Document:

Exhibit
10.6

 

RLI CORP.
NONEMPLOYEE DIRECTORS

DEFERRED COMPENSATION PLAN

 

ARTICLE 1

 

INTRODUCTION

 

1.1.         Establishment.  RLI has established this Plan effective January 1,
2005.  Prior to that date, RLI provided
similar deferred compensation opportunities to its Directors under certain
Prior Agreements.  All obligations under
the Prior Agreements (including any predecessor arrangements) will be satisfied
under the Prior Agreements, rather than under this Plan.

 

1.2.         Purpose.  The purpose of the Plan is to attract and
retain qualified Directors and to provide them with an opportunity to save on a
pre-tax basis and accumulate tax-deferred income to achieve their financial
goals.

 

1.3.         Definitions.  When the following terms are used herein with
initial capital letters, they shall have the following meanings:

 

1.3.1.      Account — the
separate recordkeeping account (unfunded and unsecured) maintained for each
Participant in connection with his/her participation in the Plan.

 

1.3.2.      Affiliate
— a business entity which is under a “common
control” with RLI or which is a member of an “affiliated service group” that
includes RLI, as those terms are defined in Code § 414(b), (c) and (m).

 

1.3.3.      Beneficiary —
the person or persons designated as such under Sec. 5.2.

 

1.3.4.      Board — the Board of Directors of RLI.

 

1.3.5.      Code — the
Internal Revenue Code of 1986, as the same may be amended from time to time.

 

1.3.6.      Direct
Compensation — the total amounts, as determined by RLI, payable to a
Director for services as a Director, whether payable in cash or in RLI Stock,
but excluding amounts determined by RLI to be expense reimbursements.

 

1.3.7.      Director —
an individual who is a member of the Board but who is not an Employee of RLI or
an Affiliate.

 

1.3.8.      Employee —
a common-law employee of RLI or an Affiliate (while it is an Affiliate).

 

1.3.9.      ERISA — the Employee Retirement Income Security Act of 1974, as the
same may be amended from time to time.

 

1.3.10.    Participant
— a Director who enrolls as a Participant in the Plan under Sec. 2.2.

 

 

1.3.11.    Plan — the
unfunded deferred compensation plan that is set forth in this document, as the
same may be amended from time to time. 
The name of the Plan is the “RLI Corp. Nonemployee Directors Deferred
Compensation Plan.”

 

1.3.12.    Prior Agreement
— an individual agreement entered into by a Director and RLI to provide
deferred compensation opportunities to the Director.  In certain cases, such Prior Agreement was a
successor to an earlier arrangement known as the Director Non-Qualified Deferred
Compensation Plan.

 

1.3.13.    RLI — RLI
Corp. and any Successor Corporation.

 

1.3.14.    RLI Stock — the
common stock of RLI.

 

1.3.15.    Successor
Corporation — any entity that succeeds to the business of RLI through
merger, consolidation, acquisition of all or substantially all of its assets,
or any other means and which elects before or within a reasonable time after
such succession, by appropriate action evidenced in writing, to continue the
Plan.

 

1.3.16.    Termination of
Service — the Participant’s departure from the Board, unless the Director
then becomes an Employee. 
Notwithstanding the foregoing, a “Termination of Service” will be deemed
not to have occurred if such departure would not be considered a “separation
from service” under Code § 409A(a)(2)(A)(i) or any regulations or other
guidance issued by the Treasury Department under Code § 409A.  In such case, a Termination of Service will
be deemed to have occurred at the earliest time allowed under Code § 409A.

 

1.3.17.    Vested — nonforfeitable.

 

1.3.18.    Year — the
calendar year.

 

1.4.         Nonqualified
Deferred Compensation.  The Plan is a
nonqualified deferred compensation plan subject to Code § 409A.  To the extent any provision of the Plan does
not satisfy the requirements contained in Code § 409A or in any
regulations or other guidance issued by the Treasury Department under Code § 409A,
such provision will be applied in a manner consistent with such requirements,
regulations or guidance, notwithstanding any contrary provision of the Plan or
any inconsistent election made by a Participant.

 

ARTICLE 2

 

PARTICIPATION

 

2.1.         Eligibility.  All Directors will be eligible to participate
in the Plan.  A Director may continue to
participate in the Plan for so long as the Plan remains in effect and he/she
remains a Director.

 

2.2.         Enrollment.  A Director will be allowed to enroll in the
Plan during the thirty (30) day period coinciding with and following the date
he/she becomes a Director.  Such an
enrollment will be effective as of the date it is made.  Thereafter, a Director may elect to enroll
for a Year during the enrollment period established by RLI for such Year, which
enrollment period will be a period of not less than thirty (30) days that ends
not later than the last day of the prior Year. 
Enrollment must be made in such manner and in accordance with such rules
as may be prescribed

 

2

 

for this purpose by RLI (including by means of a voice
response or other electronic system under circumstances authorized by RLI).

 

2.3.         Direct
Compensation Deferrals.

 

2.3.1.      Elections.  A Director may elect to reduce his/her Direct
Compensation by any whole percent, but not more than one-hundred percent
(100%).  A separate reduction percentage
may apply to the portion of a Director’s Direct Compensation that is payable in
cash and to the portion that is payable in RLI Stock granted under the RLI
Corp. Nonemployee Directors Stock Plan. 
An election must be made in such manner and in accordance with such
rules as may be prescribed for this purpose by RLI (including by means of a
voice response or other electronic system under circumstances authorized by
RLI).  An election must be made as part
of the enrollment described in Sec. 2.2.

 

2.3.2.      Elections
Relate to Services Performed After the Election and Are Irrevocable.  An election will
apply to all Direct Compensation attributable to services performed in a given
Year, regardless of when such Direct Compensation would otherwise be provided
to the Participant (for example, an election to defer an annual fee
attributable to services performed in a given Year but payable in the next
Year, must be made as part of the enrollment election made prior to the Year in
which the services are performed). 
However, an election made in connection with a mid-year enrollment under
Sec. 2.2 will be effective for Direct Compensation attributable to
services performed on and after the effective date of the enrollment as
provided in Sec. 2.2.  An election
will apply solely with respect to the given Year – that is, an election will
not automatically be carried over and applied to the next Year.  An election will be irrevocable throughout
the Year (or the remaining portion thereof); except that, deferrals of Direct Compensation
will automatically stop during the Year:

 

(a)           Upon
Termination of Service; or

 

(b)           Upon
termination of the Plan.

 

ARTICLE 3

 

ACCOUNTS

 

3.1.         Accounts.  RLI shall establish
and maintain a separate Account for each Participant.  The Account shall be for recordkeeping
purposes only and shall not represent a trust fund or other segregation of
assets for the benefit of the Participant. 
The balance of each Participant’s Account will be maintained in full and
fractional shares of RLI Stock.

 

3.2.         Credits to
Accounts.  Each Participant’s Account
shall be credited from time to time as provided in this section.

 

3.2.1.      Direct
Compensation Deferrals.  The amount
of each Direct Compensation cash payment or RLI Stock grant which the
Participant has elected to defer under the Plan shall be credited to the
Participant’s Account on, or as soon as administratively practicable after, the
date it would otherwise be provided to the Participant.  Any cash amount shall be converted to RLI
Stock credits, equal to the number of full and fractional shares that could be
purchased with such amount on, or as soon as administratively feasible after,
the date such amount is credited to the Participant’s Account.

 

3

 

3.2.2.      Dividends and
Other Adjustments.  The Participant’s
Account shall be credited with additional RLI Stock credits, equal to the
number of full and fractional shares of RLI Stock that could be purchased with
any cash dividends which would be payable on the RLI Stock credited to the
Participant’s Account.  For this
purposes, the share price on, or as soon as administratively practicable after,
the date the dividend is paid will be used. 
The Account also will be adjusted for any stock split, redemption or
similar event, in a manner determined to be reasonable by RLI.

 

3.3.         Charges to
Accounts.  As of the date any Plan
benefit measured by the Account is paid to the Participant or his/her
Beneficiary, the Account shall be charged with the amount of such benefit
payment.

 

ARTICLE 4

 

BENEFITS

 

4.1.         Vesting.
 The
Participant’s Account shall be fully (100%) Vested.

 

4.2.         Payment of
Plan Benefits on Termination of Service - General Rule.  If the Participant has an Account
balance at his/her Termination of Service, RLI shall pay that balance to the
Participant in five (5) annual installments, as follows:

 

(a)           Time.  The first
installment shall be paid on, or as soon as administratively practicable after,
the January 1 following the Year in which the Participant’s Termination of
Service occurs.  The remaining installments
shall be paid on, or as soon as administratively practicable after, each
subsequent January 1.

 

(b)           Amount.  The amount of
each installment shall be determined using a “fractional” method – by
multiplying the Participant’s Account balance immediately before the
installment payment date by a fraction, the numerator of which is one and the
denominator of which is the number of installments remaining (including the
installment in question).  The result
shall be rounded down to the next lower full share of RLI Stock, except for the
final installment, which shall be rounded up to the next higher full share of
RLI Stock.

 

4.3.         Extended
Installment Payments.

 

4.3.1.      Election to
Extend Installments – General Rule. 
A Participant may elect to extend the number of annual installments
he/she receives under the Plan to ten (10) or fifteen (15) installments,
subject to the rules below.  Any such
election must be made in such manner and in accordance with such rules as may
be prescribed for this purpose by RLI (including by means of a voice response
or other electronic system under circumstances authorized by RLI).  The extended installments shall commence on
the date specified in Sec. 4.2(a), unless otherwise postponed by this Article 4,
and the amount of each installment shall be determined under the fractional
method described in Sec. 4.2(b).

 

4.3.2.      Election to
Extend Installments upon Initial Plan Enrollment.  An election to extend the number of
installments may be made as part of the Participant’s initial enrollment in the
Plan, as described in Sec. 2.2.

 

4

 

4.3.3.      Subsequent
Election to Extend Installments.  If
a Participant did not elect to extend the number of installments upon initial
enrollment, or if the Participant wants to further extend the number of
installments after becoming a Participant, he/she may elect to extend the
number of installments in accordance with the following rules:

 

(a)           The
election must be received by RLI in proper form not later than twelve (12)
months prior to the date payments are to commence to the Participant;

 

(b)           The
commencement of installments may be delayed five (5) years from the date
payments would otherwise commence without this subsequent election, if and to
the extent required by Code § 409A or any regulations or other guidance
issued by the Treasury Department thereunder; and

 

(c)           A
subsequent election cannot reduce the number of annual installments the
Participant will receive.

 

4.4.         Special
Rules.

 

4.4.1.      Key Employee
Exception.  If a Participant becomes
an Employee and subsequently has a “separation for service” (within the meaning
of Code § 409A(a)(2)(A)(i)), his/her initial installment (or lump-sum
payment, if applicable) shall be delayed to the extent necessary to comply with
Code § 409A(a)(2)(B)(i) or any regulations or other guidance issued by the
Treasury Department thereunder.

 

4.4.2.      Cash-Out of
Small Amounts.  Any contrary
provision or election notwithstanding, if the Participant’s Account balance is
less than one hundred thousand dollars ($100,000) as of the date installments
are to commence, the Account shall be paid to the Participant in a single
lump-sum, as full settlement of all benefits due under the Plan; provided that,
for purposes of applying the one hundred thousand dollar ($100,000) cash-out
limit, all nonqualified deferred compensation amounts payable to the
Participant by RLI and its Affiliates shall be aggregated if and to the extent
required under Code § 409A or any regulations or other guidance issued by
the Treasury Department thereunder.

 

4.5.         Medium of
Payments.  All
payments to a Participant shall be made in shares of RLI Stock.  Unless the shares have been registered under
the Securities Act of 1933 (the “Act”), are otherwise exempt from the registration
requirements of the Act, are the subject of a favorable no action letter issued
by the Securities and Exchange Commission, or are the subject of an opinion of
counsel acceptable to RLI to the effect that such shares are exempt from the
registration requirements of the Act, the certificates representing such shares
shall contain a legend precluding the transfer of such shares except in
accordance with the provisions of Rule 144 of the Act, as the same may be
amended from time to time.

 

5

 

ARTICLE 5

 

DEATH
BENEFITS

 

5.1.         Death
Benefits.

 

5.1.1.      Benefits When
Participant Dies Before Commencement of Payments.  If the Participant dies before his/her
installments commence, the Participant’s Account balance shall be paid to the
Participant’s Beneficiary as follows:

 

(a)           If
the Participant has made a valid election under Sec. 4.3, payments shall
be made in ten (10) or fifteen (15) annual installments, as elected by the
Participant.

 

(b)           Otherwise,
payments shall be made in five (5) annual installments.

 

The first installment shall be paid on, or as soon as
administratively practicable after, the January 1 following the Year in
which the Participant’s death occurs. 
The remaining installments shall be paid on, or as soon as
administratively practicable after, each subsequent January 1.  The amount of each installment shall be
determined using the “fractional” method described in Sec. 4.2(b).

 

5.1.2.      Benefits When
Participant Dies After Commencement of Payments.  If the Participant dies after his/her
installments commence and the Participant has an Account balance at his/her
death, the remaining Account balance shall be paid to the Participant’s
Beneficiary in the same manner as if the Participant were still living.

 

5.1.3.      Medium of
Payments.  All payments to a
Beneficiary shall be made in shares of RLI Stock, subject to any legend
precluding transfer that is required under Sec. 4.5.

 

5.1.4.      Cash-Out of
Small Amounts.  Any contrary
provision or election notwithstanding, if the amount payable to the Beneficiary
is less than one hundred thousand dollars ($100,000) as of the date
installments are to commence, the benefit shall be paid to the Beneficiary in a
single lump-sum, as full settlement of all benefits due under the Plan,
subject, however, to any limitation on such cash-out under Code § 409A or
any regulations or other guidance issued by the Treasury Department thereunder.

 

5.2.         Designation
of Beneficiary.

 

5.2.1.      Persons
Eligible to Designate.  Any
Participant may designate a Beneficiary to receive any amount payable under the
Plan as a result of the Participant’s death, provided that the Beneficiary
survives the Participant.  The
Beneficiary may be one or more persons, natural or otherwise.  By way of illustration, but not by way of
limitation, the Beneficiary may be an individual, trustee, executor, or
administrator.  A Participant may also
change or revoke a designation previously made, without the consent of any
Beneficiary named therein.

 

5.2.2.      Form and
Method of Designation.  Any
designation or a revocation of a prior designation of Beneficiary shall be in
writing on a form acceptable to RLI and shall be filed with RLI.  RLI and all other parties involved in making
payment to a Beneficiary may rely on the latest Beneficiary designation on file
with RLI at the time of payment or may make payment pursuant to Sec. 5.2.3
if an effective designation is not on file, shall be fully protected in doing
so, and shall

 

6

 

have no liability whatsoever to any person making
claim for such payment under a subsequently filed designation of Beneficiary or
for any other reason.

 

5.2.3.      No Effective
Designation.  If there is not on file
with RLI an effective designation of Beneficiary by a deceased Participant, the
Beneficiary shall be the person or persons surviving the Participant in the
first of the following classes in which there is a survivor, share and share
alike:

 

(a)           The
Participant’s spouse.  (A “spouse” is a
person of the opposite sex to whom the Participant is legally married,
including a common-law spouse if the marriage was entered into in a state that
recognizes common-law marriages and RLI has received acceptable proof and/or
certification of common-law married status.)

 

(b)           The
Participant’s then living descendants, per stirpes.

 

(c)           The
individuals entitled to inherit the Participant’s property under the law of the
state in which the Participant resides immediately before his/her death, in the
proportions determined under such law.

 

Determination of the identity of the Beneficiary in
each case shall be made by RLI.

 

5.2.4.      Successor
Beneficiary.  If a Beneficiary who
survives the Participant subsequently dies before receiving the complete
payment to which the Beneficiary was entitled, the successor Beneficiary,
determined in accordance with the provisions of this section, shall be entitled
to the payments remaining.  The successor
Beneficiary shall be the person or persons surviving the Beneficiary in the
first of the following classes in which there is a survivor, share and share
alike:

 

(a)           The
Beneficiary’s spouse.  (A “spouse” is a
person of the opposite sex to whom the Beneficiary is legally married,
including a common-law spouse if the marriage was entered into in a state that
recognizes common-law marriages and RLI has received acceptable proof and/or
certification of common-law married status.)

 

(b)           The
Beneficiary’s then living descendants, per stirpes.

 

(c)           The
individuals entitled to inherit the Beneficiary’s property under the law of the
state in which the Beneficiary resides immediately before his/her death, in the
proportions determined under such law.

 

ARTICLE 6

 

PAYMENT
PROCEDURES

 

6.1.         Application
for Benefits.  Benefits shall be paid
to Participants automatically (without a written request) at the time and in
the manner specified in the Plan. 
Benefits shall be paid to a Beneficiary upon RLI’s receipt of a written
request for the benefits, including appropriate proof of the Participant’s
death and the Beneficiary’s identity and right to payment.

 

6.2.         Deferral of
Payment.  If
there is a dispute regarding a Plan benefit, RLI, in its sole discretion, may
defer payment of the benefit until the dispute has been resolved.

 

7

 

ARTICLE 7

 

ADMINISTRATION

 

7.1.         Administrator.  RLI shall be the administrator of the
Plan.  RLI shall control and manage the
administration and operation of the Plan and shall make all decisions and
determinations incident thereto.  Except
with respect to the ordinary day-to-day administration of the Plan, action on
behalf of RLI must be taken by one of the following:

 

(a)           The Board;
or

 

(b)           The
Nominating/Corporate Governance Committee of the Board.

 

7.1.1.      Delegation.  The ordinary day-to-day administration of the
Plan may be delegated by the chief executive officer of RLI to an individual or
a committee.  Such individual or
committee shall have the authority to delegate or redelegate to one or more
persons, jointly or severally, such functions assigned to such individual or
committee as such individual or committee may from time to time deem advisable.

 

7.1.2.      Automatic
Removal.  If any individual or
committee member to whom responsibility under the Plan is allocated is a
director, officer or employee of RLI or an Affiliate when responsibility is so
allocated, then such individual shall be automatically removed as a member of a
committee at the earliest time such individual ceases to be a director, officer
or employee of RLI or an Affiliate.  This
removal shall occur automatically and without any requirement for action by RLI
or any notice to the individual so removed.

 

7.1.3.      Conflict of Interest. 
If any individual or committee member to whom responsibility under the
Plan is allocated is also a Participant or Beneficiary, he/she shall have no
authority as such member with respect to any matter specifically affecting
his/her individual interest hereunder (as distinguished from the interests of
all Participants and Beneficiaries or a broad class of Participants and
Beneficiaries), all such authority being reserved exclusively to the other
members to the exclusion of such Participant or Beneficiary, and such
Participant or Beneficiary shall act only in his/her individual capacity in
connection with any such matter.

 

7.1.4.      Binding Effect.  The determination of
the Board or the Nominating/Corporate Governance Committee of the Board in any
matter within its authority shall be binding and conclusive upon RLI and all
persons having any right or benefit under the Plan.

 

7.1.5.      Third-Party
Service Providers.  RLI may from time
to time appoint or contract with an administrator, recordkeeper or other
third-party service provider for the Plan. 
Any such administrator, recordkeeper or other third-party service
provider will serve in a nondiscretionary capacity and will act in accordance
with directions given and procedures established by RLI.

 

7.2.         Benefits
Not Transferable.  No Participant or Beneficiary shall
have the power to transmit, alienate, dispose of, pledge or encumber any
benefit payable under the Plan before its actual payment to the Participant or
Beneficiary.  Any such effort by a
Participant or Beneficiary to convey any interest in the Plan shall not be given
effect under the Plan.  No benefit payable
under the Plan shall be subject to attachment, garnishment, execution following
judgment or other legal process before its actual payment to the Participant or
Beneficiary.

 

8

 

7.3.         Benefits
Not Secured.  The rights of each
Participant and Beneficiary shall be solely those of an unsecured, general
creditor of RLI.  No Participant or
Beneficiary shall have any lien, prior claim or other security interest in any
property of RLI.

 

7.4.         RLI’s Obligations.  RLI
shall provide the benefits under the Plan. 
RLI’s obligation may be satisfied by distributions from a trust fund
created and maintained by RLI, in its sole discretion, for such purpose.  However, the assets of any such trust fund
shall be subject to claims by the general creditors of RLI in the event RLI is
(i) unable to pay its debts as they become due, or (ii) is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.

 

7.5.         Withholding
Taxes.  RLI shall have the right to
withhold (and transmit to the proper taxing authority) such federal, state or
local taxes as it may be required to withhold by applicable laws.  Such taxes may be withheld from any benefits
due under the Plan or from any other compensation to which the Participant is
entitled from RLI and its Affiliates.

 

7.6.         Service of Process. 
The chief executive officer of RLI is designated as the appropriate and
exclusive agent for the receipt of service of process directed to the Plan in
any legal proceeding, including arbitration, involving the Plan.

 

7.7.         Limitation
on Liability.  Neither RLI’s officers
nor any member of its Board nor any individual or committee to whom RLI
delegates responsibility under the Plan in any way secures or guarantees the
payment of any benefit or amount which may become due and payable hereunder to
or with respect to any Participant.  Each
Participant and other person entitled at any time to payments hereunder shall
look solely to the assets of RLI for such payments as an unsecured, general creditor.  After benefits have been paid to or with
respect to a Participant and such payment purports to cover in full the benefit
hereunder, such former Participant or other person(s), as the case may be,
shall have no further right or interest in the other assets of RLI in
connection with the Plan.  Neither RLI
nor any of its officers nor any member of its Board nor any individual or
committee to whom RLI delegates responsibility under the Plan shall be under
any liability or responsibility for failure to effect any of the objectives or
purposes of the Plan by reason of the insolvency of RLI.

 

ARTICLE 8

 

AMENDMENT
AND TERMINATION

 

8.1.         Amendment.  RLI reserves the power to amend the Plan
either prospectively or retroactively or both, in any respect, by action of its
Board; provided that, no amendment shall be
effective to reduce or divest benefits payable with respect to the Account of
any Participant or Beneficiary without his/her consent.  No amendment of the Plan shall be effective
unless it is in writing and signed on behalf of RLI by a person authorized to
execute such writing.  No oral
representation concerning the interpretation or effect of the Plan shall be
effective to amend the Plan.

 

8.2.         Termination.  RLI reserves the right to terminate the Plan
at any time by action of its Board; provided that,
the termination of the Plan shall not reduce or divest benefits payable with
respect to the Account of any Participant or Beneficiary or negate the
Participant’s or Beneficiary’s rights with respect to such benefits.

 

9

 

ARTICLE 9

 

MISCELLANEOUS

 

9.1.         Effect on
Other Plans.  This Plan shall not
alter, enlarge or diminish any person’s rights or obligations under any other
benefit plan maintained by RLI or any Affiliate.

 

9.2.         Effect on
Service.  Neither the terms of this
Plan nor the benefits hereunder nor the continuance thereof shall be a term of
the service of any Director.  RLI shall
not be obliged to continue the Plan.  The
terms of this Plan shall not give any Director the right to continue serving as
a member of the Board, nor shall it create any obligation on the part of the
Board to nominate any Director for reelection by RLI’s stockholders.

 

9.3.         Disqualification.  Notwithstanding any other provision of the
Plan or any designation made under the Plan, any individual who feloniously and
intentionally kills a Participant shall be deemed for all purposes of the Plan
and all elections and designations made under the Plan to have died before such
Participant.  A final judgment of
conviction of felonious and intentional killing is conclusive for this
purpose.  In the absence of a conviction
of felonious and intentional killing, RLI shall determine whether the killing
was felonious and intentional for this purpose.

 

9.4.         Rules of
Document Construction.  Whenever appropriate, words used
herein in the singular may be read in the plural, or words used herein in the
plural may be read in the singular; and the words “hereof,” “herein” or “hereunder”
or other similar compounds of the word “here” shall mean and refer to the
entire Plan and not to any particular article, section or paragraph of the
Plan unless the context clearly indicates to the contrary.  The titles given to the various articles and
sections of the Plan are inserted for convenience of reference only and are not
part of the Plan, and they shall not be considered in determining the purpose,
meaning or intent of any provision hereof. 
Written notification under the Plan shall include such other methods (for
example, facsimile or e-mail) as RLI, in its sole discretion, may authorize
from time to time.

 

9.5.         References
to Laws.  Any reference in the Plan
to a statute shall be considered also to mean and refer to the applicable
regulations for that statute. Any reference in the Plan to a statute or
regulation shall be considered also to mean and refer to any subsequent
amendment or replacement of that statute or regulation.

 

9.6.         Choice of
Law.  The
Plan has been executed in the State of Illinois and has been drawn in
conformity to the laws of that state and shall, except to the extent that
federal law is controlling, be construed and enforced in accordance with the
laws of the State of Illinois (without regard to its conflict of law
principles).

 

9.7.         Binding Effect.  The Plan shall be
binding upon and inure to the benefit of the successors and assigns of RLI, and
the Beneficiaries, personal representatives and heirs of the Participant.

 

10

 

IN WITNESS WHEREOF, RLI has
cause the Plan to be executed by its duly authorized officers as of the 17th
day of December, 2004.

 

	
   

  	
  RLI CORP.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
        /s/ Kim J.
  Hensey

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  	
  Vice President/Corporate Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  And

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
        /s/ Jonathan E.
  Michael

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  	
  President & CEO

  

 

11Exhibit
10.7

 

RLI CORP.
EXECUTIVES

DEFERRED COMPENSATION PLAN

(For
Deferrals Commencing January 1, 2005)

 

ARTICLE 1

 

INTRODUCTION

 

1.1.         Establishment.  RLI has established this Plan effective January 1,
2005.  Prior to that date, RLI provided
similar deferred compensation opportunities to a select group of executives
under certain Prior Agreements.  All
obligations under the Prior Agreements (including any predecessor arrangements)
will be satisfied under the Prior Agreements, rather than under this Plan.

 

1.2.         Purpose.  The purpose of the Plan is to attract and
retain qualified executives and to provide them with an opportunity to save on
a pre-tax basis and accumulate tax-deferred income to achieve their financial
goals.

 

1.3.         Definitions.  When the following terms are used herein with
initial capital letters, they shall have the following meanings:

 

1.3.1.      Account — the
separate recordkeeping account (unfunded and unsecured) maintained for each
Participant in connection with his/her participation in the Plan.

 

1.3.2.      Affiliate
— a business entity which is under a “common
control” with RLI or which is a member of an “affiliated service group” that
includes RLI, as those terms are defined in Code § 414(b), (c) and (m).

 

1.3.3.      Beneficiary —
the person or persons designated as such under Sec. 5.2.

 

1.3.4.      Board — the Board of Directors of RLI.

 

1.3.5.      Chief
Executive Officer – the Chief Executive Officer of RLI.

 

1.3.6.      Code — the
Internal Revenue Code of 1986, as the same may be amended from time to time.

 

1.3.7.      Committee
— the Executive Resources Committee of the Board.

 

1.3.8.      Deferral
Eligible Amounts — a Participant’s total cash compensation from RLI and its
Affiliates.

 

1.3.9.      Employee —
a common-law employee of RLI or an Affiliate (while it is an Affiliate).

 

1.3.10.    ERISA — the Employee Retirement Income Security Act of 1974, as the
same may be amended from time to time.

 

1.3.11.    Participant
– an eligible Employee who enrolls as a Participant in the Plan under Sec.
2.3.  An Employee who becomes a Participant
shall remain a Participant in the Plan until the earlier of the following:

 

 

(a)           The
complete payment of the Participant’s Account balance after his/her Termination
of Employment; or

 

(b)           The
Participant’s death.

 

1.3.12.    Plan — the
unfunded deferred compensation plan that is set forth in this document, as the
same may be amended from time to time. 
The name of the Plan is the “RLI Corp. Executives Deferred Compensation
Plan.”

 

1.3.13.    Prior Agreement
— an individual agreement entered into by an Employee and RLI to provide
deferred compensation opportunities to the Employee.

 

1.3.14.    RLI — RLI
Corp. and any Successor Corporation.

 

1.3.15.    RLI Stock — the
common stock of RLI.

 

1.3.16.    Specified
Employee — a “key employee” (as defined in Code § 416(i) without
regard to paragraph (5) thereof), as determined under Code § 409A(a)(2)(B)(i)
or any regulations or other guidance issued by the Treasury Department
thereunder.

 

1.3.17.    Successor
Corporation — any entity that succeeds to the business of RLI through
merger, consolidation, acquisition of all or substantially all of its assets,
or any other means and which elects before or within a reasonable time after
such succession, by appropriate action evidenced in writing, to continue the
Plan.

 

1.3.18.    Termination of
Employment — the Participant’s resignation, discharge, retirement, death,
failure to return to active work at the end of an authorized leave of absence
or the authorized extension or extensions thereof, failure to return to work
when duly called following a temporary layoff, or upon the happening of any
other event or circumstance which, under the policy of RLI or an Affiliate as
in effect from time to time, results in termination of the employer-employee
relationship with RLI and its Affiliates. 
Notwithstanding anything provided above, a “Termination of Employment”
will be deemed not to have occurred if the event or circumstance would not be
considered a “separation from service” under Code § 409A(a)(2)(A)(i) or
any regulations or other guidance issued by the Treasury Department
thereunder.  In such case, a Termination
of Employment will be deemed to have occurred at the earliest time allowed
under Code § 409A.

 

1.3.19.    Vested — nonforfeitable.

 

1.3.20.    Year — the
calendar year.

 

1.4.         “Top-Hat”
Plan.  The Plan is intended to be a “top-hat”
plan – that is, an unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated individuals within the meaning of ERISA §§ 201(2), 301(a)(3)
and 401(a)(1), which is exempt from Parts 2, 3 and 4 of Title I of ERISA.  The Plan also is a nonqualified deferred
compensation plan subject to Code § 409A. 
To the extent any provision of the Plan does not satisfy the
requirements contained in Code § 409A or in any regulations or other
guidance issued by the Treasury Department under Code § 409A, such
provision will be applied in a manner consistent with such requirements,
regulations or guidance, notwithstanding any contrary provision of the Plan or
any inconsistent election made by a Participant.

 

2

 

ARTICLE 2

 

PARTICIPATION

 

2.1.         Eligibility
and Selection.  The Committee, in its
sole discretion, shall determine from time to time the Employees who will be
eligible to enroll as Participants in the Plan, provided that each such
Employee must:

 

(a)           Have
the title of Vice President or above, and

 

(b)           Be
expected to have compensation in excess of the Code § 401(a)(17) limit in
his/her initial Year of eligibility.

 

2.2.         Notification.  RLI shall provide each eligible Employee with
(i) written notification of his/her eligibility to participate in the
Plan, and (ii) either copy of the Plan or written notification that such a
copy is available upon request.

 

2.3.         Enrollment.  An eligible Employee will be allowed to
enroll in the Plan during the thirty (30) day period coinciding with and
following the date he/she is notified of his/her eligibility to participate in
accordance with Sec. 2.2.  Such an
enrollment will be effective as of the date it is made.  Thereafter, an eligible Employee may elect to
enroll for a Year during the enrollment period established by RLI for such
Year, which enrollment period will be a period of not less than thirty (30)
days that ends not later than the last day of the prior Year.  Enrollment must be made in such manner and in
accordance with such rules as may be prescribed for this purpose by RLI
(including by means of a voice response or other electronic system under
circumstances authorized by RLI).

 

2.4.         Elective
Deferrals.

 

2.4.1.      Elections.  A Participant may elect to reduce his/her
Deferral Eligible Amounts by any dollar amount or whole percent, but not more
than one-hundred percent (100%).  A
separate reduction amount or percentage may apply to base compensation and to
bonuses.  An election must be made in
such manner and in accordance with such rules as may be prescribed for this
purpose by RLI (including by means of a voice response or other electronic
system under circumstances authorized by RLI). 
An election must be made as part of the enrollment described in
Sec. 2.3.

 

2.4.2.      Elections
Relate to Services Performed After the Election and Are Irrevocable.  An election will apply to all Deferral
Eligible Amounts attributable to services performed in a given Year, regardless
of when such Deferral Eligible Amounts would otherwise be payable to the
Participant (for example, an election to defer a bonus attributable to services
performed in a given Year but payable in the next Year, must be made as part of
the enrollment election made prior to the Year in which the services are
performed).  However, an election made in
connection with a mid-year enrollment under Sec. 2.3 will be effective for Deferral
Eligible Amounts attributable to services performed on and after the effective
date of the enrollment as provided in Sec. 2.3. 
An election will apply solely with respect to the given Year – that is,
an election will not automatically be carried over and applied to the next
Year.  An election will be irrevocable
throughout the Year (or the remaining portion thereof); except that, deferrals
will automatically stop during the Year:

 

(a)           If
the Participant receives a hardship withdrawal prior to age fifty-nine and
one-half (591⁄2) from any elective deferral account under any Code § 401(k)
arrangement maintained by RLI or an Affiliate;

 

3

 

(b)           If
the Participant receives a payment from his/her Account in the event of an
Unforeseeable Emergency, as provided in Sec. 4.2;

 

(c)           Upon
Termination of Employment; or

 

(d)           Upon
termination of the Plan.

 

2.4.3.      Limits.  RLI may, in its sole discretion, limit
the minimum or maximum amount of deferrals that are allowed under the Plan by
any Participant or any group of Participants, provided that such limit is
established prior to the beginning of the Year or prior to enrollment of the
affected Participant.

 

ARTICLE 3

 

ACCOUNTS

 

3.1.         Accounts.  RLI shall establish and maintain a
separate Account for each Participant. 
The Account shall be for recordkeeping purposes only and shall not
represent a trust fund or other segregation of assets for the benefit of the
Participant.  The balance of each
Participant’s Account will be maintained in full and fractional shares of RLI
Stock.

 

3.2.         Credits to
Accounts.  Each Participant’s Account
shall be credited from time to time as provided in this section.

 

3.2.1.      Elective
Deferrals.  Each Deferral Eligible
Amount which the Participant has elected to defer under the Plan shall be
credited to the Participant’s Account on, or as soon as administratively
practicable after, the date it would otherwise be paid to the Participant.  The cash amount shall be converted to RLI
Stock credits, equal to the number of full and fractional shares that could be
purchased with such amount on, or as soon as administratively feasible after,
the date such amount is credited to the Participant’s Account.

 

3.2.2.      Dividends and
Other Adjustments.  The Participant’s
Account shall be credited with additional RLI Stock credits, equal to the
number of full and fractional shares of RLI Stock that could be purchased with
any cash dividends which would be payable on the RLI Stock credited to the
Participant’s Account.  For this
purposes, the share price on, or as soon as administratively practicable after,
the date the dividend is paid will be used. 
The Account also will be adjusted for any stock split, redemption or
similar event, in a manner determined to be reasonable by RLI.

 

3.3.         Charges to
Accounts.  As of the date any Plan
benefit measured by the Account is paid to the Participant or his/her
Beneficiary, the Account shall be charged with the amount of such benefit
payment.

 

ARTICLE 4

 

BENEFITS

 

4.1.         Vesting.
 The
Participant’s Account shall be fully (100%) Vested.

 

4.2.         Early
Payment for Unforeseeable Emergency. 
A Participant may receive a payment from his/her Account in the event of
an Unforeseeable Emergency.  The payment
will be made as soon as administratively practicable after the Participant’s
written request is received and the Committee has determined the amount to be
paid from the Account to alleviate the Unforeseeable Emergency.  The

 

4

 

Participant’s deferrals under the Plan will
automatically stop in the event of a payment for Unforeseeable Emergency, and
the Participant will not be allowed to enroll again until the first day of the
second Year following the date of the payment. 
An “unforeseeable emergency” for this purpose means a severe financial
hardship to the Participant resulting from an illness or accident of the
Participant, his/her spouse or a dependent (as defined in Code § 152(a)),
a loss of the Participant’s property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant, which is determined to qualify as an
Unforeseeable Emergency by the Committee. 
Cash needs arising from foreseeable events such as the purchase of a
residence or education expenses for children will not, by themselves, be
considered an Unforeseeable Emergency. 
The amount available from the Participant’s Account for the
Unforeseeable Emergency shall be limited to the amount necessary to satisfy
such emergency, plus amounts necessary to pay taxes reasonably anticipated to
become due as a result of the payment, after taking into account the extent to
which such hardship is or may be relieved through reimbursement or compensation
by insurance or otherwise or by liquidation of the Participant’s assets (to the
extent the liquidation of such assets would not itself cause severe financial
hardship), all as determined by the Committee.

 

4.3.         Payment of
Plan Benefits on Termination of Employment - General Rule.  If the Participant has an Account balance
at his/her Termination of Employment, RLI shall pay that balance to the
Participant in five (5) annual installments, as follows:

 

(a)           Time.  The first
installment shall be paid on, or as soon as administratively practicable after,
the January 1 following the Year in which the Participant’s Termination of
Employment occurs.  The remaining
installments shall be paid on, or as soon as administratively practicable
after, each subsequent January 1.

 

(b)           Amount.  The amount of
each installment shall be determined using a “fractional” method – by
multiplying the Participant’s Account balance immediately before the
installment payment date by a fraction, the numerator of which is one and the
denominator of which is the number of installments remaining (including the
installment in question).  The result
shall be rounded down to the next lower full share of RLI Stock, except for the
final installment, which shall be rounded up to the next higher full share of
RLI Stock.

 

4.4.         Extended
Installment Payments.

 

4.4.1.      Election to
Extend Installments – General Rule. 
A Participant may elect to extend the number of annual installments
he/she receives under the Plan to ten (10) or fifteen (15) installments,
subject to the rules below.  Any such
election must be made in such manner and in accordance with such rules as may
be prescribed for this purpose by RLI (including by means of a voice response
or other electronic system under circumstances authorized by RLI).  The extended installments shall commence on
the date specified in Sec. 4.2(a), unless otherwise postponed by this Article 4,
and the amount of each installment shall be determined under the fractional
method described in Sec. 4.2(b).

 

4.4.2.      Election to
Extend Installments upon Initial Plan Enrollment.  An election to extend the number of
installments may be made as part of the Participant’s initial enrollment in the
Plan, as described in Sec. 2.2.

 

4.4.3.      Subsequent
Election to Extend Installments.  If
a Participant did not elect to extend the number of installments upon initial
enrollment, or if the Participant wants to further extend the number of
installments after becoming a Participant, he/she may elect to extend the
number of installments in accordance with the following rules:

 

5

 

(a)           The
election must be received by RLI in proper form not later than twelve (12)
months prior to the date payments are to commence to the Participant;

 

(b)           The
commencement of installments may be delayed five (5) years from the date
payments would otherwise commence without this subsequent election, if and to
the extent required by Code § 409A or any regulations or other guidance
issued by the Treasury Department thereunder; and

 

(c)           A
subsequent election cannot reduce the number of annual installments the
Participant will receive.

 

4.5.         Special
Rules.

 

4.5.1.      Key Employee
Exception.  If a Participant is a
Specified Employee, his/her initial installment (or lump-sum payment, if
applicable) shall be delayed, if necessary, so that it does not occur earlier
than the first day of the calendar month which begins six (6) months after the
Participant’s Termination of Employment. 
Any remaining annual installments shall be paid as described in
Sec. 4.3(a).  However, this delay
shall not apply in the event of the Specified Employee’s death.

 

4.5.2.      Cash-Out of
Small Amounts.  Any contrary
provision or election notwithstanding, if the Participant’s Account balance is
less than one hundred thousand dollars ($100,000) as of the date installments
are to commence, the Account shall be paid to the Participant in a single
lump-sum, as full settlement of all benefits due under the Plan; provided that,
for purposes of applying the one hundred thousand dollar ($100,000) cash-out
limit, all nonqualified deferred compensation amounts payable to the
Participant by RLI and its Affiliates shall be aggregated if and to the extent
required under Code § 409A or any regulations or other guidance issued by
the Treasury Department thereunder.

 

4.6.         Medium of Payments.  All payments to a
Participant shall be made in shares of RLI Stock.  Unless the shares have been registered under
the Securities Act of 1933 (the “Act”), are otherwise exempt from the
registration requirements of the Act, are the subject of a favorable no action
letter issued by the Securities and Exchange Commission, or are the subject of
an opinion of counsel acceptable to RLI to the effect that such shares are
exempt from the registration requirements of the Act, the certificates
representing such shares shall contain a legend precluding the transfer of such
shares except in accordance with the provisions of Rule 144 of the Act, as the
same may be amended from time to time.

 

ARTICLE 5

 

DEATH
BENEFITS

 

5.1.         Death
Benefits.

 

5.1.1.      Benefits When Participant Dies Before Commencement of Payments.  If the Participant dies before his/her
installments commence, the Participant’s Account balance shall be paid to the
Participant’s Beneficiary as follows:

 

(a)           If
the Participant has made a valid election under Sec. 4.4, payments shall
be made in ten (10) or fifteen (15) annual installments, as elected by the
Participant.

 

(b)           Otherwise,
payments shall be made in five (5) annual installments.

 

6

 

The first installment shall be paid on, or as soon as
administratively practicable after, the January 1 following the Year in
which the Participant’s death occurs. 
The remaining installments shall be paid on, or as soon as
administratively practicable after, each subsequent January 1.  The amount of each installment shall be
determined using the “fractional” method described in Sec. 4.3(b).

 

5.1.2.      Benefits When
Participant Dies After Commencement of Payments.  If the Participant dies after his/her
installments commence and the Participant has an Account balance at his/her
death, the remaining Account balance shall be paid to the Participant’s
Beneficiary in the same manner as if the Participant were still living.

 

5.1.3.      Medium of
Payments.  All payments to a
Beneficiary shall be made in shares of RLI Stock, subject to any legend
precluding transfer that is required under Sec. 4.6.

 

5.1.4.      Cash-Out of
Small Amounts.  Any contrary
provision or election notwithstanding, if the amount payable to the Beneficiary
is less than one hundred thousand dollars ($100,000) as of the date
installments are to commence, the benefit shall be paid to the Beneficiary in a
single lump-sum, as full settlement of all benefits due under the Plan,
subject, however, to any limitation on such cash-out under Code § 409A or
any regulations or other guidance issued by the Treasury Department thereunder.

 

5.2.         Designation
of Beneficiary.

 

5.2.1.      Persons
Eligible to Designate.  Any
Participant may designate a Beneficiary to receive any amount payable under the
Plan as a result of the Participant’s death, provided that the Beneficiary
survives the Participant.  The
Beneficiary may be one or more persons, natural or otherwise.  By way of illustration, but not by way of limitation,
the Beneficiary may be an individual, trustee, executor, or administrator.  A Participant may also change or revoke a
designation previously made, without the consent of any Beneficiary named
therein.

 

5.2.2.      Form and
Method of Designation.  Any
designation or a revocation of a prior designation of Beneficiary shall be in
writing on a form acceptable to RLI and shall be filed with RLI.  RLI and all other parties involved in making
payment to a Beneficiary may rely on the latest Beneficiary designation on file
with RLI at the time of payment or may make payment pursuant to Sec. 5.2.3
if an effective designation is not on file, shall be fully protected in doing
so, and shall have no liability whatsoever to any person making claim for such
payment under a subsequently filed designation of Beneficiary or for any other
reason.

 

Notwithstanding any provision of this Sec. 5.2 to the
contrary, any Beneficiary designation made under the Prior Agreements will
continue in effect under this Plan until modified by the Participant pursuant
to this Sec. 5.2.

 

5.2.3.      No Effective
Designation.  If there is not on file
with RLI an effective designation of Beneficiary by a deceased Participant, the
Beneficiary shall be the person or persons surviving the Participant in the
first of the following classes in which there is a survivor, share and share
alike:

 

(a)           The
Participant’s spouse.  (A “spouse” is a
person of the opposite sex to whom the Participant is legally married,
including a common-law spouse if the marriage was entered into in a state that
recognizes common-law marriages and RLI has received acceptable proof and/or
certification of common-law married status.)

 

(b)           The
Participant’s then living descendants, per stirpes.

 

7

 

(c)   The Participant’s
estate.

 

Determination of the identity of the Beneficiary in
each case shall be made by RLI.

 

5.2.4.      Successor
Beneficiary.  If a Beneficiary who
survives the Participant subsequently dies before receiving the complete
payment to which the Beneficiary was entitled, the successor Beneficiary,
determined in accordance with the provisions of this section, shall be entitled
to the payments remaining. The successor Beneficiary shall be the person or
persons surviving the Beneficiary in the first of the following classes in
which there is a survivor, share and share alike:

 

(a)           The
Participant’s spouse.  (A “spouse” is a
person of the opposite sex to whom the Participant is legally married,
including a common-law spouse if the marriage was entered into in a state that
recognizes common-law marriages and RLI has received acceptable proof and/or
certification of common-law married status.)

 

(b)           The
Participant’s then living descendants, per stirpes.

 

(c)           The
Participant’s estate.

 

ARTICLE 6

 

CLAIMS
AND REVIEW PROCEDURES

 

6.1.         Application
for Benefits.  Benefits shall be paid
to Participants automatically (without a written request) at the time and in
the manner specified in the Plan. 
Benefits shall be paid to a Beneficiary upon RLI’s receipt of a written
request for the benefits, including appropriate proof of the Participant’s
death and the Beneficiary’s identity and right to payment.  This written request shall be considered a
claim for the purposes of this article.

 

6.2.         Claims and
Review Procedures.  The claims and review
procedures set forth in this article shall be the mandatory claims and
review procedures for the resolution of disputes and disposition of claims
filed under the Plan.

 

6.2.1.      Initial Claim.  An individual may, subject to any applicable
deadline, file with the Committee a written claim for benefits under the Plan
in a form and manner prescribed by RLI.

 

(a)           If
the claim is denied in whole or in part, the Committee shall notify the
claimant of the adverse benefit determination within ninety (90) days after
receipt of the claim.

 

(b)           The
ninety (90) day period for making the claim determination may be extended for
ninety (90) days if the Committee determines that special circumstances require
an extension of time for determination of the claim, provided that the
Committee notifies the claimant, prior to the expiration of the initial ninety
(90) day period, of the special circumstances requiring an extension and the
date by which a claim determination is expected to be made.

 

6.2.2.      Notice of
Initial  Adverse Determination.  A notice of an adverse determination shall
set forth in a manner calculated to be understood by the claimant:

 

(a)           The
specific reasons for the adverse determination;

 

8

 

(b)           References
to the specific provisions of the Plan (or other applicable document) on which
the adverse determination is based;

 

(c)           A
description of any additional material or information necessary to perfect the
claim and an explanation of why such material or information is necessary; and

 

(d)           A
description of the claims review procedures, including the time limits
applicable to such procedures.

 

6.2.3.      Request for
Review.  Within ninety (90) days
after receipt of an initial adverse benefit determination notice, the claimant
may file with the Board a written request for a review of the adverse
determination and may, in connection therewith submit written comments,
documents, records and other information relating to the claim benefits.  Any request for review of the initial adverse
determination not filed within ninety (90) days after receipt of the initial
adverse determination notice shall be untimely.

 

6.2.4.      Claim on
Review.  If the claim, upon review,
is denied in whole or in part, the Board shall notify the claimant of the
adverse benefit determination within sixty (60) days after receipt of such a
request for review.

 

(a)           The
sixty (60) day period for deciding the claim on review may be extended for
sixty (60) days if the Board determines that special circumstances require an
extension of time for determination of the claim, provided that the Board
notifies the claimant, prior to the expiration of the initial sixty (60) day
period, of the special circumstances requiring an extension and the date by
which a claim determination is expected to be made.

 

(b)           In
the event that the time period is extended due to a claimant’s failure to
submit information necessary to decide a claim on review, the claimant shall
have sixty (60) days within which to provide the necessary information and the
period for making the claim determination on review shall be tolled from the
date on which the notification of the extension is sent to the claimant until
the date on which the claimant responds to the request for additional
information or, if earlier, the expiration of sixty (60) days.

 

(c)           The
Board’s review of a denied claim shall take into account all comments,
documents, records, and other information submitted by the claimant relating to
the claim, without regard to whether such information was submitted or
considered in the initial benefit determination.

 

6.2.5.      Notice of
Adverse Determination for Claim on Review. 
A notice of an adverse determination for a claim on review shall set
forth in a manner calculated to be understood by the claimant:

 

(a)           The
specific reasons for the denial;

 

(b)           References
to the specific provisions of the Plan (or other applicable document) on which
the adverse determination is based; and

 

(c)           A
statement that the claimant is entitled to receive, upon request and free of
charge, reasonable access to, and copies of, all documents, records, and other
information relevant to the claimant’s claim for benefits.

 

9

 

6.3.         Claims
Rules.

 

(a)           No
inquiry or question shall be deemed to be a claim or a request for a review of
a denied claim unless made in accordance with the established claims and review
procedures.  RLI may require that any
claim for benefits and any request for a review of a denied claim be filed on
forms to be furnished by RLI upon request.

 

(b)           All
decisions on claims and on requests for a review of denied claims shall be made
by RLI.

 

(c)           Claimants
may be represented by a lawyer or other representative at their own expense,
but RLI reserves the right to (i) require the claimant to furnish written
authorization and (ii) establish reasonable procedures for determining whether
an individual has been authorized to act on behalf of a claimant.  A claimant’s representative shall be entitled
to copies of all notices given to the claimant.

 

(d)           The
decision of RLI on a claim and on a request for a review of a denied claim may
be provided to the claimant in electronic form instead of in writing at the
discretion of RLI.

 

(e)           In
connection with the review of a denied claim, the claimant or the claimant’s
representative shall be provided, upon request and free of charge, reasonable
access to, and copies of, all documents, records, and other information
relevant to the claimant’s claim for benefits.

 

(f)            The
time period within which a benefit determination will be made shall begin to
run at the time a claim or request for review is filed in accordance with the
claims and review procedures, without regard to whether all the information
necessary to make a benefit determination accompanies the filing.

 

(g)           The
claims and review procedures shall be administered with appropriate safeguards
so that benefit claim determinations are made in accordance with governing Plan
documents and, where appropriate, the Plan provisions have been applied
consistently with respect to similarly situated claimants.

 

(h)           For
the purpose of this article, a document, record, or other information shall be
considered “relevant” if such document, record, or other information:  (i) was relied upon in making the benefit
determination; (ii) was submitted, considered, or generated in the course of
making the benefit determination, without regard to whether such document,
record, or other information was relied upon in making the benefit
determination; or (iii) demonstrates compliance with the administration
processes and safeguards designed to ensure that the benefit claim
determination was made in accordance with governing Plan documents and that,
where appropriate, the Plan provisions have been applied consistently with
respect to similarly situated claimants.

 

(i)            RLI
may, in its discretion, rely on any applicable statute of limitation or
deadline as a basis for denial of any claim.

 

6.4.         Deadline to
File Claim.  To be considered timely
under the Plan’s claims and review procedures, a claim must be filed with the
Committee within one (1) year after the claimant knew or reasonably should
have known of the principal facts upon which the claim is based.

 

10

 

6.5.         Exhaustion
of Administrative  Remedies.  The exhaustion of the claims and review
procedures is mandatory for resolving every claim and dispute arising under the
Plan.  As to such claims and disputes no
claimant shall be permitted to commence an arbitration action to recover Plan
benefits or to enforce or clarify rights under the Plan or under any provision
of the law, whether or not statutory, until the claims and review procedures
set forth herein have been exhausted in their entirety.

 

6.6.         Arbitration.  Any claim, dispute or other matter in
question of any kind relating to the Plan which is not resolved by the claims
and review procedures shall be settled by arbitration in accordance with the
Federal Arbitration Act 9 U.S.C. §1, et seq. 
Notice of demand for arbitration must be made in writing to the opposing
party within the time period specified in Sec. 6.7.  In no event will a demand for arbitration be
made after the date when the applicable statute of limitations would bar the
institution of a legal or equitable proceeding based on such claim, dispute or
other matter in question.  The decision
of the arbitrator(s) will be final and may be enforced in any court of
competent jurisdiction.  The
arbitrator(s) may award reasonable fees and expenses to the prevailing party in
any dispute hereunder and will award reasonable fees and expenses in the event
that the arbitrator(s) find that the losing party acted in bad faith or with
intent to harass, hinder or delay the prevailing party in the exercise of its rights
in connection with the matter under dispute. 
The arbitration will take place in Peoria, Illinois, unless otherwise
agreed by the parties.

 

6.7.         Deadline to
File an Arbitration Action.  No
arbitration action to recover Plan benefits or to enforce or clarify rights
under the Plan under or under any provision of the law, whether or not
statutory, may be brought by any claimant on any matter pertaining to the Plan
unless the action is commenced before the earlier of:

 

(a)           Thirty (30)
months after the claimant knew or reasonably should have known of the principal
facts on which the claim is based, or

 

(b)           Six (6)
months after the claimant has exhausted the claims and review procedures.

 

6.8.         Knowledge
of Fact by Participant Imputed to Beneficiary.  Knowledge of all facts that a Participant
knew or reasonably should have known shall be imputed to every claimant who is
or claims to be a Beneficiary of the Participant or otherwise claims to derive
an entitlement by reference to the Participant for the purpose of applying the
previously specified periods.

 

6.9.         Deferral of
Payment.  If there is a dispute
regarding a Plan benefit, RLI, in its sole discretion, may defer payment of the
benefit until the dispute has been resolved.

 

ARTICLE 7

 

ADMINISTRATION

 

7.1.         Administrator.  RLI shall be the administrator of the
Plan.  RLI shall control and manage the
administration and operation of the Plan and to make all decisions and
determinations incident thereto.  Except with respect to the ordinary
day-to-day administration of the Plan, action on behalf of RLI must be taken by
one of the following:

 

(a)           The
Board; or

 

(b)           The
Committee.

 

11

 

7.1.1.      Delegation.  The ordinary day-to-day administration of the
Plan may be delegated by the Chief Executive Officer to an individual or a
committee.  Such individual or committee
shall have the authority to delegate or red legate to one or more persons,
jointly or severally, such functions assigned to such individual or committee
as such individual or committee may from time to time deem advisable.

 

7.1.2.      Automatic
Removal.  If any individual or
committee member to whom responsibility under the Plan is allocated is a
director, officer or employee of RLI when responsibility is so allocated, then
such individual shall be automatically removed as a member of a committee at
the earliest time such individual ceases to be a director, officer or employee
of RLI.  This removal shall occur
automatically and without any requirement for action by RLI or any notice to
the individual so removed.

 

7.1.3.      Conflict of Interest. 
If any individual or committee member to whom responsibility under the
Plan is allocated is also a Participant or Beneficiary, he/she shall have no
authority as such member with respect to any matter specifically affecting
his/her individual interest hereunder (as distinguished from the interests of
all Participants and Beneficiaries or a broad class of Participants and
Beneficiaries), all such authority being reserved exclusively to the other
members to the exclusion of such Participant or Beneficiary, and such
Participant or Beneficiary shall act only in his/her individual capacity in
connection with any such matter.

 

7.1.4.      Binding
Effect.  The determination of the
Board, the Committee or the Chief Executive Officer in any matter within its
authority shall be binding and conclusive upon RLI and all persons having any
right or benefit under the Plan.

 

7.1.5.      Third-Party
Service Providers.  RLI may from time
to time appoint or contract with an administrator, record keeper or other
third-party service provider for the Plan. 
Any such administrator, record keeper or other third-party service
provider will serve in a nondiscretionary capacity and will act in accordance
with directions given and procedures established by RLI.

 

7.2.         Benefits
Not Transferable.  No Participant or
Beneficiary shall have the power to transmit, alienate, dispose of, pledge or
encumber any benefit payable under the Plan before its actual payment to the
Participant or Beneficiary.  Any such
effort by a Participant or Beneficiary to convey any interest in the Plan shall
not be given effect under the Plan.  No
benefit payable under the Plan shall be subject to attachment, garnishment,
execution following judgment or other legal process before its actual payment
to the Participant or Beneficiary.

 

7.3.         Benefits
Not Secured.  The rights of each
Participant and Beneficiary shall be solely those of an unsecured, general
creditor of RLI.  No Participant or
Beneficiary shall have any lien, prior claim or other security interest in any
property of RLI.

 

7.4.         RLI’s Obligations. 
RLI shall provide the benefits under the Plan.  RLI’s obligation may be satisfied by
distributions from a trust fund created and maintained by RLI, in its sole
discretion, for such purpose.  However,
the assets of any such trust fund shall be subject to claims by the general
creditors of RLI in the event RLI is (i) unable to pay its debts as they become
due, or (ii) is subject to a pending proceeding as a debtor under the United
States Bankruptcy Code.

 

7.5.         Withholding
Taxes.  RLI shall have the right to
withhold (and transmit to the proper taxing authority) such federal, state or
local taxes, including (but not limited to) FICA and FUTA taxes, as it may be
required to withhold by applicable laws. 
Such taxes may be withheld from any benefits due under the Plan or from
any other compensation to which the Participant is entitled from RLI and its
Affiliates.

 

12

 

7.6.         Service of Process. 
The Chief Executive Officer is designated as the appropriate and
exclusive agent for the receipt of service of process directed to the Plan in
any legal proceeding, including arbitration, involving the Plan.

 

7.7.         Limitation
on Liability.  Neither RLI’s officers
nor any member of its Board nor any individual or committee to whom RLI
delegates responsibility under the Plan in any way secures or guarantees the
payment of any benefit or amount which may become due and payable hereunder to
or with respect to any Participant.  Each
Participant and other person entitled at any time to payments hereunder shall
look solely to the assets of RLI for such payments as an unsecured, general
creditor.  After benefits have been paid
to or with respect to a Participant and such payment purports to cover in full
the benefit hereunder, such former Participant or other person(s), as the case
may be, shall have no further right or interest in the other assets of RLI in
connection with the Plan.  Neither RLI
nor any of its officers nor any member of its Board nor any individual or
committee to whom RLI delegates responsibility under the Plan shall be under
any liability or responsibility for failure to effect any of the objectives or
purposes of the Plan by reason of the insolvency of RLI.

 

ARTICLE 8

 

AMENDMENT
AND TERMINATION

 

8.1.         Amendment.  RLI reserves the power to amend the Plan
either prospectively or retroactively or both, in any respect, by action of its
Board; provided that, no amendment shall be
effective to reduce or divest benefits payable with respect to the Account of
any Participant or Beneficiary without his/her consent.  No amendment of the Plan shall be effective
unless it is in writing and signed on behalf of RLI by a person authorized to
execute such writing.  No oral
representation concerning the interpretation or effect of the Plan shall be
effective to amend the Plan.

 

8.2.         Termination.  RLI reserves the right to terminate the Plan
at any time by action of its Board; provided that,
the termination of the Plan shall not reduce or divest benefits payable with
respect to the Account of any Participant or Beneficiary or negate the
Participant’s or Beneficiary’s rights with respect to such benefits.

 

ARTICLE 9

 

MISCELLANEOUS

 

9.1.         Effect on
Other Plans.  This Plan shall not
alter, enlarge or diminish any person’s rights or obligations under any other
benefit plan maintained by RLI or any Affiliate.

 

9.2.         Effect on
Employment.  Neither the terms of
this Plan nor the benefits hereunder nor the continuance thereof shall be a
term of the employment of any Employee. 
RLI shall not be obliged to continue the Plan.  The terms of this Plan shall not give any
Employee the right to be retained in the service of RLI or any Affiliate.

 

9.3.         Disqualification.  Notwithstanding any other provision of the
Plan or any designation made under the Plan, any individual who feloniously and
intentionally kills a Participant shall be deemed for all purposes of the Plan
and all elections and designations made under the Plan to have died before such
Participant.  A final judgment of
conviction of felonious and intentional killing is conclusive for this
purpose.  In the absence of a conviction
of felonious and intentional killing, RLI shall determine whether the killing
was felonious and intentional for this purpose.

 

13

 

9.4.         Rules of
Document Construction.  Whenever
appropriate, words used herein in the singular may be read in the plural, or
words used herein in the plural may be read in the singular; and the words “hereof,”
“herein” or “hereunder” or other similar compounds of the word “here” shall
mean and refer to the entire Plan and not to any particular article, section or
paragraph of the Plan unless the context clearly indicates to the
contrary.  The titles given to the
various articles and sections of the Plan are inserted for convenience of
reference only and are not part of the Plan, and they shall not be considered in
determining the purpose, meaning or intent of any provision hereof.  Written notification under the Plan shall
include such other methods (for example, facsimile or e-mail) as RLI, in its
sole discretion, may authorize from time to time.

 

9.5.         References
to Laws.  Any reference in the Plan
to a statute shall be considered also to mean and refer to the applicable
regulations for that statute.  Any
reference in the Plan to a statute or regulation shall be considered also to
mean and refer to any subsequent amendment or replacement of that statute or
regulation.

 

9.6.         Choice of
Law.    The
Plan has been executed in the State of Illinois and has been drawn in
conformity to the laws of that state and shall, except to the extent that
federal law is controlling, be construed and enforced in accordance with the
laws of the State of Illinois (without regard to its conflict of law
principles).

 

9.7.         Binding
Effect.  The Plan shall be binding
upon and inure to the benefit of the successors and assigns of RLI, and the
Beneficiaries, personal representatives and heirs of the Participant.

 

IN WITNESS WHEREOF, RLI has
caused the Plan to be executed by its duly authorized officers as of the 20th
day of December, 2004.

 

 

	
   

  	
  RLI CORP.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
        /s/ Kim J.
  Hensey

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  	
  Vice President/Corporate Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  And

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
        /s/ Jean M.
  Stephenson

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  	
  Assistant Corporate
  Secretary

  

 

14

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