 	 	exclusions, except A(1), A(2), A(3), A(4), A(5), A(6), A(7), A(8), A(10), A(14), A(15), A(18),
A(23), and A(24) either by an inadvertent acceptance or by an existing insured extending its
operations, the reinsurance coverage provided hereunder shall apply from inception and for a
period of 30 days or longer if required by law, but not to exceed the lesser of 18 months or
Policy anniversary after said supervisory underwriting personnel receives knowledge thereof
and promptly notifies the Reinsurer upon discovery.
	 
	D.	 	Any exclusion listed above other than exclusions A(1), A(2), A(3), A(4), A(5), A(6), A(7),
A(8), A(10), A(14), A(15), A(18), A(23), and A(24), shall be automatically waived as respects
a Policy issued by the Company on a risk with respect to which only a minor or incidental part
of the operations covered involves the exclusion. An incidental part of an insured’s regular
operations shall mean not greater than 10% of the insured’s regular operations.

ARTICLE 7

SPECIAL ACCEPTANCE

Business that is not within the scope of this Contract may be submitted to Hannover
Rückversicherung AG (the “Lead Reinsurer”) for special acceptance hereunder, and such business, if
accepted by the Lead Reinsurer shall be covered hereunder, subject to the terms and conditions of
this Contract, except as modified by the special acceptance. Any special acceptance agreed to by
the Lead Reinsurer shall be binding on all Subscribing Reinsurers hereon. The Lead Reinsurer shall
be deemed to have accepted a risk, if it has not responded within five days after receiving the
underwriting information on such risk. Any renewal of a special acceptance agreed to for a
predecessor contract to this Contract shall automatically be covered hereunder.

ARTICLE 8

PREMIUM

Quota Share

The Company shall cede to the Reinsurer its exact proportion of the Gross Net Written Premium
Income accounted for by the Company.

First Excess of Loss

The Company shall cede to the Reinsurer a premium equal to the Gross Net Written Premium Income
allocated by the Company to limits reinsured under the First Excess of Loss coverage of this
Contract.

Second Excess of Loss

	 	 	 	 	 

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The Company shall cede to the Reinsurer a premium equal to the Gross Net Written Premium Income
allocated by the Company to limits reinsured under the Second Excess of Loss coverage of this
Contract.

ARTICLE 9

CEDING COMMISSION

The Reinsurer shall allow the Company a commission on all premiums ceded to the Reinsurer hereunder
as follows:

	 	 	 	 	 

	Quota Share:

	 	 	32.0	%
	 
	 	 	 	 
	First Excess:

	 	 	32.0	%
	 
	 	 	 	 
	Second Excess:

	 	 	30.0	%

The Company shall allow the Reinsurer return commission on return premiums at the same rate.

ARTICLE 10

REPORTS AND REMITTANCES

	A.	 	As soon as practicable after the inception of this Contract, the Company shall report and pay
to the Reinsurer the Reinsurer’s share of the unearned premium subject to this Contract, less
any ceding commission, as of the inception date of inception.
	 
	B.	 	The Company shall report reinsurance cessions to the Reinsurer in writing on a quarterly
bordereau by individual Policy or quarterly account (the “Report”). Each Report shall be
submitted within 15 days after the end of the quarter covered by the Report. Each Report
shall specify the following information by individual Policy, to the extent that such
information is available to the Company:

	 	1.	 	Policy limits;
	 
	 	2.	 	Named Insured;
	 
	 	3.	 	Policy Number;
	 
	 	4.	 	Premium written for the first $1,000,000 of limits;
	 
	 	5.	 	Premium written for limits greater than $1,000,000; if any
	 
	 	6.	 	Effective/Expiration Date.

	 	 	 	 	 

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	C.	 	In addition to the information required by paragraph A above, the Report shall also reflect
the total premiums written and ceding commission thereon during the quarter covered by the
Report.
	 
	D.	 	Reinsurance premium due the Reinsurer shall be payable with the Report.

ARTICLE 11

DEFINITIONS

	A.	1.	 	 “Ultimate Net Loss” means the actual loss, as respects
Umbrella Liability Coverage, paid by the Company or which
the Company becomes liable to pay, such loss to include 90%
of any Extra Contractual Obligation and 90% of any Loss in
Excess of Policy Limits as defined in the Extra Contractual
Obligations/Excess of Policy Limits Article, but excluding
Loss Adjustment Expense, which shall be handled in
accordance with subparagraph (4) below.
	 
	 	2.	 	The Company shall be deemed to be “liable to pay” a loss when a judgment has been
rendered that the Company does not plan to appeal, and/or the Company has obtained a
release, and/or the Company has accepted a proof of loss.
	 
	 	3.	 	Nothing in this clause shall be construed to mean that losses are not recoverable
hereunder until the Company’s “Ultimate Net Loss” has been ascertained.
	 
	 	4.	 	The Reinsurer shall pay to the Company the Reinsurer’s proportion of Loss
Adjustment Expense in the ratio that the Reinsurer’s loss payment bears to the total
Ultimate Net Loss. However, expense incurred in obtaining salvages or recoveries, or in
the reduction or reversal of any award or judgment, shall be apportioned between the
Company and the Reinsurer in the proportion that each benefits from such salvage,
recovery, reduction, or reversal. Such payment shall be in addition to the limits stated
in the Retention and Limit Article.

	B.	 	“Loss Adjustment Expense” means costs and expenses incurred by the Company in connection with
the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a
specific claim or loss, or alleged loss, including but not limited to:

	 	1.	 	court costs;
	 
	 	2.	 	costs of supersedeas and appeal bonds;
	 
	 	3.	 	monitoring counsel expenses;
	 
	 	4.	 	legal expenses and costs incurred in connection with coverage questions and legal
actions connected thereto, including but not limited to declaratory judgment actions,
provided that the Reinsurer’s liability hereunder for the expense and costs described in
this subparagraph (4) shall not exceed $500,000, any one Loss Occurrence;

	 	 	 	 	 

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	 	5.	 	post-judgment interest;
	 
	 	6.	 	pre-judgment interest, unless included as part of an award or judgment;
	 
	 	7.	 	a pro rata share of salaries and expenses of Company field employees, calculated in
accordance with the time occupied in adjusting such loss, and expenses of other Company
employees who have been temporarily diverted from their normal and customary duties and
assigned to the field adjustment of losses covered by this Contract; and
	 
	 	8.	 	subrogation, salvage and recovery expenses.

	 	 	“Loss Adjustment Expense” does not include salaries and expenses of the Company’s employees,
except as provided in subparagraph (7) above, and office and other overhead expenses.
	 
	C.	 	“Gross Net Written Premium Income” means gross written premium of the Company for the classes
of business reinsured hereunder, less return premiums and less written premiums ceded by the
Company for reinsurance that inures to the benefit of this Contract.
	 
	D.	 	“Policy” means any binder, policy, or contract of insurance or reinsurance issued, accepted
or held covered provisionally or otherwise, by or on behalf of the Company.
	 
	F.	 	“Act of Terrorism” shall mean any act, including both Certified Acts of Terrorism in
accordance with the Terrorism Risk Insurance Act of 2002, the Terrorism Risk Insurance
Extension Act of 2005 and the Terrorism Risk Insurance Program Reauthorization Act of 2007 and
any subsequent extension and those not certified in respect of action, or threat of action
designed to influence the government de jure or de facto of any nation or any political
division thereof, or in pursuit of any political, religious, ideological or similar purpose to
intimidate the public or a section of the public of any nation by any person or group(s) of
persons whether acting alone or on behalf of or in connection with any organization(s) or
government(s) de jure or de facto and which:

	 	1.	 	involves violence against one or more persons; or
	 
	 	2.	 	involves damage to property; or
	 
	 	3.	 	endangers life other than that of the person committing the action; or
	 
	 	4.	 	creates a risk to health or safety of the public or a section of the public; or
	 
	 	5.	 	is designed to interfere with or to disrupt an electronic system; or
	 
	 	6.	 	involves loss, damage, cost, or expense directly or indirectly caused by,
contributed to by, resulting from, or arising out of or in connection with any action in
controlling, preventing, suppressing, retaliating against, or responding to any Act of
Terrorism.

	 	 	 	 	 

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	 	 	Loss or damage occasioned by riot, strikes, civil commotion, vandalism or malicious mischief
as those terms have been interpreted by United States Courts to apply to insurance Policies
shall not be construed to be Acts of Terrorism.

ARTICLE 12

EXCESS TERRORISM RECOVERY

	A.	 	A pro rata share of the amount, if any, by which financial assistance paid to the Company
under the Terrorism Risk Insurance Act of 2002 as amended (“TRIA”) for Acts of Terrorism
occurring during any one Program Year, combined with the Company’s total private-sector
reinsurance recoveries for such Acts of Terrorism, exceeds the amount of Insured Losses paid
by the Company for such Acts of Terrorism, shall be reimbursed by the Company to the
Reinsurer. Such pro rata share shall be calculated by dividing:

	 	1.	 	the Reinsurer’s payment under this Contract of Insured Losses for the Program Year;
by
	 
	 	2.	 	the Company’s total private-sector reinsurance recoveries arising from all Act(s)
of Terrorism covered under TRIA during the Program Year.

	B.	 	Payment shall be made as promptly as possible after the Company’s receipt of any recovery in
excess of its Insured Losses. The Company shall provide the Reinsurer with all necessary data
respecting the transactions covered under this Article.
	 
	C.	 	Such payment to the Reinsurer shall apply unless disallowed by the U.S. Department of the
Treasury.
	 
	D.	 	“Act of Terrorism”, “Insured Losses” and “Program Year” shall follow the definitions provided
in TRIA.

ARTICLE 13

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

	A.	 	This Contract shall cover Extra Contractual Obligations, as provided in the definition of
Ultimate Net Loss and the Retention and Limit Article. “Extra Contractual Obligations” shall
be defined as those liabilities not covered under any other provision of this Contract and
that arise from the handling of any claim on business covered hereunder, such liabilities
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, fraud or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the trial of any
action against its insured or reinsured or in the preparation or prosecution of an appeal
consequent upon such action.

	 	 	 	 	 

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	B.	 	This Contract shall cover Loss in Excess of Policy Limits, as provided in the definition of
Ultimate Net Loss and the Retention and Limit Article. “Loss in Excess of Policy Limits”
shall be defined as Loss in excess of the Policy limit, having been incurred because of, but
not limited to, failure by the Company to settle within the Policy limit or by reason of
alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the
preparation of the defense or in the trial of any action against its insured or reinsured or
in the preparation or prosecution of an appeal consequent upon such action.
	 
	C.	 	An Extra Contractual Obligation and/or Loss in Excess of Policy Limits 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.
	 
	D.	 	For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word “Loss”
shall mean any amounts for which the Company would have been contractually liable to pay had
it not been for the limit of the original Policy.
	 
	E.	 	Loss Adjustment Expense in respect of Extra Contractual Obligations and/or Loss in Excess of
Policy Limits shall be covered hereunder in the same manner as other Loss Adjustment Expense.
	 
	F.	 	However, this Article shall not apply where the loss has been incurred due to final legal
adjudication of fraud of 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.
	 
	G.	 	In no event shall coverage be provided to the extent not permitted under law.

ARTICLE 14

NET RETAINED LIABILITY

	A.	 	This Contract applies only to that portion of any loss that the Company retains net for its
own account (prior to deduction of any reinsurance that inures solely to the benefit of the
Company).
	 
	B.	 	The amount of the Reinsurer’s liability hereunder in respect of any loss or losses shall not
be increased by reason of the inability of the Company to collect from any other reinsurer(s),
whether specific or general, any amounts that 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 15

ORIGINAL CONDITIONS

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

ARTICLE 16

NO THIRD PARTY RIGHTS

This Contract is solely between the Company and the Reinsurer, and in no instance shall any
insured, claimant or other third party have any rights under this Contract except as may be
expressly provided otherwise herein.

ARTICLE 17

NOTICE OF LOSS AND LOSS SETTLEMENTS

	A.	 	The Company shall advise the Reinsurer promptly of all losses that, in the opinion of the
Company, may result in a claim hereunder and of all subsequent developments thereto that may
materially affect the position of the Reinsurer.
	 
	B.	 	The Company alone and at its full discretion shall adjust, settle or compromise all claims
and losses.
	 
	C.	 	As respects losses subject to this Contract, all loss settlements made by the Company,
whether under strict Policy terms or by way of compromise, and any Extra Contractual
Obligations and/or Loss in Excess of Policy Limits, shall be binding upon the Reinsurer, and
the Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement
immediately upon receipt of proof of loss.

ARTICLE 18

SALVAGE AND SUBROGATION

	A.	 	Salvages and all recoveries (including amounts due from all reinsurances that inure to the
benefit of this Contract, whether recovered or not), shall be first deducted from such loss to
arrive at the amount of liability attaching hereunder.
	 
	B.	 	All salvages, recoveries or payments recovered or received subsequent to loss settlement
hereunder shall be applied as if recovered or received prior to the aforesaid settlement, and
all necessary adjustments shall be made by the parties hereto.

	 	 	 	 	 

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ARTICLE 19

LATE PAYMENTS

	A.	 	In the event any payment due from the Reinsurer to the Company after the expiration of this
Contract is not received by the Intermediary by the payment due date, the Company may, by
notifying the Intermediary in writing, require the Reinsurer to pay, and the Reinsurer agrees
to pay, an interest penalty on the amount past due calculated for each such payment on the
last business day of each month as follows:

	 	1.	 	The number of full days that have expired since the overdue date or the last
monthly calculation, whichever the lesser; times
	 
	 	2.	 	1/365th of the sum of the six-month United States Treasury Bill rate as quoted in
The Wall Street Journal on the first business day of the month for which the calculation
is made plus 1%; times
	 
	 	3.	 	The amount past due, including accrued interest.

	 	 	Interest shall accumulate until payment of the original amount due plus interest penalties has
been received by the Intermediary.
	 
	B.	 	This Article applies only to amounts for which the demand for payment is received by the
Reinsurer after the Company has paid the entire reinsurance premium for the term of this
Contract, as provided in the Premium Article.
	 
	C.	 	The due date shall be the date on which the demand for payment is received by the Reinsurer,
and the amount shall be deemed to be overdue 30 days thereafter.
	 
	D.	 	If the information contained in the Company’s demand for payment is insufficient or not in
accordance with the conditions of this Contract, then within 30 days the Reinsurer shall
request from the Company all additional information necessary to validate its claim and the
payment due date as defined in paragraph C shall be deemed to be the date upon which the
Reinsurer received the requested additional information. This paragraph is only for the
purpose of establishing when a payment is overdue, and shall not alter the provisions of the
Notice of Loss and Loss Settlements Article or other pertinent contractual stipulations.
	 
	E.	 	Should the Reinsurer dispute a claim presented by the Company and the timeframe set out in
paragraph C be exceeded, interest as stipulated in paragraph A shall be payable for the entire
overdue period, but only for the amount of the final settlement with the Reinsurer.
	 
	F.	 	In the event arbitration is necessary to settle a dispute, the panel shall have the authority
to make a determination awarding interest to the Company. Interest, if any, awarded by the
panel shall supersede the interest amounts outlined herein.

	 	 	 	 	 

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	G.	 	Any interest owed pursuant to this Article may be waived by the Company. Waiver of such
interest, however, shall not affect the Company’s rights to other interest amounts due as a
result of this Article.

ARTICLE 20

OFFSET

Each party hereto shall have, and may exercise at any time and from time to time, the right to
offset any and all balances due from a party to the other arising under this Contract. In the
event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the
provisions of any applicable law governing offset entitlement.

ARTICLE 21

CURRENCY

	A.	 	Where the word “Dollars” and/or the sign “$” appear in this Contract, they shall mean United
States Dollars.
	 
	B.	 	For purposes of this Contract, where the Company receives premiums or pays losses in
currencies other than United States Dollars, such premiums or losses shall be converted into
United States Dollars at the actual rates of exchange at which these premiums or losses are
entered in the Company’s books.

ARTICLE 22

UNAUTHORIZED REINSURANCE

	A.	 	This Article applies only to the extent a Subscribing Reinsurer does not qualify for credit
with any insurance regulatory authority having jurisdiction over the Company’s reserves.
	 
	B.	 	The Company agrees, in respect of its Policies or bonds falling within the scope of this
Contract, that when it files with its insurance regulatory authority, or sets up on its books
liabilities as required by law, it shall forward to the Reinsurer a statement showing the
proportion of such liabilities applicable to the Reinsurer. The “Reinsurer’s Obligations”
shall be defined as follows:

	 	1.	 	unearned premium (if applicable);
	 
	 	2.	 	known outstanding losses that have been reported to the Reinsurer and Loss
Adjustment Expense relating thereto;
	 
	 	3.	 	losses and Loss Adjustment Expense paid by the Company but not recovered from the
Reinsurer;

	 	 	 	 	 

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	 	4.	 	losses incurred but not reported and Loss Adjustment Expense relating thereto;
	 
	 	5.	 	all other amounts for which the Company cannot take credit on its financial
statements unless funding is provided by the Reinsurer.

	C.	 	The Reinsurer’s Obligations shall be funded by funds withheld, cash advances, Trust Agreement
or a Letter of Credit (LOC). 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.
	 
	D.	 	When funding by an LOC, the Reinsurer agrees to apply for and secure timely delivery to the
Company of a clean, irrevocable and unconditional LOC 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 Obligations. Such LOC shall be
issued for a period of not less than one year, and shall be automatically extended for one
year from its date of expiration or any future expiration date unless 30 days (or such other
time period as may be 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 LOC extended for any additional period.
	 
	E.	 	The Reinsurer and the Company agree that any funding provided by the Reinsurer pursuant to
the provisions of this Contract may be drawn upon at any time, notwithstanding any other
provision of this Contract, and be utilized by the Company 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:

	 	1.	 	to reimburse the Company for the Reinsurer’s Obligations, the payment of which is
due under the terms of this Contract and that has not been otherwise paid;
	 
	 	2.	 	to make refund of any sum that is in excess of the actual amount required to pay
the Reinsurer’s Obligations under this Contract (or in excess of 102% of the Reinsurer’s
Obligations, if funding is provided by a Trust Agreement);
	 
	 	3.	 	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. Any taxes payable on accrued interest shall be paid out of the assets
in the account that are in excess of the Reinsurer’s Obligations (or in excess of 102% of
the Reinsurer’s Obligations, if funding is provided by a Trust Agreement). If the assets
are inadequate to pay taxes, any taxes due shall be paid by the Reinsurer;
	 
	 	4.	 	to pay the Reinsurer’s share of any other amounts the Company claims are due under
this Contract.

	 	 	 	 	 

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	F.	 	If the amount drawn by the Company is in excess of the actual amount required for E(1) or
E(3), or in the case of E(4), 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.
	 
	G.	 	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.
	 
	H.	 	At annual intervals, or more frequently at the discretion of the Company, 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 LOC or other method of funding, in the
following manner:

	 	1.	 	If the statement shows that the Reinsurer’s Obligations exceed the balance of the
LOC as of the statement date, the Reinsurer shall, within 30 days after receipt of the
statement, secure delivery to the Company of an amendment to the LOC increasing the
amount of credit by the amount of such difference. Should another method of funding be
used, the Reinsurer shall, within the time period outlined above, increase such funding
by the amount of such difference.
	 
	 	2.	 	If, however, the statement shows that the Reinsurer’s Obligations are less than the
balance of the LOC (or that 102% of the Reinsurer’s Obligations are less than the trust
account balance if funding is provided by a Trust Agreement), as of the statement date,
the Company shall, within 30 days after receipt of written request from the Reinsurer,
release such excess credit by agreeing to secure an amendment to the LOC reducing the
amount of credit available by the amount of such excess credit. Should another method of
funding be used, the Company shall, within the time period outlined above, decrease such
funding by the amount of such excess.

ARTICLE 23

TAXES

	A.	 	In consideration of the terms under which this Contract is issued, the Company undertakes not
to claim any deduction of the premium hereon when making Canadian tax returns or when making
tax returns, other than Income or Profits Tax returns, to any state or territory of the United
States of America or to the District of Columbia.

	B.	1.	 	Each Subscribing 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 the
Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax.

	 	 	 	 	 

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	 	2.	 	In the event of any return of premium becoming due hereunder, the Subscribing
Reinsurer shall deduct the applicable percentage of the premium from the amount of the
return, and the Company or its agent should take steps to recover the Tax from the U.S.
Government.

ARTICLE 24

ACCESS TO RECORDS

The Reinsurer or its duly authorized representatives shall have the right to visit the offices of
the Company to inspect, examine, audit, and verify any of the Policy, underwriting, accounting or
claim files (“Records”) relating to business reinsured under this Contract during regular business
hours after giving five working days’ prior notice. This right shall be exercisable during the
term of this Contract or after the expiration of this Contract. Notwithstanding the above, the
Reinsurer shall not have any right of access to the Records of the Company if it is not current in
all undisputed payments due the Company.

ARTICLE 25

CONFIDENTIALITY

	A.	 	The Reinsurer hereby acknowledges that the documents, information and data provided to it by
the Company, whether directly or through an authorized agent, in connection with the placement
and execution of this Contract (“Confidential Information”) are proprietary and confidential
to the Company. Confidential Information shall not include documents, information or data that
the Reinsurer can show:

	 	1.	 	are publicly known or have become publicly known through no unauthorized act of the
Reinsurer;
	 
	 	2.	 	have been rightfully received from a third person without obligation of
confidentiality; or
	 
	 	3.	 	were known by the Reinsurer prior to the placement of this Contract without an
obligation of confidentiality.

	B.	 	Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential
Information to any third parties, including any affiliated companies, except:

	 	1.	 	when required by retrocessionaires subject to the business ceded to this Contract;
	 
	 	2.	 	when required by regulators performing an audit of the Reinsurer’s records and/or
financial condition; or
	 
	 	3.	 	when required by external auditors performing an audit of the Reinsurer’s records
in the normal course of business.

	 	 	 	 	 

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	 	 	Further, the Reinsurer agrees not to use any Confidential Information for any purpose not
related to the performance of its obligations or enforcement of its rights under this
Contract.
	 
	C.	 	Notwithstanding the above, in the event that the Reinsurer is required by court order, other
legal process or any regulatory authority to release or disclose any or all of the
Confidential Information, the Reinsurer agrees to provide the Company with written notice of
same at least 10 days prior to such release or disclosure and to use its best efforts to
assist the Company in maintaining the confidentiality provided for in this Article.
	 
	D.	 	The provisions of this Article shall extend to the officers, directors, shareholders and
employees of the Reinsurer and its affiliates, and shall be binding upon their successors and
assigns.

ARTICLE 26

INDEMNIFICATION AND ERRORS AND OMISSIONS

	A.	 	The Reinsurer is reinsuring, subject to the terms and conditions of this Contract, the
obligations of the Company under any Policy. The Company shall be the sole judge as to:

	 	1.	 	what shall constitute a claim or loss covered under any Policy;
	 
	 	2.	 	the Company’s liability thereunder;
	 
	 	3.	 	the amount or amounts that it shall be proper for the Company to pay thereunder.

	B.	 	The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and
liability(ies) of the Company under any Policy.
	 
	C.	 	Any inadvertent error, omission or delay in complying with the terms and conditions of this
Contract shall not be held to relieve either party hereto from any liability that would attach
to it hereunder if such error, omission or delay had not been made, provided such error,
omission or delay is rectified immediately upon discovery.

ARTICLE 27

INSOLVENCY

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

	 	 	 	 	 

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	B.	 	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, either: (1)
on the basis of the liability of the Company, or (2) on the basis of claims filed and allowed
in the liquidation proceeding, whichever may be required by applicable statute, 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 that 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 and a majority in interest elect
to interpose defense to such claim, the expense shall be apportioned in accordance with the
terms of this reinsurance Contract as though such expense had been incurred by the Company.
	 
	D.	 	As to all reinsurance made, ceded, renewed or otherwise becoming effective under this
Contract, the reinsurance shall be payable as set forth above by the Reinsurer to the Company
or to its liquidator, receiver, conservator or statutory successor, (except as provided by
Section 4118(a)(1)(A) of the New York Insurance Law, provided the conditions of 1114(c) of
such law have been met, if New York law applies) or except (1) where the Contract specifically
provides another payee in the event of the insolvency of the Company, or (2) where the
Reinsurer, with the consent of the direct insured or insureds, has assumed such Policy
obligations of the Company as direct obligations of the Reinsurer to the payees under such
Policies and in substitution for the obligations of the Company to such payees. Then, and in
that event only, the Company, with the prior approval of the certificate of assumption on New
York risks by the Superintendent of Insurance of the State of New York, or with the prior
approval of such other regulatory authority as may be applicable, is entirely released from
its obligation and the Reinsurer shall pay any loss directly to payees under such Policy.

	 	 	 	 	 

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ARTICLE 28

ARBITRATION

	A.	 	Any dispute arising out of the interpretation, performance or breach of this Contract,
including the formation or validity thereof, shall be submitted for decision to a panel of
three arbitrators. Notice requesting arbitration shall be in writing and sent certified or
registered mail, return receipt requested.
	 
	B.	 	One arbitrator shall be chosen by each party and the two arbitrators shall then choose an
impartial third arbitrator who shall preside at the hearing. If either party fails to appoint
its arbitrator within 30 days after being requested to do so by the other party, the latter,
after 10 days’ prior notice by certified or registered mail of its intention to do so, may
appoint the second arbitrator.
	 
	C.	 	If the two arbitrators do not agree on a third arbitrator within 60 days of their
appointment, the third arbitrator shall be chosen in accordance with the procedures for
selecting the third arbitrator in force on the date the arbitration is demanded, established
by the AIDA Reinsurance and Insurance Arbitration Society — U.S. (ARIAS). The arbitrators
shall be persons knowledgeable about insurance and reinsurance who have no personal or
financial interest in the result of the arbitration. If a member of the panel dies, becomes
disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the
same manner as the departing member was chosen and the arbitration shall continue.
	 
	D.	 	Within 30 days after all arbitrators have been appointed, the panel shall meet and determine
timely periods for briefs, discovery procedures and schedules of hearings.
	 
	E.	 	The panel shall be relieved of all judicial formality and shall not be bound by the strict
rules of procedure and evidence. Notwithstanding anything to the contrary in this Contract,
the arbitrators may at their discretion, consider underwriting and placement information
provided by the Company to the Reinsurer, as well as any correspondence exchanged by the
parties that is related to this Contract. The arbitration shall take place in Wilkes-Barre,
Pennsylvania, or at such other place as the parties shall agree. The decision of any two
arbitrators shall be in writing and shall be final and binding. The panel is empowered to
grant interim relief as it may deem appropriate.
	 
	F.	 	The panel shall interpret this Contract as an honorable engagement rather than as merely a
legal obligation and shall make its decision considering the custom and practice of the
applicable insurance and reinsurance business as promptly as possible after the hearings.
Judgment upon an award may be entered in any court having jurisdiction thereof.
	 
	G.	 	Each party shall bear the expense of its own arbitrator and shall jointly and equally bear
with the other party the cost of the third arbitrator. The remaining costs of the arbitration
shall be allocated by the panel. The panel may, at its discretion, award such further costs

	 	 	 	 	 

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	 	 	and expenses as it considers appropriate, including but not limited to attorneys’ fees, to the
extent permitted by law.
	 
	H.	 	At the Company’s option, if more than one Subscribing Reinsurer is involved in arbitration
relating to this Contract, where there are common questions of law or fact and a possibility
of conflicting awards or inconsistent results, all such Subscribing Reinsurers shall
constitute and act as one party for purposes of this Article and communications shall be made
by the Company to each of the Subscribing Reinsurers constituting the one party. However, the
Subscribing Reinsurers shall have the right to assert several, rather than joint defenses or
claims, and to be represented by separate counsel.
	 
	I.	 	If any Subscribing Reinsurer has subscribed to other reinsurance agreements with the Company,
under which a dispute has arisen where there are common questions of law or fact with the
dispute being arbitrated under this Contract, and a possibility of conflicting awards or
inconsistent results, then the Subscribing Reinsurer, at the Company’s request, shall
arbitrate all such reinsurance disputes involving the same loss in one consolidated
proceeding, subject to the provisions of this Article. The provisions of this Article shall
govern any arbitration involving multiple agreements between the Company and Subscribing
Reinsurer, regardless of whether the other agreement(s) was entered into before or after the
effective date of this Contract.
	 
	J.	 	If more than one of the Subscribing Reinsurers are involved in an arbitration as respondent,
the time for the appointment of their party-appointed arbitrator shall be extended to 60 days.
This provision shall not change the liability of each of the Subscribing Reinsurers under the
terms of this Contract from several to joint.

ARTICLE 29

SERVICE OF SUIT

	A.	 	This Article applies only to those Subscribing Reinsurers not domiciled in the United States
of America, and/or not authorized in any state, territory and/or district of the United States
of America where authorization is required by insurance regulatory authorities.
	 
	B.	 	This Article shall not be read to conflict with or override the obligations of the parties to
arbitrate their disputes as provided for in the Arbitration Article. This Article is intended
as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an
alternative to the Arbitration Article for resolving disputes arising out of this Contract.
	 
	C.	 	In the event of the failure of the Reinsurer to pay any amount claimed to be due hereunder,
the Reinsurer, at the request of the Company, shall 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

	 	 	 	 	 

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	 	 	the laws of the United States or of any state in the United States. The Reinsurer, once the
appropriate court is selected, whether such court is the one originally chosen by the Company
and accepted by the Reinsurer or is determined by removal, transfer, or otherwise, as provided
for above, shall comply with all requirements necessary to give said court jurisdiction and,
in any suit instituted against the Reinsurer upon this Contract, shall abide by the final
decision of such court or of any appellate court in the event of an appeal.
	 
	D.	 	Service of process in such suit may be made upon Messrs. 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. The above-named are
authorized and directed to accept service of process on behalf of the Reinsurer in any such
suit.
	 
	E.	 	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 Contract, 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 30

SEVERABILITY

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

ARTICLE 31

GOVERNING LAW

This Contract shall be governed as to performance, administration and interpretation by the laws of
the Commonwealth of Pennsylvania, exclusive of conflict of law rules. However, with respect to
credit for reinsurance, the rules of all applicable states shall apply.

ARTICLE 32

ENTIRE AGREEMENT

This Contract sets forth all of the duties and obligations between the Company and the Reinsurer
and supersedes any and all prior or contemporaneous written agreements with respect to matters

	 	 	 	 	 

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referred to in this Contract. This Contract may not be modified or changed except by an amendment
to this Contract in writing signed by both parties.

ARTICLE 33

NON-WAIVER

The failure of the Company or the Reinsurer to insist on compliance with this Contract or to
exercise any right or remedy hereunder shall not constitute a waiver of any rights contained in
this Contract nor prevent either party from thereafter demanding full and complete compliance nor
prevent either party from exercising such remedy in the future.

ARTICLE 34

INTERMEDIARY

Guy Carpenter & Company, LLC, is hereby recognized as the Intermediary negotiating this Contract
for all business hereunder. All communications (including 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 Guy Carpenter &
Company, LLC, Two Logan Square, Philadelphia, Pennsylvania 19103-2772. Payments by the Company to
the Intermediary shall be deemed payment to the Reinsurer. Payments by the Reinsurer to the
Intermediary shall be deemed payment to the Company only to the extent that such payments are
actually received by the Company.

ARTICLE 35

MODE OF EXECUTION

	A.	 	This Contract may be executed by:

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

	 	 	 	 	 

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

	 	 	 	 	 

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IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized
representative(s) this _____day of __________, in the year of 20_.

PENN MILLERS INSURANCE COMPANY

AMERICAN MILLERS INSURANCE COMPANY

UMBRELLA QUOTA SHARE AND EXCESS CESSIONS REINSURANCE CONTRACT

	 	 	 	 	 

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

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

	 	I.	 	It is agreed that the policy does not apply under any liability coverage, to

     injury, sickness, disease, death or destruction

     bodily injury or property damage

	 	 	 	with respect to which an insured under the policy is also an insured under a nuclear
energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or
would be an insured under any such policy but for its termination upon exhaustion of its
limit of liability.
	 
	 	II.	 	Family Automobile Policies (liability only), Special Automobile Policies (private
passenger automobiles, liability only), Farmers Comprehensive Personal Liability Policies
(liability only), Comprehensive Personal Liability Policies (liability only) or policies
of a similar nature; and the liability portion of combination forms related to the four
classes of policies stated above, such as the Comprehensive Dwelling Policy and the
applicable types of Homeowners Policies.
	 
	 	III.	 	The inception dates and thereafter of all original policies as described in II
above, whether new, renewal or replacement, being policies which either

	 	(a)	 	become effective on or after 1st May, 1960, or
	 
	 	(b)	 	become effective before that date and contain the Limited Exclusion
Provision set out above;

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

	 	 	 	 	 

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	(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

	 	 	 	immediate medical or surgical relief
	 
	 	 	 	first aid,

	 	 	 	 	 

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	 	 	 	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 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,

	 	 	 	 	 

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	 	 	 	which has been used or exposed to radiation in a nuclear reactor; “waste” means any
waste material (1) containing byproduct material other than the tailings or wastes
produced by the extraction or concentration of uranium or thorium from any ore processed
primarily for its source material content and (2) resulting from the operation by any
person or organization of any nuclear facility included under the first two paragraphs
of the definition of nuclear facility; “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”
includes all forms of radioactive contamination of property. “property damage” includes
all forms of radioactive contamination of property.
	 
	 	V.	 	The inception dates and thereafter of all original policies affording coverages
specified in this paragraph (3), whether new, renewal or replacement, being policies
which become effective on or after 1st May, 1960, provided this paragraph (3) shall not
be applicable to

	 	(i)	 	Garage and Automobile Policies issued by the Reassured on New York
risks, or
	 
	 	(ii)	 	statutory liability insurance required under Chapter 90, General Laws
of Massachusetts,

	 	 	 	until 90 days following approval of the Broad Exclusion Provision by the Governmental
Authority having jurisdiction thereof.

	 	 	 	 	 

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	(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 or the Independent Insurance Conference of Canada.

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

	 	 	 	 	 

	NOTES:	 	Wherever used herein the terms:
	 
	 	 	 	 
	 

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

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

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

21/9/67

NMA 1590 (amended)

 
	 	 	 	 	 

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