Exhibit 10.1
EXECUTION VERSION
ADMINISTRATIVE SERVICES AGREEMENT
BY AND AMONG
CONTINENTAL CASUALTY COMPANY
THE CONTINENTAL INSURANCE COMPANY
CONTINENTAL REINSURANCE CORPORATION INTERNATIONAL, LTD.
CNA INSURANCE COMPANY LIMITED
AND
NATIONAL INDEMNITY COMPANY
DATED AUGUST 31, 2010
ADMINISTRATIVE SERVICES AGREEMENT
TABLE OF CONTENTS
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Page
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ARTICLE I
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DEFINITIONS
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1.1
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Definitions
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2
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ARTICLE II
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AUTHORITY; SERVICE STANDARDS
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2.1
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Appointment
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5
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2.2
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Services Standards
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5
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2.3
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Compliance; Licensure
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6
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2.4
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Independent Contractor
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6
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2.5
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Subcontracting
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7
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2.6
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Monitoring
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7
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ARTICLE III
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COMPENSATION
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3.1
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Compensation
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8
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ARTICLE IV
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ADMINISTRATIVE SERVICES
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4.1
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Administrative Services
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8
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4.2
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Mixed Accounts
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10
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4.3
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GRM Book of Business
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12
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4.4
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Extracontractual Damages
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13
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4.5
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Conflict of Interest
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13
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ARTICLE V
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CLAIMS HANDLING SERVICES
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5.1
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Claims Handling Services
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14
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i
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Page
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ARTICLE VI
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ADMINISTRATION OF THIRD PARTY REINSURANCE AGREEMENTS
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6.1
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Third Party Reinsurance Administration
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15
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6.2
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Collateral
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16
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6.3
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Commutations
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16
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6.4
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Collection of Third Party Reinsurance Recoverables
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16
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6.5
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Third Party Reinsurance Allocation Agreement
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16
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ARTICLE VII
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REGULATORY COMPLIANCE AND REPORTING
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7.1
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Regulatory Filings and Examinations
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17
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ARTICLE VIII
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OTHER REPORTING OBLIGATIONS
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8.1
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Financial Reporting Obligations
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17
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8.2
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Change in Status
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19
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8.3
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Administrator Controls
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19
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ARTICLE IX
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BOOKS AND RECORDS
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9.1
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Transfer and Ownership of Books and Records
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20
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9.2
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Maintenance of Books and Records
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20
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9.3
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Access to Books Records
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20
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ARTICLE X
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INABILITY TO PERFORM SERVICES; ERRORS
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10.1
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Capacity
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22
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10.2
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Inability to Perform Services
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22
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10.3
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Errors
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22
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ARTICLE XI
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LEGAL ACTIONS
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11.1
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Regulatory Proceedings
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23
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11.2
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Notification Requirements
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23
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11.3
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Right to Associate
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24
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ii
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Page
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ARTICLE XII
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BANK ACCOUNTS
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12.1
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Bank Accounts
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24
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ARTICLE XIII
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COOPERATION
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13.1
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Cooperation
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25
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13.2
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Relationship Management
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25
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ARTICLE XIV
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DURATION; TERMINATION
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14.1
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Duration
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26
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14.2
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Termination
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26
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14.3
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Certain Actions Related to Termination
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27
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14.4
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Survival
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28
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ARTICLE XV
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CONFIDENTIALITY; PRIVACY REQUIREMENTS
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15.1
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Definitions
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28
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15.2
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Obligations
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29
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15.3
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Exceptions to Confidential Treatment
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30
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15.4
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Privacy
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31
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15.5
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Regulatory and Legal Communication
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33
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ARTICLE XVI
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FORCE MAJEURE
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16.1
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Force Majeure Event
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34
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ARTICLE XVII
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INDEMNIFICATION
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17.1
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Indemnification Obligation of Administrator
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34
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17.2
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Indemnification Obligation of Reinsureds
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35
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17.3
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Notice of Indemnification Request
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35
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17.4
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Notice of an Asserted Liability
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35
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17.5
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Procedures
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36
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17.6
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Survival
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37
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iii
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Page
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ARTICLE XVIII
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DISPUTE RESOLUTION; ARBITRATION
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18.1
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Dispute Resolution; Arbitration
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37
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ARTICLE XIX
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MISCELLANEOUS
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19.1
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Notices
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37
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19.2
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Entire Agreement
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38
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19.3
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Waiver and Amendment
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38
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19.4
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Successors and Assigns
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39
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19.5
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Headings
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39
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19.6
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Construction; Interpretation
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39
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19.7
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Governing Law and Jurisdiction
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39
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19.8
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No Third Party Beneficiaries
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40
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19.9
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Counterparts
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40
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19.10
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Severability
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40
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19.11
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Specific Performance
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41
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19.12
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Waiver of Jury Trial
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41
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19.13
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Incontestability
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42
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19.14
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Set-Off
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42
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19.15
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Currency
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42
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LIST OF EXHIBITS
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Exhibit A
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Business Associate Agreement
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LIST OF SCHEDULES
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Schedule A-1
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Claims Administration System
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Schedule A-2
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Items and services associated in supplying Administrator with access to CAS
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Schedule B
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GRM Book of Business
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Schedule C
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Designations of Primary Handlers to administer existing Mixed Accounts
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Schedule D
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Form of Quarterly Data File
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iv
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT
(hereinafter referred to as this
Administrative
Services Agreement
), dated as of August 31, 2010 (the
Effective Date
), is made and
entered into by and among
Continental Casualty Company
, an Illinois property and casualty insurance
company (
CCC
),
The Continental Insurance Company
, a Pennsylvania property and casualty
insurance company (
CIC
),
Continental Reinsurance Corporation International, Ltd.
, a
Bermuda long-term insurance company (
CRCI
), and
CNA Insurance Company Limited
, a United
Kingdom property and casualty insurance company (
CICL
and together with CCC, CIC and
CRCI,
Reinsureds
), and
National Indemnity Company
, a Nebraska property and casualty
company (
Administrator
and the Administrator taken together with the Reinsureds, each a
Party
and, collectively, the
Parties
).
WITNESSETH
:
WHEREAS
, pursuant to a Master Transaction Agreement (the
Master Transaction
Agreement
), dated as of July 14, 2010, among the Parties and Berkshire Hathaway Inc., a
Delaware corporation and the ultimate parent company of the Reinsurer (
Berkshire
),
Reinsureds and Administrator have agreed to enter into a loss portfolio reinsurance transaction,
pursuant to which Reinsureds will cede all liabilities related to Asbestos Claims and Pollution
Claims under the Business Covered to Administrator, and pursuant to which Administrator will
indemnify Reinsureds for such liabilities up to an aggregate limit of four billion dollars
($4,000,000,000), net of any Third Party Reinsurance Recoverables and Other Recoveries;
WHEREAS
, pursuant to a Loss Portfolio Transfer Reinsurance Agreement among Reinsureds and
Administrator dated as of the date hereof, and referenced in the Master Transaction Agreement as
the
LPT Reinsurance Agreement
, Administrator shall indemnify Reinsureds for 100% of the
Ultimate Net Loss, subject to the LPT Limit; and
WHEREAS
, Reinsureds desire that Administrator perform certain administrative functions on
behalf of Reinsureds from and after the date hereof with respect to the Reinsured Contracts and
Third Party Reinsurance Agreements as they relate to the Business Covered, and the Parties hereto
have agreed to enter into this Administrative Services Agreement as a condition of Administrator
entering into the LPT Reinsurance Agreement.
NOW, THEREFORE
, for and in consideration of these premises and the promises and the mutual
agreements hereinafter set forth and set forth in the Master Transaction Agreement and LPT
Reinsurance Agreement, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1
Definitions
.
In this Administrative Services Agreement, unless the context requires otherwise, words and
expressions used in the Master Transaction Agreement and the LPT Reinsurance Agreement shall bear
the same meaning when used in this Administrative Services Agreement. All capitalized terms not
otherwise defined in this Administrative Services Agreement shall have the meaning given them under
the Master Transaction Agreement or LPT Reinsurance Agreement, as applicable.
The following terms shall have the respective meanings set forth below throughout this
Administrative Services Agreement:
Administrators Actuarial Report
shall have the meaning set forth in
Section
8.1(a)
hereof.
Administrative Accounts
shall have the meaning set forth in
Section 12.1(a)
hereof.
Administrative Services
shall have the meaning set forth in
Section 2.1(a)
hereof.
Administrative Services Agreement
shall have the meaning set forth in the preamble.
Administrator
shall have the meaning set forth in the preamble.
Administrator Losses
shall have the meaning set forth in
Section 17.2
hereof.
Allocated Bill
shall have the meaning set forth in
Section 4.3(a)
hereof.
Asserted Liability
shall have the meaning set forth in
Section 17.4
hereof.
Berkshire
shall have the meaning set forth in the preamble hereof.
Berkshire Controlled Entity
shall have the meaning set forth in
Section 4.5(a)
hereof.
Berkshire Owned Entity
shall have the meaning set forth in
Section 4.5(a)
hereof.
2
Business Associate Agreement
means the business associate agreement attached hereto as
Exhibit A
.
Claims Administration System
or
CAS
shall have the meaning set forth in
Section 3.1(b)
hereof.
CCC
shall have the meaning set forth in the preamble hereof.
CIC
shall have the meaning set forth in the preamble hereof.
CICL
shall have the meaning set forth in the preamble hereof.
Collection Expenses
means the reasonable out-of-pocket expenses incurred by any Party in
connection with the negotiation and collection of Third Party Reinsurance Recoverables or
Commutation Payments.
Confidential Information
shall have the meaning set forth in
Section 15.1(a)
hereof.
CRCI
shall have the meaning set forth in the preamble hereof.
Direct Costs
shall have the meaning set forth in
Section 4.2(c)
hereof.
Effective Date
shall have the meaning set forth in the preamble hereof.
Force Majeure Event
shall have the meaning set forth in
Section 16.1
hereof.
GRM Book of Business
shall have the meaning set forth in
Section 4.1(a)(xiii)
hereof.
Gross Third Party Reinsurance Recoverables
means any amounts actually collected by the
Reinsureds or the Reinsurer (acting on behalf of the Reinsureds) in connection with Third Party
Reinsurance Agreements.
Indemnified Party
shall have the meaning set forth in
Section 17.3
hereof.
Indemnifying Party
shall have the meaning set forth in
Section 17.3
hereof.
3
Legal Proceeding
means any litigation, arbitration, mediation or other legal action.
LPT Reinsurance Agreement
shall have the meaning set forth in the recitals.
Master Transaction Agreement
shall have the meaning set forth in the recitals.
Mixed Account
shall have the meaning set forth in
Section 4.2(a)
hereof.
Nonpublic Personal Information
shall have the meaning set forth in
Section
15.1(b)
hereof.
Party
or
Parties
shall have the meaning set forth in the recitals.
Personal Information
shall have the meaning set forth in
Section 15.1(c)
hereof.
Primary Handler
shall have the meaning set forth is
Section 4.2(a)(i)
hereof.
Quarterly Data File
shall have the meaning set forth in
Section 8.1(d)
.
Reinsureds
shall have the meaning set forth in the preamble.
Reinsureds Actuarial Report
shall have the meaning set forth in
Section 8.1(c)
.
Reinsureds Losses
shall have the meaning set forth in
Section 17.1
hereof.
Reverse Transition Services Agreement
shall have the meaning set forth in
Section
14.3(a)(i)
hereof.
Security Incident
shall have the meaning set forth in
Section 15.5(c)
hereof.
Subcontractor
shall have the meaning set forth in
Section 2.5
hereof.
Third Party Claimant
shall have the meaning set forth in
Section 17.4
hereof.
Third Party Reinsurance Recoverables
means Gross Third Party Reinsurance Recoverables,
less Collection Expenses.
4
ARTICLE II
AUTHORITY; SERVICE STANDARDS
2.1
Appointment
.
(a) Reinsureds hereby appoint Administrator, for the period specified in
Article
XIV
hereof, and Administrator hereby accepts appointment, to provide as an independent
contractor of Reinsureds all such administrative and other services with respect to the LPT
Reinsurance Agreement and with respect to the Reinsured Contracts and the Third Party
Reinsurance Agreements with respect to the Business Covered, including those services set
forth in this Administrative Services Agreement (the
Administrative Services
), all
on the terms, and subject to the limitations, as set forth in this Administrative Services
Agreement.
(b) The Parties shall cooperate fully in the transfer of responsibility for the
performance of the Administrative Services from Reinsureds to Administrator in accordance
with the terms of this Administrative Services Agreement and the Transition Services
Agreement.
(c) In order to assist Administrator in the performance of the Administrative Services
hereunder, Reinsureds shall deliver to Administrator and, if requested by Administrator, to
Resolute Management Inc., an appropriate power of attorney which shall nominate, constitute
and appoint Administrator as their attorney-in-fact with respect to the rights, duties, and
privileges and obligations of Administrator in and to the Reinsured Contracts and Third
Party Reinsurance Agreements as respects the Business Covered, with full power and authority
to act in the name, place and stead of Reinsureds with respect thereto, including the power,
without reservation, to service the Reinsured Contracts and Third Party Reinsurance
Agreements as respects the Business Covered, to adjust, to defend, to settle and to pay A&P
Claims, and to take such other and further action as may be necessary or desirable to effect
the transactions contemplated by the Master Transaction Agreement and this Administrative
Services Agreement, but in all cases only to the extent of the rights and authority granted
to Administrator pursuant to this Administrative Services Agreement and in accordance with
the terms of this Administrative Services Agreement.
2.2
Services Standards
.
Administrator agrees to perform all Administrative Services and is hereby authorized to do so
on behalf of Reinsureds. Administrator shall perform the Administrative Services in a professional
and competent manner and in accordance with (i) the terms of the Reinsured Contracts and the Third
Party Reinsurance Agreements, (ii) to the extent not in conflict with any other provision of this
Section 2.2
, standards of service that conform with Administrators service standards for
administering similar insurance contracts issued by
5
Administrator in its own name, and (iii) Applicable Law, including maintenance by
Administrator of all licenses, authorizations, permits and qualifications from Governmental
Authorities necessary to perform the Administrative Services required by this Administrative
Services Agreement. Administrator shall use its reasonable best efforts to avoid doing anything
which might reasonably be expected to prejudice or bring into disrepute the reputation of
Reinsureds or their respective directors and officers as professional claims managers.
Administrator acknowledges that the performance of all Administrative Services required by this
Administrative Services Agreement in a professional and competent manner is of critical importance
to Reinsureds.
2.3
Compliance; Licensure
.
(a) Administrator shall comply with all Applicable Laws in connection with the
performance of its duties hereunder and shall act consistently in all material respects
with, and not cause Reinsureds to be out of compliance with, the terms of the Reinsured
Contracts and Third Party Reinsurance Agreements. Should Administrator, or any
Subcontractor permitted under
Section 2.5
of this Administrative Services Agreement,
violate any Applicable Law relating to its performance under this Administrative Services
Agreement that results in a regulatory fine, penalty, monetary payment or settlement
(including expense reimbursement) imposed on Reinsureds or its Affiliates, Administrator
shall reimburse the Reinsureds or its Affiliates for such regulatory fine, penalty, monetary
payment or settlement. Administrator shall communicate promptly to Reinsureds upon
knowledge of the non-renewal, lapse, suspension or termination of any licenses required by
Applicable Law in connection with the administration of the Reinsured Contracts and Third
Party Reinsurance Agreements. If, in the ordinary course of operations, Administrator
determines that there exists any material operational concerns or failures with respect to
any of the Reinsured Contracts or Third Party Reinsurance Agreements, Administrator shall
notify Reinsureds and, in consultation with Reinsureds, take all reasonable actions
necessary to bring such Reinsured Contracts and/or Third Party Reinsurance Agreements into
operational compliance.
(b) Administrator shall use commercially reasonable efforts to ensure that it or any of
its Affiliates that is subcontracted to provide any Administrative Service continue to be,
and their respective employees, agents and representatives are, or shall become and remain,
licensed, in whatever capacity is required, including without limitation third-party
administrator licenses, by the Governmental Authorities of all jurisdictions in which
Reinsureds are licensed as of the Effective Date. Administrator shall bear all costs and
expenses relating to its own licensing and the licensing of its employees, agents and
representatives.
2.4
Independent Contractor
.
For all purposes hereof, Administrator shall at all times act as an independent contractor and
Administrator and its Affiliates, on the one hand, and Reinsureds and their Affiliates, on the
other hand, shall not be deemed an employee, representative, joint venture or
6
fiduciary of one another, nor shall this Administrative Services Agreement or the
Administrative Services or any activity or any transaction contemplated hereby be deemed to create
any partnership or joint venture between the Parties or among their Affiliates. Administrator and
its Representatives are not eligible for, nor may they participate in, any employee benefit plans
of Reinsureds or any of their Affiliates. Reinsureds and their Representatives are not eligible
for, nor may they participate in, any employee benefit plans of Administrator or any of its
Affiliates.
2.5
Subcontracting
.
Administrator shall not subcontract the performance of any services that Administrator is to
provide hereunder to another Person (the
Subcontractor
) without the prior written consent
of Reinsureds (which consent shall not be unreasonably withheld);
provided
,
however
, that such
consent will not be required if the applicable Subcontractor is Resolute Management Inc. for such
time as it is an Affiliate of Administrator and;
provided further, however
, that in the case of
Administrative Services relating to other than claims handling, Reinsureds consent will not be
required if (i) the applicable Subcontractor is an Affiliate of Administrator or (ii) the
applicable Subcontractor is to provide those services that it provides to any Reinsureds as of the
date hereof with respect to the Business Covered. Notwithstanding the foregoing, Administrator
shall not permit a Subcontractor (other than Resolute Management Inc. for such time as it is an
Affiliate of Administrator) to access or use the CAS without Reinsureds prior written consent. In
the event of such subcontracting, Administrator shall not be relieved from any of its obligations
or liabilities hereunder, including compliance with Applicable Law and maintenance of proper
licensure, and Administrator shall remain responsible for all obligations or liabilities of such
Subcontractor with respect to the providing of such service or services as if provided by
Administrator;
provided
that if employees of the Subcontractor providing a service meet applicable
licensing requirements, Administrator shall be deemed to be in compliance with said licensure
requirements.
2.6
Monitoring
.
At any time during the term of this Administrative Services Agreement, Reinsureds shall have
the right to appoint a representative to monitor the A&P Business at the facilities maintained for
such A&P Business by the Administrator or its permitted Subcontractors;
provided
,
however
, that any
representative appointed by the Reinsureds pursuant to this
Section 2.6
who is not an
officer, director or employee of the Reinsureds shall not have any conflict of interest with
Administrator;
provided
,
however
, that any such monitoring shall be conducted at the sole expense
of the Reinsureds.
7
ARTICLE III
COMPENSATION
3.1
Compensation
.
(a) Except as otherwise provided in
Section 4.2
, Administrator agrees to
perform the Administrative Services with respect to the Business Covered at its own expense
and without any rights of reimbursement from Reinsureds, in consideration of Reinsureds
having entered into the Master Transaction Agreement, the LPT Reinsurance Agreement and for
other good and valuable consideration, the receipt of which is hereby acknowledged.
(b) At the reasonable request of Administrator, Reinsureds agree to provide the
technology and required databases listed on
Schedule A-1
(the
Claims
Administration System
or
CAS
) to Administrator for a period of one year from
the Effective Date pursuant to the Transition Services Agreement. Administrator agrees to
reimburse the Reinsureds for their actual costs for items or services associated in
supplying Administrator with access to the CAS as provided in
Schedule A-2
.
(c) At the reasonable request of Administrator, Reinsureds shall perform searches for
policy, reinsurance and underwriting files of Reinsureds and shall provide copies and if
necessary testimony with respect to, such policy, reinsurance and underwriting files, to
Administrator. Administrator shall pay (i) Reinsureds reasonable hourly rates for the
performance of such searches for policy, reinsurance and underwriting files, (ii) for all of
the copies made pursuant to this
Section 3.1(c)
and (iii) Reinsureds reasonable
hourly rates for time spent in connection with providing testimony as to these matters.
(d) Reinsureds shall store and maintain closed claim files at their own expense and in
accordance with the Reinsureds then current policy for storing and maintaining such closed
claim files.
ARTICLE IV
ADMINISTRATIVE SERVICES
4.1
Administrative Services
.
(a) In accordance with the terms of this Administrative Services Agreement,
Administrator shall provide and perform all Administrative Services with respect to the
Business Covered, including:
(i) to adjust, handle, agree, settle, pay, compromise or repudiate any claims or any
other liability, outgoing or expense;
8
(ii) to commence, conduct, pursue, settle, appeal or compromise any legal arbitration
or other proceedings whatsoever;
(iii) to collect claim refunds, salvages and reinsurance recoveries;
(iv) to agree to, or exercise any right to, set-off any claims against reinsurance
recoveries or vice versa or to settle any balance of account owing to or from Reinsureds
solely in relation to the Business Covered;
(v) to agree, on behalf of Reinsureds, to fund the obligations of any third party in
connection with any A&P Claim;
(vi) to agree to any without prejudice payment or any other extra-contractual
obligation of or on behalf of Reinsureds;
(vii) to enter into any arrangements which Administrator considers will or may avoid or
reduce any liability;
(viii) to use the name of any Reinsureds in connection with the exercise of any or all
of the powers conferred by this Administrative Services Agreement;
(ix) to exercise any rights of subrogation or other rights of recovery, excluding any
such rights to recover billed Retrospective Premiums;
(x) to enter into discussions or negotiations with any insured or reinsured Person or
their Representatives in connection with the Business Covered;
(xi) to enter into, amend or cancel any arrangements or agreements with third parties,
including in relation to the handling or collection of claims, debts or reinsurance
recoveries;
(xii) to retain and instruct lawyers, claims adjusters or other consultants or experts;
(xiii) to administer the Business Covered that arises from those pool, syndicate,
association or other sources set forth on
Schedule B
hereto (the
GRM Book of
Business
) in accordance with the protocol set forth in
Section 4.3
;
9
(xiv) to coordinate with Reinsureds on the handling of escheat claims; and
(xv) to share information received from Reinsureds, including any information in their
files and records, with other insurers, reinsurers, claimants and other Persons as may be
necessary in the judgment of Administrator to carry out the Administrative Services.
(b) The Administrative Services which will be undertaken by Administrator will include
all matters relating to the administration, settlement and payment of claims arising under
the Business Covered, together with all other matters required to give full effect to the
terms of the LPT Reinsurance Agreement. Reinsureds shall have no authority to settle,
commute or compromise any direct A&P Claim or any reinsurance claim arising from an A&P
Claim, except with the consent of Administrator (which consent shall not be unreasonably
withheld) and except with respect to claims brought by or against a Berkshire Owned Entity.
4.2
Mixed Accounts
.
(a) The Parties acknowledge that an account with Reinsured Contracts may involve a
claim or related claims that are in part or in whole not an Asbestos Claim or a Pollution
Claim. An account with Reinsured Contracts which includes both A&P Claims and Non-A&P
Claims is referred to in this Administrative Services Agreement as a
Mixed
Account
. As used in this
Section 4.2(a)
,
account
shall mean an
insured or cedent under a Reinsured Contract.
(i) For Mixed Accounts, the Parties shall meet as promptly as practicable and determine
whether the administration of a Mixed Account shall be done by a single claim handler (the
Primary Handler
). In the event that the Parties fail to mutually agree to an
account being administered by a Primary Handler, then such Mixed Account shall be
administered pursuant to
Section 4.2(a)(ii)
. The Parties agree that the accounts
set forth on
Schedule C
hereto shall be handled by the designated Primary Handler.
(ii) Subject to
Section 4.2(a)(i)
, in the administration of Mixed Accounts, (A)
Reinsureds shall administer such portions of the Mixed Account that relate to Non-A&P
Claims, and (B) Administrator shall administer such portions of the Mixed Account that
relate to A&P Claims. Administrator and Reinsureds shall establish and maintain an open
channel of communication with each other with respect to the claims contained within each
Mixed Account.
10
(b) For Mixed Accounts administered by a Primary Handler, the Primary Handler shall
review, analyze, process and collect all associated inward and outward reinsurance as well
as perform all other Administrative Services necessary to adjust the claim and/or receive
Third Party Reinsurance Recoverables or Other Recoveries, including distributions from any
insolvent estate and any reinsurer for all agreed A&P Claims and Non-A&P Claims on the Mixed
Account. Administrator and Reinsureds shall establish and maintain an open channel of
communication with each other with respect to the claims contained within each Mixed
Account, and shall cooperate with each other to resolve all such claims in a timely and
efficient manner. The Primary Handler shall not have the authority to enter into any
agreement to pay, in the aggregate, more than $1,000,000 in any Ultimate Net Loss allocable
to the other Party without the prior consent of the other Party, which consent shall not be
unreasonably delayed or withheld.
(c) With respect to costs associated with administering a Mixed Account, the Primary
Handler shall be reimbursed by the other Party for Direct Costs. All such Direct Costs
shall be billed by the Primary Handler, to the other Party, on a quarterly basis. Upon
receipt of a billing statement from the Primary Handler, which sets forth the Direct Costs,
the other Party shall reimburse the Primary Handler within thirty (30) calendar days.
Direct Costs
as referenced herein refers to the salary and benefits of the claims
handler (which benefits will be calculated at thirty percent (30%) of salary) for the actual
hours devoted by that claims handler to the Mixed Account.
(d) To the extent practicable, all payments, in a Mixed Account claim, for indemnity
for bodily injury or property damage for an individual plaintiff shall be allocated among
the Parties based upon the actual cause of the injury or damage for such plaintiff,
identified at the time of settlement or judgment. If information as to the actual cause of
injury or damage is unclear or unavailable, then indemnity payments shall be allocated among
the Parties based upon the best available information within one year after the settlement
or judgment as to any claims in such account. Such indemnity payments will be billed as
they are incurred. Upon receipt of a billing statement from the Primary Handler for such
indemnity payments, the other Party shall reimburse the Primary Handler within thirty (30)
calendar days without prejudice to either Partys right to adjust any allocation within one
year of the settlement or judgment.
(e) In the event that Allocated Loss Adjustment Expenses or Declaratory Judgment
Expenses are incurred for Mixed Accounts, and allocation to specific claims is not
practicable, then such expense payments shall be provisionally allocated among the Parties,
on an equitable basis, in accordance with each Partys respective financial exposure to the
claims in question. Such expense payments will be billed as they are incurred and shall be
without prejudice to either Partys right to adjust any allocation in accordance with the
manner indemnity payments have been allocated up to one year after settlement or judgment as
to any claims in the account. Upon receipt of a billing
11
statement from the Primary Handler for such expense payments, the other Party shall
reimburse the Primary Handler within thirty (30) calendar days.
(f) In the event that a claim arises subject to
Section 4.2(d)
and
Section
4.2(e)
, above, the Parties shall use reasonable best efforts to obtain the data and
information required to establish accurate allocations among the Parties. Notwithstanding
the foregoing, prior the Closing Date, the Parties may establish mutually agreed upon
protocols for certain accounts and such protocols may set forth alternative allocations
arrangements with respect to each such account.
4.3
GRM Book of Business
.
In the administration of the GRM Book of Business, the Parties shall allocate indemnity
payments, Allocated Loss Adjustment Expenses and Declaratory Judgment Expenses as follows:
(a) In the event that the manager of a GRM Book of Business delivers a bill that
allocates as between A&P Claims and Non-A&P Claims (an
Allocated Bill
), the
Parties shall defer to the allocations set forth in the Allocated Bill.
(b) In the event that no Allocated Bill pursuant to
Section 4.3(a)
, above, is
received, the Administrator shall use reasonable best efforts to obtain, from the manager of
a GRM Book of Business, data and information required to establish an equitable allocation
between A&P Claims and Non-A&P Claims among the Parties.
(c) In the event that (i) no Allocated Bill pursuant to
Section 4.3(a)
, above,
is received, and (ii) reasonably satisfactory data cannot be obtained pursuant to
Section 4.3(b)
, above, the allocation between A&P Claims and Non-A&P Claims shall be
in proportion to the manner in which the GRM Book of Business actuarial report has estimated
its ultimate liability for A&P Claims and Non-A&P Claims.
(d) In the event that information required to make an allocation pursuant to this
Section 4.3
is not forthcoming within ninety (90) calendar days of receipt of a
bill, such allocation shall be made on an interim and without prejudice basis in proportion
to the prior allocation for such GRM Book of Business exposure.
12
4.4
Extracontractual Damages
.
(a) Extracontractual Damages covered under the LPT Reinsurance Agreement shall be paid
by Administrator and any such payments shall be applied against the LPT Limit.
(b) For the avoidance of doubt, notwithstanding anything to the contrary in this
Administrative Services Agreement, any liability of Reinsureds or a CNA Insurer for the
intentional and malicious acts or omissions of its employees, officers or directors (as so
determined by final adjudication by any Order, writ, injunction, directive, judgment or
decree of a court of competent jurisdiction applicable to the Parties) shall be paid by such
Reinsureds or CNA Insurer and any such payment shall not affect the LPT Limit.
(c) For the avoidance of doubt, notwithstanding anything to the contrary in this
Administrative Services Agreement, any liability of Administrator as a result of its
intentional and malicious acts or omissions of its employees, officers or directors (as so
determined by final adjudication by any Order, writ, injunction, directive, judgment or
decree of a court of competent jurisdiction applicable to the Parties) shall be paid by
Administrator;
provided, however
, any such payment shall not affect the LPT Limit.
4.5
Conflict of Interest
.
(a) Subject to
Section 4.5(b)
below, whenever a claim arises: (i) by, or from,
Reinsureds against (A) Berkshire or any insurer, reinsurer or other company that is a direct
or indirect Subsidiary of Berkshire (each, a
Berkshire Owned Entity
), or (B) a
Berkshire Owned Entity or any insurer, reinsurer or other company that is one hundred
percent reinsured by a direct or indirect Subsidiary of Berkshire (each, a
Berkshire
Controlled Entity
), or (C) that involve Administrator or another Berkshire Controlled
Entity as an administrator for a third party, or (ii) against Reinsureds by, or from, (A) a
Berkshire Owned Entity, or (B) a Berkshire Controlled Entity, or (C) that involve
Administrator or another Berkshire Controlled Entity as an administrator for a third party,
Administrator agrees that it will handle such claims under this Administrative Services
Agreement in good faith and with due regard for the singular interests of Reinsureds. At
Reinsureds discretion, Reinsureds may direct Administrator in the administration of any
claim (i) by, or from, a Berkshire Owned Entity against Reinsureds or (ii) against a
Berkshire Owned Entity by, or from, Reinsureds.
(b) In the event of the occurrence of a conflict of interest, pursuant to this
Section 4.5
, involving (i) a Berkshire Controlled Entity, (ii) any claim by, or
from, a Berkshire Owned Entity against Reinsureds, or (iii) any claim against a Berkshire
Owned Entity by, or from, Reinsureds, Administrator shall obtain the Reinsureds prior
approval before committing to a resolution of such conflicted matter, which such approval
shall not be unreasonably delayed or withheld. For the avoidance of doubt, all liabilities,
fees, costs and expenses associated with the administration of such Third Party Reinsurance
Agreements and any payments and recovery under such Third Party Reinsurance Agreements shall
be covered by the LPT Reinsurance Agreement.
13
ARTICLE V
CLAIMS HANDLING SERVICES
5.1
Claims Handling Services
.
The Administrative Services shall include, as necessary and appropriate, all functions
relating to the handling of A&P Claims, including those functions set forth in this
Section
5.1
.
(a) Administrator shall acknowledge, consider, review, investigate, deny, settle, pay
or otherwise dispose of each A&P Claim. Administrator shall pay, using its own funds, A&P
Claims and associated expenses as Ultimate Net Loss under the LPT Reinsurance Agreement and
subject to the terms of the LPT Reinsurance Agreement.
(b) Without limiting paragraph (a) of this
Section 5.1
, Administrator shall:
(i) establish, maintain and organize A&P Claim files and maintain and organize other
A&P Claims-related records;
(ii) review all A&P Claims and determine whether the claimant is eligible for payment
and if so, the nature and extent of such payment;
(iii) maintain trained claims personnel;
(iv) maintain a complaint log with respect to the Reinsured Contracts in accordance
with applicable requirements of Governmental Authorities and provide a copy of such log upon
Reinsureds request;
(v) gather all information necessary for Reinsureds to comply with regulatory reporting
requirements related to A&P Claims detail, including Medicare Set Aside reporting;
(vi) respond promptly to all written or oral A&P Claims-related communications that
Administrator reasonably believes to require a response; and
14
(vii) in accordance with
Articles VII
and
XI
hereof, respond to, or
assist Reinsureds in responding to, regulatory and legal matters to the extent such matters
relate to A&P Claims.
ARTICLE VI
ADMINISTRATION OF THIRD PARTY REINSURANCE AGREEMENTS
6.1
Third Party Reinsurance Administration
.
The Administrative Services provided by Administrator with respect to the Third Party
Reinsurance Agreements with respect to the Business Covered shall include the following:
(a) administer and collect, on behalf of and in the name of the applicable Reinsureds,
Third Party Reinsurance Recoverables and Other Recoveries due in respect of the Reinsured
Liabilities in accordance with the contractual terms of the applicable Third Party
Reinsurance Agreements and Reinsured Contracts in a commercially reasonable manner
consistent;
(b) cede all A&P Claims in the first instance to the applicable Third Party Reinsurance
Agreements before ceding such claims to the LPT Reinsurance Agreement;
provided
,
however
,
that Administrator may not cede any such claims to Third Party Reinsurance Agreements whose
aggregate limits have been exhausted;
(c) provide all necessary litigation functions with respect to the Third Party
Reinsurance Agreements;
(d) initiate Legal Proceedings in the name of the applicable Reinsureds in those
instances where such action is necessary in order for the applicable Reinsureds to enforce
or protect its rights under the Third Party Reinsurance Agreements in respect of the
Business Covered;
(e) consult with Reinsureds in the filing of proofs of claim in any insolvent estate or
scheme of arrangement;
(f) comply with any applicable notice requirements under the Third Party Reinsurance
Agreements; and
15
(g) perform other certain administrative functions relating to the Third Party
Reinsurance Agreements with respect to the Business Covered as agreed to the Parties from
time to time.
In determining the amount of the Third Party Reinsurance Recoverables, there shall first be
deducted from any amount recovered the out-of-pocket expenses incurred in effectuating the recovery
(including, without limitation, all court, arbitration, mediation or other dispute resolution
costs, attorneys fees and expenses, but excluding overhead, salaries and expenses of officers and
employees of Reinsureds and similar internal costs), except to the extent otherwise paid or
reimbursed by Reinsurers hereunder.
6.2
Collateral
.
With prior notice to the applicable Reinsureds, Administrator shall have the authority to
secure any letter of credit or other funds held as appropriate under third party contracts and draw
upon any letter of credit, trust, funds withheld, offset or take any action in the name of
Reinsureds in relation to any collateral security maintained in the name, or on behalf, of such
Reinsureds under the Third Party Reinsurance Agreements.
6.3
Commutations
.
Notwithstanding any other provision of this Administrative Services Agreement to the contrary,
no Party shall have authority to commute any Third Party Reinsurance Agreements which relates to
the Business Covered without the written consent of the other Party.
6.4
Collection of Third Party Reinsurance Recoverables
.
Administrator shall have the authority to decide not to collect Third Party Reinsurance
Recoverables solely related to the Business Covered that Administrator deems uncollectible;
provided
,
however
, that Administrator shall not decide to forego the collection of any Third Party
Reinsurance Recoverable that involves a Mixed Account claim that it is administering without the
prior written consent of Reinsureds. Reinsureds shall not decide to forgo the collection of any
Third Party Reinsurance Recoverable that involves a Mixed Account claim that it is administering
without the prior written consent of the Administrator.
6.5
Third Party Reinsurance Allocation Agreement
.
The Parties acknowledge that amounts recoverable under the Third Party Reinsurance Agreements
will be allocable to Administrator for the Business Covered and to the Reinsureds for all other
claims in accordance with the terms of the Third Party Reinsurance Allocation Agreement.
16
ARTICLE VII
REGULATORY COMPLIANCE AND REPORTING
7.1
Regulatory Filings and Examinations
.
(a) Commencing on the Effective Date, Administrator shall take all necessary action
within its control so that Reinsureds, solely with respect to the Business Covered, satisfy
all current and future informational reporting and any other requirements imposed by any
Governmental Authority. Without limiting the foregoing, Administrator shall timely prepare
such reports and summaries, including statistical summaries, as are necessary to satisfy any
requirements imposed by a Governmental Authority upon Reinsureds with respect to the
Business Covered. In addition, Administrator, upon Reinsureds reasonable request, shall
promptly provide to such Reinsureds copies of all existing records relating to the Reinsured
Contracts and Third Party Reinsurance Agreements (including, with respect to records
maintained in machine readable form, hard copies) that are necessary to satisfy such
requirements.
(b) Administrator shall reasonably assist Reinsureds and cooperate with Reinsureds in
doing all things necessary, proper or advisable in connection with any and all market
conduct or other examinations by Governmental Authorities relating to the Business Covered.
(c) Any reports or other materials required to be prepared by Administrator under this
Section 7.1
shall be prepared on a timely basis in order for Reinsureds to comply
with any filing deadlines required by contract or by Reinsureds internal procedures and
policies, in each case to the extent previously provided to Administrator with sufficient
advance notice thereof and reasonably consistent with Administrators own internal systems
and procedures, or by Applicable Law. All such reports shall include such information as
may reasonably be required by Reinsureds, as applicable, and shall be provided in a form,
electronic or otherwise, as is reasonably requested by Reinsureds, as applicable.
ARTICLE VIII
OTHER REPORTING OBLIGATIONS
8.1
Financial Reporting Obligations
.
Administrator shall assume the reporting and accounting obligations set forth in this
Section 8.1
.
17
(a) On an annual basis, Administrator shall prepare, or have prepared, an actuarial
analysis of the Reserves related to the Business Covered on a gross, ceded and net basis
prior to the application of the LPT Reinsurance Agreement (
Administrators Actuarial
Report
). The Administrators Actuarial Report shall include both (i) an analysis of
gross, ceded and net Reserves prior to the application of the LPT Reinsurance Agreement,
prepared by a qualified actuary with a Fellow of the Casualty Actuarial Society designation
in accordance with all applicable actuarial standards, and (ii) the Administrators
documentation and rationale supporting how the actuarys analysis was used in making
decisions pertaining to estimates of Ultimate Net Losses for Business Covered.
Administrator shall provide to Reinsureds a copy of the Administrators Actuarial Report no
later than November 1st of each year.
(b) On an annual basis, Administrator shall provide to Reinsureds a current estimate of
the ultimate exposure for Loss and expenses (which estimate shall include paid loss, paid
Allocated Loss Adjustment Expenses, paid Declaratory Judgment Expense, loss reserves,
Allocated Loss Adjustment Expenses reserves and Declaratory Judgment Expense reserves)
related to the Business Covered, by account, on a gross, ceded and net basis prior to the
application of the LPT Reinsurance Agreement.
(c) Administrator shall allow Reinsureds and their Representatives access to
Administrators actuarial and claims personnel, documentation, systems and records to the
extent required by Reinsureds in order to complete their review of the Administrators
Actuarial Report and complete the Reinsureds actuarial report (the
Reinsureds
Actuarial Report
) and statutory actuarial opinion.
(d) Subject to an early processing systems cut-off date that is mutually agreed upon by
the Parties, within two (2) Business Days after the end of each quarter, Administrator shall
deliver to Reinsureds a quarterly data file (each a
Quarterly Data File
),
substantially in the form set forth in
Schedule D
hereto, as required for financial
reporting and other purposes, including requisite coding necessary for all statutory
reporting obligations; it being understood that the initial Quarterly Data File shall be for
the period from the Effective Date to the last day of the quarter in which this
Administrative Services Agreement is executed.
(e) In addition to the reports described in paragraphs (a) through (d) of this
Section 8.1
, the Parties agree that Administrator shall provide Reinsureds
information related to the Business Covered under the Reinsured Contracts and/or Third Party
Reinsurance Agreements and copies of any other reports that are produced by Administrator.
(f) Solely for the purposes of determining (i) the Required Amount in a Reinsurance
Credit Event, (ii) the Security Amount in a Collateral Triggering Event or (iii) if the
Administrator may exercise its withdrawal rights pursuant to Section 6.2(c) of
18
the Collateral Trust Agreement, Administrator may request, from time to time during the
term of this Administrative Services Agreement, a copy of the Reinsureds Actuarial Report
for the purpose of reviewing the Reinsureds calculation of Reserves. Upon receipt of such
request, Reinsureds shall provide a copy of the most recent available Reinsureds Actuarial
Report as promptly as possible to Administrator. If Administrator objects to the
Reinsureds calculation of Reserves for the purposes set forth in this
Section
8.1(f)(i)-(iii)
, above, the Parties shall retain either Milliman Inc. or Towers Watson
or, if both firms refuse to act in such capacity, such other nationally recognized
independent actuarial firm as may be agreed by the Parties, to conduct a review of the
calculation of the Reserves set forth in such Reinsureds Actuarial report, and to prepare a
report setting forth its findings and conclusions on such matter. The fees, costs and
expenses of retaining such an actuarial firm shall be allocated by the actuarial firm
between the Parties in accordance with the actuarial firms judgment as to the relative
merits of the Parties proposals in respect of the disputed items.
8.2
Change in Status
.
(a) Administrator shall (a) notify Reinsureds in writing promptly following (i) the
public announcement of entry into any agreement that would result in a majority of the
capital stock of Administrator no longer being owned or controlled, directly or indirectly,
by Berkshire (or its successor) or (ii) the adoption of any plan to liquidate, merge or
dissolve Administrator and (b) obtain the prior written consent of Reinsureds prior to the
sale or transfer of assets of Administrator or any of its Affiliates that would render
Administrator unable to perform its obligations under this Administrative Services
Agreement. Twenty (20) calendar days prior to the closing of any transaction contemplated
by sub-clause (a) in the preceding sentence, the successor or survivor of the transaction
shall reaffirm in writing its obligations under this Administrative Services Agreement in
writing to Reinsureds.
(b) Administrator shall notify Reinsureds in writing prior to any material change to
its claims handling personnel or operations.
8.3
Administrator Controls
.
Administrator represents that during the term of this Administrative Services Agreement it
will continue to maintain its accounting and oversight controls with respect to its operations
consistent with the requirements under the Sarbanes-Oxley Act of 2002 (as that statute may be
amended from time to time) and with past practice, to the extent consistent with Applicable Law and
taking into consideration the wind-down of the Business Covered. Administrator shall provide
Reinsureds with documentation supporting such compliance upon the request of Reinsureds.
19
ARTICLE IX
BOOKS AND RECORDS
9.1
Transfer and Ownership of Books and Records
.
In accordance with Section 5.7 of the Master Transaction Agreement, prior to Closing, the
Parties shall in good faith agree upon a protocol to (a) transfer to Administrator the Books and
Records following the Closing and/or (b) provide Administrator with reasonable access to the Books
and Records during normal business hours following the Closing. Notwithstanding the foregoing,
Reinsureds shall retain legal ownership of such Books and Records and shall be entitled to retain
one or more copies and/or originals of such Books and Records. With respect to any Books and
Records which are archived, the Parties agree that Reinsureds shall not be required to transfer
such archived Books and Records to Administrator at the Closing, but instead shall provide
Administrator with reasonable access to such archived Books and Records. At any time following the
Closing, Reinsureds shall transfer all or a portion of the archived Books and Records to
Administrator upon Administrators reasonable request.
9.2
Maintenance of Books and Records
.
Administrator shall maintain (including, backing up its computer files, and maintaining
facilities and procedures for safekeeping and retaining documents) Books and Records (which term,
for purposes of this Administrative Services Agreement if the context requires, shall include (i)
any such material developed after the date hereof by a Party or its Affiliates and (ii) any
archived Books and Records) of all transactions pertaining to the Business Covered in accordance
with the record retention requirements in effect from time to time for Administrators business not
covered by this Administrative Services Agreement.
9.3
Access to Books Records
.
(a) Administrator and Reinsureds shall each make the Books and Records (which term, for
purposes of this Administrative Services Agreement if the context requires, shall include
(i) any such material developed after the date hereof by a Party or its Affiliates and (ii)
any archived Books and Records) in its possession or under its control reasonably available
to Reinsureds or Administrator, as applicable, or their Representatives during normal office
hours for such auditing or any other purposes related to the LPT Reinsurance Agreement or
this Administrative Services Agreement as Reinsureds or Administrator, as applicable, may
require. Reinsureds or Administrator, as applicable, shall, at their own expense, be
entitled to make copies of the Books and Records for these purposes. Administrator will
provide all needed information, including access to claim files and personnel, for the
purpose of periodically updating actuarial studies of gross liabilities of the Business
Covered. This obligation shall survive the
20
expiration of this Administrative Services Agreement and shall continue for so long as
Administrator may have any liability arising under this Administrative Services Agreement or
the LPT Reinsurance Agreement.
(b) Administrator shall make the Books and Records and its personnel reasonably
available at any such location and manner as may be required by the terms of any Third Party
Reinsurance Agreement.
(c) The Books and Records shall at all reasonable times be open for inspection by
Administrator (where such Books and Records are being kept by Reinsureds) and by Reinsureds
(where such Books and Records are being kept by Administrator) and (in each case) their
respective Representatives during normal business hours and on reasonable notice, for such
auditing or other purposes as Administrator or Reinsureds may require. Administrator shall
permit Reinsureds and their Representatives, and Reinsureds shall permit Administrator and
its Representatives, to make copies of such Books and Records. This obligation shall
survive the expiration of this Administrative Services Agreement and continue for so long as
Administrator may have any liability arising under this Administrative Services Agreement or
the LPT Reinsurance Agreement.
(d) Upon Administrators reasonable request, Reinsureds shall transfer to Administrator
any archived Books and Records that Administrator requests pertaining to the Business
Covered.
(e) Administrator shall not, and shall cause its Affiliates to not, dispose of, alter
or destroy any Books and Records related to A&P Claims or other relevant materials other
than in accordance with Administrators books and records retention policies as may be in
effect from time to time, but in no event will Administrator dispose of, alter or destroy,
or cause or permit any of its Affiliates to dispose of, alter or destroy, any such Books and
Records or other relevant materials (i) prior to the seventh anniversary of the Closing and
(ii) without providing Reinsureds with advance written notice and the opportunity to take
possession of such Books and Records.
(f) Notwithstanding any other provision of this
Section 9.3
, a Party shall not
be obligated to provide such access to any Books and Records, employees or information if
such Party determines, in its reasonable judgment, that doing so would violate Applicable
Law or a contract, agreement or obligation of confidentiality owing to a third party;
provided
,
however
, that the Parties requesting access shall have the right to require such
other Party to use its commercially reasonable efforts to take steps in order to provide
such access without causing such violations.
21
ARTICLE X
INABILITY TO PERFORM SERVICES; ERRORS
10.1
Capacity
.
(a) Administrator shall at all times maintain all necessary licenses, authorizations,
permits and qualifications from Governmental Authorities under Applicable Laws that
Administrator is required to maintain in order to perform the Administrative Services in the
manner required by this Administrative Services Agreement.
(b) Subject to
Section 2.5
of this Administrative Services Agreement and to the
terms of the Transition Services Agreement, Administrator shall at all times maintain
sufficient facilities and trained personnel of the kind necessary to perform its obligations
under this Administrative Services Agreement in accordance with the performance standards
set forth herein.
(c) Administrator may carry out its obligations under this
Article X
through
Resolute Management Inc.
10.2
Inability to Perform Services
.
In the event that Administrator shall be unable to perform normal and routine services as
required by this Administrative Services Agreement for any reason for a period that can reasonably
be expected to exceed thirty (30) calendar days, Administrator shall provide notice to Reinsureds
of its inability to perform the services and shall cooperate with Reinsureds in obtaining an
alternative means of providing such services. Administrator will be responsible for all costs
incurred in restoring services except in cases where such inability to provide services results
solely from Reinsureds failure to provide the Claims Administration System in accordance with the
terms of the Transition Services Agreement, in which case Reinsureds shall be responsible for all
costs reasonably incurred by Administrator in restoring services.
10.3
Errors
.
Administrator shall, at its own expense, use commercially reasonable efforts to correct any
errors in Administrative Services caused by it as soon as practicable after discovering such error
or receiving notice thereof from Reinsureds or other Person.
22
ARTICLE XI
LEGAL ACTIONS
11.1
Regulatory Proceedings
.
(a) If Reinsureds or Administrator receives notice of, or otherwise becomes aware of,
any regulatory investigation, examination or proceeding or other significant inquiry
relating to the Reinsured Contracts and Third Party Reinsurance Agreements, Reinsureds (to
the extent pertaining to the Business Covered) or Administrator, as applicable, shall
promptly notify the other Party. Unless Reinsureds choose to delegate responsibility to
Administrator with respect to a specific matter, Reinsureds shall respond to and resolve all
regulatory matters and regulatory investigations, examinations, inquiries and proceedings
relating to the Business Covered with the full assistance and cooperation of Administrator.
(b) Notwithstanding anything to the contrary contained in this Administrative Services
Agreement, neither Reinsureds nor Administrator shall have the authority to institute,
prosecute or maintain any regulatory proceedings on behalf of the other Party without the
prior written consent of such other Party.
11.2
Notification Requirements
.
(a) If Reinsureds or Administrator receives notice of any litigation, arbitration,
declaratory judgment or other legal proceeding against a Party to this Administrative
Services Agreement that has been instituted either under, arising out of, or relating to any
Reinsured Contract or Third Party Reinsurance Agreement in respect to the Business Covered,
Reinsureds or Administrator, as applicable, shall promptly notify the other Party.
(b) Administrator shall promptly notify Reinsureds in writing of any potential loss
from an A&P Claim, set of interrelated A&P Claims, or a single account, which is reasonably
likely to involve a loss, on a gross of third party ceded reinsurance basis, in the amount
of $10,000,000 or greater. Administrator shall provide Reinsureds with quarterly progress
reports regarding such A&P Claims or accounts.
(c) At least ten (10) calendar days prior to making any third-party reinsurance cession
of over $10,000,000, Administrator shall provide a draft copy of the billing to Reinsureds.
(d) Administrator shall promptly notify Reinsureds in writing whenever a Berkshire
Controlled Entity is an opposing party in any litigation, arbitration, declaratory
23
judgment or other legal proceeding against Reinsureds that has been instituted either
under, arising out of, or relating to any Reinsured Contract or Third Party Reinsurance
Agreement in respect to the Business Covered.
(e) Administrator shall promptly notify Reinsureds in writing of any events that
constitute a Reinsurance Credit Event.
11.3
Right to Associate
.
Administrator shall prosecute or defend, at its own expense pursuant to the terms of this
Administrative Services Agreement and the LPT Reinsurance Agreement and in the name of the
applicable Reinsureds when necessary, any litigation, arbitration or other legal proceeding brought
on any Reinsured Contract or Third Party Reinsurance Agreement with respect to the Business
Covered. Administrator, when so requested, shall afford Reinsureds an opportunity to be associated
with Administrator, at the expense of Reinsureds, in the defense of any claim, suit or proceeding
involving the Business Covered and the Parties shall cooperate in every respect in the prosecution
or defense of such claim, suit or proceeding. Any recovery for the benefit of Reinsureds shall be
first used to reimburse Administrator for its expenses in connection with the proceedings and the
remainder used as a recovery under the terms of the LPT Reinsurance Agreement.
ARTICLE XII
BANK ACCOUNTS
12.1
Bank Accounts
.
(a) As soon as reasonably practicable after the Effective Date, Administrator shall
open and maintain accounts into and out of which all payments due from Administrator under
the LPT Reinsurance Agreement shall be paid and all recoverables due Administrator under the
LPT Reinsurance Agreement shall be received (the
Administrative Accounts
).
(b) Administrator may open and maintain such bank accounts in its own name as it may
require in relation to the provision of the Administrative Services, and Reinsureds hereby
authorize all payments to be made from and all recoveries paid to such accounts in
connection with the provision of the Administrative Services.
(c) Reinsureds and Administrator shall cooperate in procuring that, as soon as
reasonably practicable, following the Effective Date, changes to the instruction and finance
systems are made so as to enable payments and recoveries to be paid into and from the
Administrative Accounts. All costs of changes will be paid by Administrator.
24
To the extent that payments and recoveries are made after the Effective Date from
accounts held by Reinsureds, Reinsureds and Administrator shall cooperate in setting up
reimbursement procedures for payment of amounts due between the Administrator and
Reinsureds.
ARTICLE XIII
COOPERATION
13.1
Cooperation
.
The Parties shall cooperate in a commercially reasonable manner in order that the duties
assumed by Administrator will be effectively, efficiently and promptly discharged, and will not
take any actions which would frustrate the intent of the transactions contemplated by this
Administrative Services Agreement, the Master Transition Agreement, the LPT Reinsurance Agreement
or any other Ancillary Agreements. Each Party shall, at all reasonable times under the
circumstances, make available to the other Party properly authorized personnel for the purpose of
consultation and decision.
13.2
Relationship Management
.
In the interest of effective effectuation of this Administrative Services Agreement, the
Parties will seek in good faith to have primary communications regarding documents, records, and
request for information under this Administrative Services Agreement be made through the following
authorized Representatives:
For Administrator:
Brian G. Snover
Vice President and General Counsel
Berkshire Hathaway Reinsurance Division
100 First Stamford Place
Stamford, CT 06902
Fax: (203) 363-5221
For Reinsureds:
Michael P. Warnick
Senior Vice President and Deputy General Counsel
CNA Financial Corporation
333 S. Wabash Avenue
Chicago, IL 60604
Fax: (312) 755-2479
25
Any Party may change its Representative pursuant to this
Section 13.2
on fifteen (15)
calendar days advance notice in writing to the other Parties.
ARTICLE XIV
DURATION; TERMINATION
14.1
Duration
.
This Administrative Services Agreement shall commence on the date of its execution and shall
continue until it is terminated under
Section 14.2
.
14.2
Termination
.
(a) Subject to the provisions regarding survivability set forth in
Section 14.4
hereof, this Administrative Services Agreement shall terminate:
(i) at any time upon the mutual written consent of the Parties, which writing shall
state the effective date of termination, and consistent with
Section 14.3
hereof,
shall set forth in reasonable detail the procedure for transferring the Administrative
Services to Reinsureds or their designee;
(ii) automatically upon termination of Administrators liability under the LPT
Reinsurance Agreement. Under all circumstances Administrators liability under this
Administrative Services Agreement shall cease at the close of the Business Day on which
Administrator has paid an Ultimate Net Loss equal to the LPT Limit;
(iii) at the option of Reinsureds, upon written notice to Administrator, if
Administrator becomes subject to dissolution, liquidation, conservation, rehabilitation,
bankruptcy, statutory reorganization, receivership, compulsory composition, or similar
proceedings in any jurisdiction, or if creditors of Administrator take over its management,
or if Administrator otherwise enters into any arrangement with creditors, or makes an
assignment for the benefit of creditors, or if any significant part of Administrators
undertakings or property is impounded or confiscated by action of any Governmental
Authority.
(b) In the event that this Administrative Services Agreement is terminated pursuant to
Section 14.2(a)(iii)
, Reinsureds shall promptly select a third-party
26
administrator reasonably acceptable to Administrator to perform the Administrative
Services.
(c) Following any termination of this Administrative Services Agreement by Reinsureds
pursuant to
Section 14.2(a)(iii)
, Administrator shall reimburse Reinsureds for any
reasonable out-of-pocket costs arising as a result of such termination, including, without
limitation, (i) the cost of transitioning the Administrative Services to a substitute
provider of Reinsureds, (ii) any fees paid to any such substitute provider and (iii) any
reasonable costs incurred by Reinsureds with respect to the Administrative Services after
termination of this Administrative Services Agreement subject to the LPT Reinsurance
Agreement continuing to be unexhausted.
14.3
Certain Actions Related to Termination
.
(a) In the event that (x) either of the Parties reasonably determines that the
aggregate Ultimate Net Loss incurred by Administrator under the LPT Reinsurance Agreement on
a paid basis is reduced to one billion dollars ($1,000,000,000) or (y) any notice of
termination is given under either the LPT Reinsurance Agreement or this Administrative
Services Agreement, then, upon the request of Reinsureds:
(i) Reinsureds and Administrator shall negotiate in good faith a services agreement
(the
Reverse Transition Services Agreement
) containing terms and conditions
mutually acceptable to the Parties, whereby Administrator and its Affiliates will provide,
at actual cost (exclusive of any overhead allocation), all transition or administrative
services reasonably necessary or appropriate in order to transition the administration of
the A&P Business to Reinsureds, which services will be provided for a period of not less
than one (1) year following the termination or expiration of this Administrative Services
Agreement.
(ii) Administrator shall provide to Reinsureds a true and complete list of each
employee of Administrator or its Affiliates who is primarily dedicated to the administration
of the A&P Business, including each such employees classification, hire date, department
function, office location, current annual salary and most recent annual bonus target.
Administrator shall provide updates to such list from time to time upon the reasonable
request of Reinsureds, and shall reasonably cooperate with and assist Reinsureds in
connection with making offers of employment to any such employees for employment commencing
on or after the termination or expiration of this Administrative Services Agreement.
(iii) To ensure an effective transition and transfer of the administration of the A&P
Business, Administrator shall, and shall cause its Affiliates and their respective
Representatives to, fully cooperate and work with Reinsureds in transition planning and
implementation. Reinsureds shall reimburse Administrator for any out of
27
pocket expenses incurred by Administrator or its Affiliates in connection with any
actions undertaken by Administrator at the request of Reinsureds in transitioning the
administration of the A&P Business to Reinsureds.
(b) Unless otherwise agreed to by the Parties, upon the termination or expiration of
this Administrative Services Agreement, Administrator shall, and shall cause each of its
Affiliates, to, promptly transfer to Reinsureds, or their designee, originals or copies of
all Books and Records in the possession or control of such Persons.
(c) Unless otherwise agreed to in writing by the Parties, from and after the
termination or expiration of this Administrative Services Agreement, Administrator shall,
and shall cause its Affiliates and their respective Representatives to, fully cooperate with
Reinsureds in connection with transitioning the administration of the A&P Business to
Reinsureds or their designee, including in connection with any regulatory or tax audits or
proceedings relating to any period during which Administrator was providing services
pursuant to this Administrative Services Agreement.
(d) If requested by Reinsureds pursuant to
Section 14.3(b)
, upon the
termination or expiration of this Administrative Services Agreement, Administrator and
Reinsureds shall execute and deliver the Reverse Transition Services Agreement.
14.4
Survival
.
The provisions of
Section 9.3
, paragraphs (b) and (c) of
Section 14.2
,
Section 14.3
,
Section 14.4
,
Article XV
,
Article XVII
, and
Sections 19.1
,
19.7
,
19.10
and
19.12
shall survive the termination
of this Administrative Services Agreement.
ARTICLE XV
CONFIDENTIALITY; PRIVACY REQUIREMENTS
15.1
Definitions
.
The following terms, when used in this Administrative Services Agreement, shall have the
meanings set forth in this Section:
(a) As used herein,
Confidential Information
means any information of
Administrator or Reinsureds that is not generally known to the public and at the time of
disclosure is identified, or would reasonably be understood by the receiving Party to be
proprietary or confidential, whether or not so marked and whether disclosed in oral,
written, visual, electronic or other form, and to which the receiving Party (or its
contractors or agents) has access to in connection with this Administrative Services
28
Agreement. For purposes of clarification, Confidential Information includes: (i)
business plans, strategies, forecasts, projects and analyses; (ii) financial information and
fee structures; (iii) business processes, methods and models; (iv) employee and supplier
information; (v) product and service specifications; (vi) manufacturing, purchasing,
logistics, sales and marketing information; (vii) methods and training materials; and (viii)
the terms and conditions of this Administrative Services Agreement, and in the case of
Reinsureds, also includes (A) information about or owned by Reinsureds customers, insureds,
or claimants; (B) information treated or defined as confidential under the Reinsureds
standards; (C) Reinsureds data and Personal Information; and (D) the CAS.
(b)
Nonpublic Personal Information
is as defined in Title V of the Financial
Modernization Act (the Gramm-Leach-Bliley Act) (15 U.S.C.6801 et seq.) and related
Applicable Law. Nonpublic Personal Information is individually identifiable financial and
medical or health-related information, including application, policy, or claim information;
social security numbers, personal financial information, health information; medical
records; and names or lists of individuals derived from nonpublic personally identifiable
information becoming known by Administrator through the performance of its obligations under
this Administrative Services Agreement.
(c)
Personal Information
shall mean any information about an individual, in
whatever form received or created, whether prepared by Administrator, Reinsureds or
otherwise, that contains or otherwise reflects information that identifies or about which
there is a reasonable basis to believe can be used to identify the individual. Personal
Information includes Nonpublic Personal Information.
15.2
Obligations
.
The receiving Party will use the same care and discretion to avoid disclosure, publication or
dissemination of any Confidential Information received from the disclosing Party as the receiving
Party uses with its own similar information that it does not wish to disclose, publish or
disseminate (but in no event less than a reasonable degree of care). The receiving Party will: (a)
use the disclosing Partys Confidential Information only for the purpose for which it is disclosed
in connection with the performance of its obligations under this Administrative Services Agreement
or the full enjoyment of its rights hereunder; and (b) not disclose the disclosing Partys
Confidential Information except to: (i) its employees, agents and contractors, who have a need to
know such Confidential Information in connection with the performance of its obligations under this
Administrative Services Agreement or the full enjoyment of its rights hereunder who have executed
agreements obligating them to keep the Confidential Information confidential, (ii) its legal,
financial or other professional advisors as reasonably necessary to provide or benefit from the
Administrative Services, (iii) an Affiliate of Reinsureds in connection with the use or receipt of
Administrative Services by such Affiliate pursuant to this Administrative Services Agreement, or
(iv) an Administrator Affiliate, Subcontractor and/or employees of approved Subcontractor, in each
case, solely in connection with and as required by their performance of Administrative Services.
The receiving Party shall ensure that any Affiliates, Subcontractors, advisors and any other third
parties to whom Confidential Information
29
is disclosed hereunder have signed an agreement with the same or similar confidentiality
obligations as set forth herein. The receiving Party is liable for any unauthorized disclosure or
misappropriation of Confidential Information by any of its personnel, agents, Subcontractors or
advisors. The receiving Party will promptly report to the disclosing Party any breaches in
confidentiality of which it is aware that may materially affect the disclosing Party and specify
the corrective action taken. Administrator will not commingle the Confidential Information or
Personal Information of Reinsureds with any other personal or confidential information.
|
15.3
|
|
Exceptions to Confidential Treatment
.
|
(a)
General
. Except with respect to Personal Information of Reinsureds, this
Administrative Services Agreement imposes no obligation upon either Party with respect to
information that: (i) the receiving Party possessed prior to disclosure by the disclosing
Party, without an obligation of confidentiality; (ii) is or becomes publicly available
without breach of this Administrative Services Agreement by the receiving Party; (iii) is or
was independently developed by the receiving Party without the use of any Confidential
Information of the disclosing Party other than in connection with the Administrative
Services; (iv) is or was disclosed by the disclosing Party without imposing any obligation
of confidentiality on the receiving Party; or (v) is or was received by the receiving party
from a third party that does not have an obligation of confidentiality to the disclosing
party or its Affiliates.
(b)
Required Disclosure
. If either party is requested or required to disclose
Confidential Information of the other pursuant to any judicial or administrative process,
then such receiving party shall, to the extent it may legally do so, promptly notify the
other party in writing of such request or requirement. The party whose Confidential
Information is requested or required to be disclosed shall either: (i) promptly seek
protective relief from such disclosure obligation, or (ii) direct the receiving party to
comply with such request or requirement. The receiving party shall cooperate with efforts
of the disclosing party to maintain the confidentiality of such information or to resist
compulsory disclosure thereof, to the extent it may legally do so, but any costs incurred by
the receiving party shall be reimbursed by the disclosing party. If, after a reasonable
opportunity to seek protective relief, such relief is not obtained by disclosing party, or
if such party fails to obtain such relief, the receiving party may disclose such portion of
such Confidential Information that the receiving party reasonably believes, on the basis of
advice of such partys counsel, such party is legally obligated to disclose. Either Party
may disclose Confidential Information to a state insurance regulator or to a tax authority
as required under Applicable Law or as required to support that Partys position on any tax
return.
(c)
Return or Destruction
. At Reinsureds request and upon the termination of
this Administrative Services Agreement, Administrator will return or certify or cause the
return or certification of destruction by its Subcontractors of all of Reinsureds
Confidential Information in Administrators possession or control. Reinsureds will have
30
the same obligations with respect to Administrators Confidential Information as
Administrator has with respect to Reinsureds Confidential Information under this section.
The Parties shall be entitled to retain an archival copy of any Confidential Information
(excluding Personal Information) to the extent required to enforce the terms of this
Administrative Services Agreement or to comply with Applicable Law or to support its
position on any tax return; provided, that such Confidential Information will be returned or
destroyed in accordance with this provision upon the expiration of the period specified in
the Applicable Law, the expiration of the applicable statute of limitations and the final
resolution of any pending dispute.
To the extent of any conflict between the requirements of
Section 15.2
and this
Section 15.4
, this
Section 15.4
shall govern and control with respect to Personal
Information.
(a)
Acknowledgement
. Administrator acknowledges that it may have access to
Personal Information in order to perform its duties under this Administrative Services
Agreement and that Personal Information is protected under Applicable Law.
(b)
Use and Disclosure
. Administrator agrees to use and disclose the Personal
Information only: (i) as required for it to perform its duties and obligations under this
Administrative Services Agreement; (ii) for any lawful purpose related to this
Administrative Services Agreement; and (iii) as permitted by Applicable Law.
(c)
Privacy Protection Protocol
. Administrator shall at all times maintain a
privacy protection protocol, which is sufficient to assure compliance with nondisclosure,
privacy, security and other provisions of this Administrative Services Agreement that relate
to Personal Information and Confidential Information and with all Applicable Law to the
extent of Administrators obligations under
Section 2.4
.
(d)
Security Precautions
. Administrator shall take all reasonable security
precautions to maintain the confidentiality and security of all Personal Information, take
all steps necessary to protect against unauthorized access to Personal Information, and to
protect against any anticipated threats or hazards to the security of such information.
Among other things, Administrator shall: (i) limit access to Personal Information to those
actually performing Administrative Services for Reinsureds; (ii) limit access of personnel
performing Administrative Services for Reinsureds to that Personal Information actually
required for the performance of Administrative Services for Reinsureds; (iii) take all
reasonable and necessary steps to ensure that Personal Information is transmitted only in a
secure manner including by encryption or equivalent means; and (iv) take all reasonable and
necessary steps to ensure that Personal Information is minimally disclosed, combined,
amended, deleted, or otherwise altered by Administrator personnel so as to maintain its
integrity and accuracy.
31
(e)
Protected Health Information
. If Administrator or Administrator personnel
will have access to protected health information (as such term is defined by the HIPAA
Privacy Rule), Administrator shall execute the Business Associate Agreement substantially in
the form attached hereto as
Exhibit A
. Administrator and Administrator personnel
shall comply with the terms of the Business Associate Agreement in performing the applicable
Administrative Services. Administrator shall be responsible under this Administrative
Services Agreement for any failure of Administrator or Administrator personnel to comply
with the terms of the Business Associate Agreement or the Applicable Laws referenced in the
Business Associate Agreement applicable to Administrator in the same manner and to the same
extent it would be responsible for any failure to comply with its other obligations under
this Administrative Services Agreement.
(f)
Privacy Breach
. If Administrator breaches the provisions of this
Section 15.4
, Administrator agrees to immediately notify Reinsureds and cooperate
with Reinsureds in mitigating any potential damages by, at Administrators expense:
(i) immediately endeavoring to recover all Personal Information from the unauthorized
recipient, if known, and instructing the unauthorized recipient to cease and desist from any
use of the improperly disclosed Personal Information;
(ii) at the request of Reinsureds, returning within ten (10) Business Days all Personal
Information provided by Reinsureds to Administrator pursuant to this
Section 15.4
;
(iii) at the request of Reinsureds, deleting from Administrator electronic systems and
physical records within ten (10) Business Days all Personal Information provided by
Reinsureds and providing certification that such deletion has occurred;
(iv) assisting and cooperating with any demand forwarded by Reinsureds to Administrator
as a result of a court order imposed on Reinsureds or from a Governmental Authority having
jurisdiction over Reinsureds; and
(v) assisting with taking any other remedial steps reasonably required by Reinsureds.
(g)
No Limitation
. The inclusion of this
Section 15.4
relating
primarily to Personal Information shall not, in any way, limit the obligations of
Administrator under other sections of this Administrative Services Agreement that relate to
the protection of Confidential Information generally.
32
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15.5
|
|
Regulatory and Legal Communication
.
|
To the extent Administrator may legally do so:
(a)
Government Requests
. Administrator agrees that, should any Governmental
Authority request Administrator to submit any information or provide any communication
related to the Administrative Services provided pursuant to this Administrative Services
Agreement, Administrator will notify Reinsureds immediately upon receipt of such request.
In no case shall said notice be received by Reinsureds later than five (5) calendar days
after receipt by Administrator. Administrator must contact Reinsureds prior to any response
Administrator would make to any Governmental Authority that involves Reinsureds, Reinsureds
clients, or any Reinsureds relationship with such Governmental Authority. This provision
does not apply to reviews by tax authorities or to state insurance departments in connection
with financial examinations.
(b)
Notice
. Without limiting anything in subsection (a) above, Administrator
shall provide Reinsureds with prompt notice of any Governmental Authority review, audit or
inspection of Administrators facilities, processes, or products under the FCPA or any
anti-bribery Applicable Law that relates to the Administrative Services furnished to
Reinsureds under this Administrative Services Agreement. Even if Reinsureds are not
otherwise identified as involved in the review, audit, or inspection, Administrator shall
provide Reinsureds with the summary results of any such review, audit or inspection. If not
legally prohibited, Administrator shall provide Reinsureds a reasonable opportunity to
provide assistance to Administrator in responding to any such review, audit or inspection.
(c)
Security Incident
. In the event of an incident that does, or is reasonably
likely to, result in an unauthorized disclosure of, or access to, Personal Information (a
Security Incident
), Administrator shall immediately notify Reinsureds of the
Security Incident, and Administrator shall promptly (and in any event as soon as reasonably
practical) (i) perform a root cause analysis and prepare a corrective action plan, (ii)
provide Reinsureds with written reports and detailed information regarding any such Security
Incident, including how and when such Security Incident occurred and what actions
Administrator is taking to remedy such Security Incident, (iii) cooperate in the
investigation of the Security Incident at Reinsureds request, (iv) reimburse Reinsureds for
their costs of notifying any individuals and/or authorities of the Security Incident if
Reinsureds, in their good faith judgment, consider notification necessary, (v) remediate
such Security Incident or potential Security Incident and take commercially reasonable
actions to prevent its recurrence;
provided
,
however
, to the extent such Security Incident
or potential Security Incident is not caused by Administrators or its Subcontractors
failure to comply with this Administrative Services Agreement, Reinsureds shall reimburse
Administrator for Administrators reasonable expenses incurred in such remediation, and (vi)
promptly restore any lost Reinsureds data to the last available back-up.
33
(d)
Material Breach.
A breach of this
Article XV
may be a material
breach of this Administrative Services Agreement. Each Party acknowledges that monetary
damages may not be a sufficient remedy for unauthorized disclosure of Confidential
Information or Personal Information and that each Party shall be entitled, in addition to
any other rights or remedies available at law or in equity, to seek such injunctive or
equitable relief as may be deemed proper by a court of competent jurisdiction.
ARTICLE XVI
FORCE MAJEURE
|
16.1
|
|
Force Majeure Event
.
|
Except for any failure of either Party to comply with the provisions of the Disaster Recovery
Plans, neither Party shall have any liability or responsibility, and shall be excused from
performance for, any interruption, delay, impairment or other failure to fulfill any obligation
under this Administrative Services Agreement to the extent and so long as the fulfillment of such
obligation is interrupted, delayed, impaired, prevented or frustrated as a result of or by natural
disaster, hurricane, earthquake, floods, fire, catastrophic weather conditions, diseases or other
elements of nature or acts of God, acts of war (declared or undeclared), insurrection, riot, civil
disturbance or disorders, rebellion, sabotage, government regulations or directives, embargoes,
terrorist acts, or explosions, strikes, failure of or damage to public utility (
Force Majeure
Event
);
provided
that such Party uses best efforts promptly to overcome or mitigate the cause
of such delay or failure to perform, including the implementation of the Disaster Recovery Plans.
Any Party so delayed in its performance shall immediately notify the other thereof by telephone and
confirm promptly thereafter in writing, describing in reasonable detail the circumstances causing
such delay, and shall resume the performance of its obligations as promptly as reasonably
practicable after the Force Majeure Event has ceased to exist.
ARTICLE XVII
INDEMNIFICATION
|
17.1
|
|
Indemnification Obligation of Administrator
.
|
Administrator agrees to indemnify and hold harmless Reinsureds and each of their directors,
officers, employees, agents or Affiliates (and the directors, officers, employees and agents of
such Affiliates) from any and all losses, liabilities, costs, claims, demands, compensatory, extra
contractual and/or punitive damages, fines, penalties and expenses (including reasonable attorneys
fees and expenses) (collectively,
Reinsureds Losses
) resulting in damages not included
within the definition of Ultimate Net Loss arising out of or caused by: (i) any actual or alleged
fraud, theft or embezzlement by officers, employees or agents of Administrator or its
Subcontractors during the term of this Administrative Services Agreement; (ii) the failure, either
intentional or unintentional, of Administrator or its
34
Subcontractors to properly perform the services or take the actions required by this
Administrative Services Agreement, including, without limitation, the failure to properly process,
evaluate and pay disbursement requests in accordance with the terms of this Administrative Services
Agreement; (iii) any other act of negligence or willful misconduct committed by officers, agents or
employees of Administrator or its Subcontractors during the term of this Administrative Services
Agreement; or (iv) any failure of Administrator or its Subcontractors to comply with Applicable
Laws during the term of this Administrative Services Agreement. Nothing herein shall be construed
to require Administrator to indemnify Reinsureds with respect to any act or omission where the
decision to take or omit such action was with the agreement of Reinsureds.
|
17.2
|
|
Indemnification Obligation of Reinsureds
.
|
Reinsureds agree to indemnify and hold harmless Administrator and any of its directors,
officers, employees, agents or Affiliates (and the directors, officers, employees and agents of
such Affiliates) from any and all losses, liabilities, costs, claims, demands, compensatory, extra
contractual and/or punitive damages, fines, penalties and expenses (including reasonable attorneys
fees and expenses) (collectively,
Administrator Losses
) arising out of or caused by: (i)
fraud, theft or embezzlement by officers, employees or agents of Reinsureds during the term of this
Administrative Services Agreement; (ii) any other act of negligence or willful misconduct committed
by officers, agents or employees of Reinsureds during the term of this Administrative Services
Agreement; or (iii) any failure of Reinsureds to comply with Applicable Laws during the term of
this Administrative Services Agreement other than any failure on the part of Reinsureds or
Administrator caused by the action or inaction of Administrator, including when acting in the name
or on behalf of Reinsureds, whether or not in compliance with the terms of this Administrative
Services Agreement. Nothing herein shall be construed to require Reinsureds to indemnify
Administrator with respect to any act or omission where the decision to take or omit such action
was with the agreement of Administrator.
|
17.3
|
|
Notice of Indemnification Request
.
|
In the event that either Party asserts a claim for indemnification hereunder, such Party
seeking indemnification (the
Indemnified Party
) shall give written notice to the other
Party (the
Indemnifying Party
) specifying the facts constituting the basis for, and the
amount (if known) of, the claim asserted within one year of the date the claim is asserted against
or should be known by the Indemnified Party.
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17.4
|
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Notice of an Asserted Liability
.
|
If an Indemnified Party asserts, or may in the future seek to assert, a claim for
indemnification hereunder because of a claim or demand made, or an action, proceeding or
investigation instituted, by any person not a party to this Administrative Services Agreement (a
Third Party Claimant
) that may result in an Administrator Loss with respect to which
Administrator is entitled to indemnification pursuant to
Section 17.2
hereof or Reinsureds
Loss with respect to which Reinsureds are entitled to indemnification pursuant to
Section
17.1
hereof
35
(an
Asserted Liability
), the Indemnified Party shall so notify the Indemnifying
Party as promptly as practicable, but in no event later than ten (10) Business Days after such
Asserted Liability is actually known to the Indemnified Party. Failure to deliver notice with
respect to an Asserted Liability in a timely manner shall not be deemed a waiver of the Indemnified
Partys right to indemnification for Losses in connection with such Asserted Liability but the
amount of reimbursement to which the Indemnified Party is entitled shall be reduced by the amount,
if any, by which the Indemnified Partys Losses would have been less had such notice been timely
delivered.
(a) The Indemnifying Party shall have the right, upon written notice to the Indemnified
Party, to investigate, contest, defend or settle the Asserted Liability;
provided
that the
Indemnified Party may, at its option and at its own expense, participate in the
investigation, contesting, defense or settlement of any such Asserted Liability through
representatives and counsel of its own choosing. The failure of the Indemnifying Party to
respond in writing to proper notice of an Asserted Liability within ten (10) calendar days
after receipt thereof shall be deemed an election not to defend the same. Unless and until
the Indemnifying Party elects to defend the Asserted Liability, the Indemnified Party shall
have the right, at its option and at the Indemnifying Partys expense, to do so in such
manner as it deems appropriate, including, but not limited to, settling such Asserted
Liability (after giving notice of the settlement to the Indemnifying Party) on such terms as
the Indemnified Party deems appropriate.
(b) Except as provided in the immediately preceding sentence, the Indemnified Party
shall not settle or compromise any Asserted Liability for which it seeks indemnification
hereunder without the prior written consent of the Indemnifying Party (which shall not be
unreasonably withheld) during the ten (10) calendar day period specified above.
(c) The Indemnifying Party shall be entitled to participate in (but not to control) the
defense of any Asserted Liability which it has elected, or is deemed to have elected, not to
defend, with its own counsel and at its own expense.
(d) Except as provided in the first sentence of paragraph (a) of this
Section
17.5
, the Indemnifying Party shall bear all reasonable costs of defending any Asserted
Liability and shall indemnify and hold the Indemnified Party harmless against and from all
costs, fees and expenses incurred in connection with defending such Asserted Liability.
(e) Administrator and Reinsureds shall make mutually available to each other all
relevant information in their possession relating to any Asserted Liability (except to the
extent that such action would result in a loss of attorney-client privilege) and shall
cooperate with each other in the defense thereof.
36
The provisions of this
Article XVII
shall survive the termination of this
Administrative Services Agreement for a period of one year.
ARTICLE XVIII
DISPUTE RESOLUTION; ARBITRATION
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18.1
|
|
Dispute Resolution; Arbitration
.
|
If Reinsureds and Administrator are unable to resolve any dispute arising from this
Administrative Services Agreement, the matter will be handled in accordance with the dispute
resolution and arbitration procedures set forth in
Article X
and
Article XI
of the
Master Transaction Agreement.
ARTICLE XIX
MISCELLANEOUS
Any notice, request, demand, waiver, consent, approval or other communication required or
permitted to be given by any Party hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission, sent by registered or certified mail, postage prepaid, or sent by a
standard overnight courier of national reputation with written confirmation of delivery. Any such
notice shall be deemed given when so delivered personally, or if sent by facsimile transmission, on
the date received (
provided
that any notice received after 5:00 p.m. (addressees local time) shall
be deemed given at 9:00 a.m. (addressees local time) on the next Business Day), or if mailed, on
the date shown on the receipt therefor, or if sent by overnight courier, on the date shown on the
written confirmation of delivery. Such notices shall be given to the following address:
To CNA Parties:
CNA Financial Corporation
333 S. Wabash Avenue
Chicago, IL 60604
Attention: Jonathan D. Kantor
Executive Vice President,
General Counsel and Secretary
Fax: (312) 817-0511
37
With a copy to:
CNA Financial Corporation
333 S. Wabash Avenue
Chicago, IL 60604
Attention: Michael P. Warnick
Senior Vice President and Deputy General Counsel
Fax: (312) 755-2479
To Administrator:
National Indemnity Company
100 First Stamford Place
Stamford, CT 06902
Attention: General Counsel
Fax: (203) 363-5221
With a copy to:
National Indemnity Company
3024 Harney Street
Omaha, NE 68131
Attention: Treasurer
Fax: (402) 916-3030
Any Party may change its notice provisions on fifteen (15) calendar days advance notice in
writing to the other Parties.
This Administrative Services Agreement (including the exhibits and schedules hereto), the
Master Transaction Agreement and the other Ancillary Agreements and any other documents delivered
pursuant hereto and thereto, constitute the entire agreement among the Parties and their respective
Affiliates with respect to the subject matter hereof and supersede all prior negotiations,
discussions, writings, agreements and understandings, oral and written, among the Parties with
respect to the subject matter hereof and thereof.
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19.3
|
|
Waiver and Amendment
.
|
This Administrative Services Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by an instrument in writing signed by the
Parties, or, in the case of a waiver, by the Party waiving compliance. No delay on the part of any
Party in exercising any right, power or privilege hereunder shall operate as a
38
waiver thereof, nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other such right, power or privilege. No waiver of any
breach of this Administrative Services Agreement shall be held to constitute a waiver of any other
or subsequent breach.
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19.4
|
|
Successors and Assigns
.
|
The rights and obligations of the Parties under this Administrative Services Agreement shall
not be subject to assignment without the prior written consent of the other Parties, and any
attempted assignment without the prior written consent of the other Parties shall be invalid
ab
initio
. The terms of this Administrative Services Agreement shall be binding upon and inure to the
benefit of and be enforceable by and against the successors and permitted assigns of the Parties.
The headings of this Administrative Services Agreement are for convenience of reference only
and shall not define or limit any of the terms or provisions hereof.
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19.6
|
|
Construction; Interpretation
.
|
Reinsureds and Administrator have participated jointly in the negotiation and drafting of this
Administrative Services Agreement. In the event of an ambiguity or question of intent or
interpretation arises, this Administrative Services Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring
either Party by virtue of the authorship of any of the provisions of this Administrative Services
Agreement. When a reference is made to an Article, Section, Schedule or Exhibit such reference
shall be to an Article, Section, Schedule or Exhibit of or to this Administrative Services
Agreement unless otherwise indicated. Whenever the words include, includes or including are
used in this Administrative Services Agreement, they shall be deemed to be followed by the words
without limitation. The word Agreement, means this Administrative Services Agreement as
amended or supplemented, together with all Exhibits and Schedules attached hereto or incorporated
by reference, and the words hereof, herein, hereto, hereunder and other words of similar
import shall refer to this Administrative Services Agreement in its entirety and not to any
particular Article, Section or provision of this Administrative Services Agreement. The references
to $ shall be to United States dollars. Reference to any Applicable Law means such Applicable
Law as amended, modified, codified, replaced or reenacted, and all rules and regulations
promulgated thereunder. References to a Person are also to its successors and permitted assigns.
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19.7
|
|
Governing Law and Jurisdiction
.
|
This Administrative Services Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to such states principles of
39
conflict of laws that could compel the application of the laws of another jurisdiction.
SUBJECT TO
ARTICLE XVIII
, ANY SUIT, ACTION OR PROCEEDING TO COMPEL ARBITRATION OR FOR
TEMPORARY INJUNCTIVE RELIEF IN AID OF ARBITRATION OR TO PRESERVE THE STATUS QUO PENDING THE
APPOINTMENT OF THE ARBITRATOR(S) SHALL BE BROUGHT BY THE PARTIES SOLELY IN THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, PROVIDED THAT IF SAID COURT DETERMINES THAT
IT DOES NOT HAVE SUBJECT MATTER JURISDICTION THEN SAID ACTIONS MAY BE BROUGHT IN THE SUPREME COURT
OF THE STATE OF NEW YORK FOR NEW YORK COUNTY; AND EACH REINSUREDS AND ADMINISTRATOR EACH HEREBY
IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE AND ANY APPELLATE
COURTS THEREOF, EXCEPT THAT ANY FINAL ARBITRAL AWARD RENDERED IN ACCORDANCE WITH
ARTICLE
XVIII
MAY BE ENTERED AND ENFORCED IN ANY COURT HAVING JURISDICTION OVER ANY PARTY OR ANY OF ITS
ASSETS.
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19.8
|
|
No Third Party Beneficiaries
.
|
Except as otherwise expressly set forth in any provision of this Administrative Services
Agreement, nothing in this Administrative Services Agreement is intended or shall be construed to
give any Person, other than the Parties, any legal or equitable right, remedy or claim under or in
respect of this Administrative Services Agreement or any provision contained herein.
This Administrative Services Agreement may be executed by the Parties in separate
counterparts; each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument binding upon all of the Parties
notwithstanding the fact that all Parties are not signatory to the original or the same
counterpart. Each counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all of the Parties. Each counterpart may be delivered by facsimile
transmission, which transmission shall be deemed delivery of an originally executed document.
Any term or provision of this Administrative Services Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Administrative Services Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Administrative Services Agreement in any
other jurisdiction, so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any Party. If any provision of this
40
Administrative Services Agreement is so broad as to be unenforceable, that provision shall be
interpreted to be only so broad as is enforceable. In the event of such invalidity or
unenforceability of any term or provision of this Administrative Services Agreement, such term or
provision shall be reformed and the Parties shall use their commercially reasonable efforts to
reform such terms or provisions to carry out the commercial intent of the Parties as reflected
herein, while curing the circumstance giving rise to the invalidity or unenforceability of such
term or provision.
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19.11
|
|
Specific Performance
.
|
Each of the Parties acknowledges and agrees that the other Party would be irreparably damaged
in the event that any of the provisions of this Administrative Services Agreement were not
performed or complied with in accordance with their specific terms or were otherwise breached,
violated or unfulfilled. Accordingly, each of the Parties agrees that the other Party shall be
entitled to an injunction or injunctions to prevent noncompliance with, or breaches or violations
of, the provisions of this Administrative Services Agreement by the other Party and to enforce
specifically this Administrative Services Agreement and the terms and provisions hereof in any
action instituted in accordance with
Section 19.7
, in addition to any other remedy to which
such Party may be entitled, at law or in equity. In the event that any action is brought in equity
to enforce the provisions of this Administrative Services Agreement, no Party will allege, and each
Party hereby waives the defense or counterclaim, that there is an adequate remedy at law. The
Parties further agree that (i) by seeking the remedies provided for in this
Section 19.11
,
a Party shall not in any respect waive its right to seek any other form of relief that may be
available to a Party under this Administrative Services Agreement, including monetary damages in
the event that this Administrative Services Agreement has been terminated or in the event that the
remedies provided for in this
Section 19.11
are not available or otherwise are not granted
and (ii) nothing contained in this
Section 19.11
shall require any Party to institute any
action (or limit any Partys right to institute any action for) specific performance under this
Section 19.11
before exercising any termination right under
Article XIV
nor shall
the commencement of any action pursuant to this
Section 19.11
or anything contained in this
Section 19.11
restrict or limit any Partys right to terminate this Administrative Services
Agreement in accordance with the terms of
Article XIV
or pursue any other remedies under
this Administrative Services Agreement that may be available then or thereafter.
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19.12
|
|
Waiver of Jury Trial
.
|
EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS ADMINISTRATIVE SERVICES AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY THIS ADMINISTRATIVE SERVICES AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTIES HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PARTIES WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER,
41
AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS ADMINISTRATIVE SERVICES
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS ADMINISTRATIVE SERVICES AGREEMENT, AS
APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION
19.12
.
In consideration of the mutual covenants and agreements contained herein, each Party does
hereby agree that this Administrative Services Agreement, and each and every provision hereof, is
and shall be enforceable by and between them according to its terms, and each Party does hereby
agree that it shall not contest in any respect the validity or enforceability hereof.
Any debts or credits, matured or unmatured, liquidated or unliquidated, regardless of when
they arose or were incurred, in favor of or against either of the Reinsureds or Administrator with
respect to this Administrative Services Agreement are deemed mutual debts or credits, as the case
may be, and shall be set off, and only the net balance shall be allowed or paid.
All financial data required to be provided pursuant to the terms of this Administrative
Services Agreement shall be expressed in United States dollars. All payments and all settlements
of account between the Parties shall be in United States currency unless otherwise agreed by the
Parties.
(The remainder of this page has been intentionally left blank.)
42
IN WITNESS WHEREOF
, this Administrative Services Agreement has been duly executed by a duly
authorized officer of each Party hereto as of the date first above written.
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CONTINENTAL CASUALTY COMPANY
|
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By:
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/s/ Lawrence J. Boysen
|
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Name:
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Lawrence J. Boysen
|
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Title:
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Senior Vice President and Corporate Controller
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THE CONTINENTAL INSURANCE COMPANY
|
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By:
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/s/ Lawrence J. Boysen
|
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Name:
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Lawrence J. Boysen
|
|
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Title:
|
Senior Vice President and Corporate Controller
|
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CONTINENTAL REINSURANCE
CORPORATION INTERNATIONAL, LTD.
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By:
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/s/ Lawrence J. Boysen
|
|
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Name:
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Lawrence J. Boysen
|
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Title:
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Chairman of the Board and President
|
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CNA INSURANCE COMPANY LIMITED
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By:
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/s/ Lawrence J. Boysen
|
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Name:
|
Lawrence J. Boysen
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Title:
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Authorized Representative
|
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NATIONAL INDEMNITY COMPANY
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By:
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/s/ Brian Snover
|
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Name:
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Brian Snover
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Title:
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Vice President
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EXHIBIT A
[Form of Business Associate Agreement]
BUSINESS ASSOCIATE AGREEMENT
This Business Associate Agreement (the
Business Associate Agreement
), dated as of
___, 2010 (the
Effective Date
), is made and entered into by and among
Continental
Casualty Company
, an Illinois property and casualty insurance company (
CCC
),
The
Continental Insurance Company
, a Pennsylvania property and casualty insurance company
(
CIC
),
Continental Reinsurance Corporation International, Ltd.
, a Bermuda long-term
insurance company (
CRCI
), and
CNA Insurance Company Limited
, a United Kingdom property
and casualty insurance company (
CICL
and together with CCC, CIC and CRCI,
Reinsureds
), and
National Indemnity Company
, a Nebraska property and casualty company
(
Administrator
).
WHEREAS
, pursuant to a Master Transaction Agreement (the
Master Transaction
Agreement
), dated as of July 14, 2010, among Reinsureds and Administrator, Reinsureds and
Administrator have agreed to enter into a loss portfolio reinsurance transaction, pursuant to which
Reinsureds will cede all liabilities related to asbestos and pollution claims under the Business
Covered to Administrator, and pursuant to which Administrator will indemnify Reinsureds for such
liabilities up to an aggregate limit of four billion dollars ($4,000,000,000), net of any Third
Party Reinsurance Recoverables and Other Recoveries;
WHEREAS
, pursuant to a Loss Portfolio Transfer Reinsurance Agreement among Reinsureds and
Administrator dated as of August 31, 2010, and referenced in the Master Transaction Agreement as
the
LPT Reinsurance Agreement
, Administrator shall indemnify Reinsureds for 100% of the
Ultimate Net Loss, subject to the LPT Limit;
WHEREAS
, pursuant to an Administrative Services Agreement (the
Administrative Services
Agreement
, dated as of August 31, 2010, Administrator shall perform certain administrative
functions on behalf of Reinsureds with respect to the Reinsured Contracts and Third Party
Reinsurance Agreements as they relate to the Business Covered; and
WHEREAS
, Reinsureds and Administrator are entering into this Business Associate Agreement to
comply with the Health Insurance Portability and Accountability Act of 1996 (
HIPAA
)
Privacy Rule and Security Standards as those terms are defined in this Business Associate
Agreement.
NOW, THEREFORE
, for and in consideration of these premises and the promises and the mutual
agreements hereinafter set forth and set forth in the Master Transaction Agreement, the LPT
Reinsurance Agreement and the Administrative Services Agreement, Reinsureds and Administrator
(individually, a
Party
and collectively, the
Parties
) agree as follows:
I. DEFINITIONS
All capitalized terms not otherwise defined in this Business Associate Agreement shall have
the meaning given them under the Master Transaction Agreement, LPT Reinsurance Agreement, or
Administrative Services Agreement, as applicable. The following terms used in this Business
Associate Agreement shall have the same meaning as those terms in the HIPAA Privacy Rule and
Security Standards, currently defined, in relevant part:
Protected Health Information
shall mean Individually Identifiable Health Information
transmitted or maintained in any form or medium that Administrator creates or receives from or on
behalf of Reinsureds in the course of fulfilling its obligations under this Business Associate
Agreement. Protected Health Information shall not include (i) education records covered by the
Family Educational Rights and Privacy Act, as amended, 20 U.S.C. §1232g, (ii) records described in
20 U.S.C. §1232g(a)(4)(B)(iv), and (iii) employment records held by Reinsureds in their role as
employers.
Designated Record Set
shall mean a group of records maintained by or for Reinsureds that
is (i) the medical records and billing records about individuals maintained by or for Reinsureds,
(ii) the enrollment, payment, claims adjudication, and case or medical management record systems
maintained by or for a health plan; or (iii) used, in whole or in part, by or for Reinsureds to
make decisions about individuals. As used herein, the term
Record
means any item,
collection, or grouping of information that includes Protected Health Information and is
maintained, collected, used, or disseminated by or for Reinsureds.
Electronic Media
shall mean (i) electronic storage media including memory devices in
computers (hard drives) and any removable/transportable digital memory medium, such as magnetic
tape or disk, optical disk, or digital memory card; or (ii) transmission media used to exchange
information already in electronic storage media. Transmission media include, for example, the
internet (wide-open), extranet (using internet technology to link a business with information
accessible only to collaborating parties), leased lines, dial-up lines, private networks, and the
physical movement of removable/transportable electronic storage media. Certain transmissions,
including paper, via facsimile, and of voice, via telephone, are not considered to be transmissions
via electronic media, because the information being exchanged did not exist in electronic form
before transmission.
Electronic Protected Health Information
shall mean Protected Health Information that is
transmitted by or maintained in Electronic Media.
Individually Identifiable Health Information
shall mean information that is a subset of
health information, including demographic information collected from an individual, and
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(i)
|
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is created or received by a health care provider, health plan, employer, or
health care clearinghouse; and
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(ii)
|
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relates to the past, present, or future physical or mental health or condition
of an individual; the provision of health care to an individual; or the past, present
or future payment for the provision of health care to an individual; and (a) identifies
the individual, or (b) with respect to which there is a reasonable basis to believe the
information can be used to identify the individual; and
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(iii)
|
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relates to identifiable non-health information including but not limited to an
individuals address, phone number and/or Social Security number.
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Privacy Rule
shall mean the Standards for Privacy of Individually Identifiable Health
Information at 45 CFR Part 160 and Part 164, Subparts A and E.
Secretary
shall mean the Secretary of the Department of Health and Human Services.
Security Incident
means the attempted or successful unauthorized access, use, disclosure,
modification, or destruction of information or interference with system operations in an
information system.
Security Standards
shall mean the HIPAA Security Standards, 45 C.F.R. Parts 160 and 164
II. OBLIGATIONS OF ADMINISTRATOR
Section 1. Use and Disclosure of Protected Health Information.
Administrator may use and disclose Protected Health Information only to carry out the obligations
of Administrator set forth in this Business Associate Agreement, the Administrative Services
Agreement or as required by law, subject to the provisions set forth in this Business Associate
Agreement. Administrator shall neither use nor disclose Protected Health Information for the
purpose of creating de-identified information that will be used for any purpose other than as
directed by Reinsureds to carry out the obligations of Administrator set forth in this Business
Associate Agreement or the Administrative Services Agreement, or as required by law.
Section 2. Safeguards Against Misuse of Information.
Administrator agrees that it will implement appropriate safeguards to prevent the use or disclosure
of Protected Health Information in any manner other than pursuant to the terms and conditions of
this Business Associate Agreement. Administrator shall implement administrative, physical and
technical safeguards that reasonably and appropriately protect the confidentiality, integrity, and
availability of the Electronic Protected Health Information that it creates, receives, maintains,
or transmits on behalf of Reinsureds, as required by the Security Standards.
Section 3. Reporting of Uses and Disclosures of Protected Health Information and Security
Incidents.
Upon becoming aware of a use or disclosure of Protected Health Information in violation of this
Business Associate Agreement, Administrator shall promptly report such use or disclosure to
Reinsureds. Administrator shall promptly report to Reinsureds any Security Incident of which it
becomes aware.
Section 4. Agreements with Third Parties.
Administrator shall ensure that any agent or subcontractor of Administrator to whom Administrator
provides Protected Health Information that is received from Reinsureds, or created or received by
Administrator on behalf of Reinsureds, agrees to be bound by the same restrictions and conditions
that apply to Administrator pursuant to this Business Associate Agreement with respect to such
Protected Health Information. Administrator warrants and represents that in the event of a
disclosure of Protected Health Information to any third party, the information disclosed shall be
no more than the minimum necessary for the intended purpose. Administrator shall ensure that any
agent or subcontractor of Administrator to whom Administrator provides Electronic Protected Health
Information agrees to implement reasonable and appropriate safeguards to protect such information.
Section 5. Access to Information.
In the event Administrator maintains Protected Health Information in a Designated Record Set,
Administrator shall, within thirty (30) days of receipt of a request from Reinsureds, provide to
Reinsureds Protected Health Information in Administrators possession that is required for
Reinsureds to respond to an individuals request for access to Protected Health Information made
pursuant to 45 C.F.R. § 164.524 or other applicable law. In the event any individual requests
access to Protected Health Information directly from Administrator, whether or not Administrator is
in possession of Protected Health Information, Administrator may not approve or deny access to the
Protected Health Information requested. Rather, Administrator shall, within five (5) Business Days,
forward such request to Reinsureds.
Section 6. Availability of Protected Health Information for Amendment.
In the event Administrator maintains Protected Health Information in a Designated Record Set,
Administrator shall, within thirty (30) days of receipt of a request from Reinsureds, provide to
Reinsureds Protected Health Information in Administrators possession that is required for
Reinsureds to respond to an individuals request to amend Protected Health Information made
pursuant to 45 C.F.R. § 164.526 or other applicable law. If the request is approved, Administrator
shall incorporate any such amendments to the Protected Health Information as required by 45 C.F.R.
§164.526 or other applicable law. In the event that the request for the amendment of Protected
Health Information is made directly to the Administrator, whether or not Administrator is in
possession of Protected Health Information, Administrator may not approve or deny the requested
amendment. Rather, Administrator shall, within five (5) Business Days forward such request to
Reinsureds.
Section 7. Accounting of Disclosures.
Administrator agrees to document such disclosures of Protected Health Information and information
related to such disclosures as would be required for Reinsureds to respond to a request by an
individual for an accounting of disclosures of Protected Health Information in accordance with 45
CFR § 164.528 or other applicable law. Administrator shall, within sixty (60) Business Days of
receipt of a request from Reinsureds, provide to Reinsureds such information as is in
Administrators possession and is required for Reinsureds to respond to a request for an accounting
made in accordance with 45 C.F.R. 164.528 or other applicable law. In the event the request for an
accounting is delivered directly to Administrator, Administrator shall, within five (5) Business
Days, forward such request to Reinsureds. It shall be Reinsureds responsibility to prepare and
deliver any such accounting requested.
Section 8. Availability of Books and Records.
Administrator hereby agrees to make its applicable internal practices, books and records, including
policies and procedure, available to the Secretary for purposes of determining Reinsureds and
Administrators compliance with the Privacy Rule and Security Standards. The practices, books and
records subject to this Section are those practices, books and records that relate to the use and
disclosure of Protected Health Information that is created by Administrator on behalf of
Reinsureds, received by Administrator from Reinsureds, or received by Administrator from a third
party on behalf of Reinsureds.
III. Term and Termination
Section 1. Term.
The Term of this Business Associate Agreement shall be effective as of the Effective Date, and
shall terminate when all of the Protected Health Information provided by Reinsureds to
Administrator, or created or received by Administrator on behalf of Reinsureds, is destroyed or
returned to Reinsureds, or, if it is infeasible to return or destroy Protected Health Information,
protections are extended to such information, in accordance with the termination provisions in this
Article III
.
Section 2. Effect of Termination.
(a) Except as provided in paragraph (b) of this Section, upon termination of this Business
Associate Agreement, for any reason, Administrator shall return or destroy all Protected Health
Information received from Reinsureds, or created or received by Administrator on behalf of
Reinsureds. This provision shall apply to Protected Health Information that is in the possession of
subcontractors or agents of Administrator. Administrator shall retain no copies of the Protected
Health Information.
(b) In the event that Administrator determines that returning or destroying the Protected Health
Information is infeasible, Administrator shall provide to Reinsureds notification of the conditions
that make return or destruction infeasible. Upon Reinsureds determination that return or
destruction of Protected Health Information is infeasible, Administrator shall extend the
protections of this Business Associate Agreement to such Protected Health Information and limit
further uses and disclosures of such Protected Health Information to those purposes that make the
return or destruction infeasible, for so long as Administrator maintains such Protected Health
Information.
IV. MISCELLANEOUS
Section 1. Limitation of Liability
. No exculpation or limitation on Administrators
liability set forth in the Administrative Services Agreement shall apply to damages suffered by
Reinsureds as a result of Administrators breach of this Business Associate Agreement.
Section 2. Indemnification
. Each Party acknowledges and agrees that the provisions of
Article IX
of the Master Transaction Agreement apply to the indemnification rights and
obligations of each Party pursuant to this Agreement.
Section 3. Regulatory References
. A reference in this Business Associate Agreement to a
section in the HIPAA Privacy Rule or Security Standards means the section as in effect or as
amended.
Section 4. Amendment
. In the event that state or federal law or regulation, or an
arbitration or judicial interpretation of same, or any regulatory or enforcement action should
explicitly or otherwise require that this Business Associate Agreement be changed, altered or
modified, then the Reinsureds shall notify Administrator and provide such required amendment, and
the Reinsureds and Administrator shall continue to perform services under this Business Associate
Agreement as modified.
Section 5. Survival
. The respective rights and obligations of Administrator under
Section III(2)(b)
(Effect of Termination),
Section IV(1)
(Limitation of Liability),
Section IV(2)
(Indemnification),
Section IV(3)
(Regulatory References) and
Section IV(5)
(Survival) of this Business Associate Agreement shall survive the termination
of this Business Associate Agreement.
V. EFFECT OF BUSINESS ASSOCIATE AGREEMENT
To the extent that this Business Associate Agreement conflicts with the terms of the Administrative
Services Agreement or any other agreement between Reinsureds and Administrator relating to
Protected Health Information, the terms of this Business Associate Agreement shall take precedence.
[Remainder of page left intentionally blank]
IN WITNESS WHEREOF
, this Business Associate Agreement has been duly executed by a duly
authorized officer of each Party hereto as of the date first above written.
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CONTINENTAL CASUALTY COMPANY
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By:
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Name:
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Title:
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THE CONTINENTAL INSURANCE
COMPANY
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By:
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Name:
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Title:
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CONTINENTAL REINSURANCE
CORPORATION INTERNATIONAL, LTD.
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By:
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Name:
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Title:
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CNA INSURANCE COMPANY LIMITED
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By:
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Name:
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Title:
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NATIONAL INDEMNITY COMPANY
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By:
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Name:
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Title:
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Exhibit 10.2
EXECUTION VERSION
TRUST AGREEMENT
by and among
CONTINENTAL CASUALTY COMPANY,
THE CONTINENTAL INSURANCE COMPANY,
CONTINENTAL REINSURANCE CORPORATION INTERNATIONAL, LTD.
CNA INSURANCE COMPANY LIMITED
(hereinafter referred to individually as the Beneficiary and collectively as the Beneficiaries),
NATIONAL INDEMNITY COMPANY
(hereinafter referred to as the Grantor)
and
WELLS FARGO BANK, NATIONAL ASSOCIATION
(hereinafter referred to as the Trustee)
AUGUST 31, 2010
Table of Contents
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Page
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ARTICLE I
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DEFINED TERMS
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Section 1.1
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Definitions
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2
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Section 1.2
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Interpretation
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6
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ARTICLE II
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MODIFICATION UPON A COLLATERAL TRIGGERING EVENT
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Section 2.1
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Collateral Triggering Event
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ARTICLE III
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MODIFICATION UPON A REINSURANCE CREDIT EVENT
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Section 3.1
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Reinsurance Credit Event
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ARTICLE IV
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CREATION OF TRUST ACCOUNT
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Section 4.1
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Obligations of the Beneficiaries and the Grantor
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9
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Section 4.2
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Purpose of the Trust
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10
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Section 4.3
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Grantor Trust for United States Federal Income Tax Purposes
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10
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Section 4.4
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Designation of Agents
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10
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Section 4.5
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Title to Assets
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ARTICLE V
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MAINTENANCE OF THE TRUST
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Section 5.1
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Substitution of Trust Account Assets
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Section 5.2
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Valuation of Assets
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11
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Section 5.3
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Quarterly Certification
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ARTICLE VI
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RELEASE AND ADJUSTMENT OF TRUST ACCOUNT ASSETS
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Section 6.1
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Adjustment of Trust Account Assets
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Page
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Section 6.2
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Release of Trust Account Assets to the Beneficiaries
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Section 6.3
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Release of Trust Account Assets to the Grantor
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13
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ARTICLE VII
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DUTIES OF THE TRUSTEE
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Section 7.1
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Acceptance of Assets by the Trustee
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14
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Section 7.2
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Collection of Interest and Dividends; Voting Rights
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14
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Section 7.3
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Obligations of the Trustee
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14
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Section 7.4
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Responsibilities of the Trustee
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14
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Section 7.5
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Books and Records
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Section 7.6
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Activity Reports
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Section 7.7
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Resignation or Removal of the Trustee; Appointment of Successor Trustee
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Section 7.8
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Release of Information
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Section 7.9
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Indemnification of the Trustee
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Section 7.10
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Charges of the Trustee
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Section 7.11
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Limitations of the Trustee
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Section 7.12
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Concerning the Trustee
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ARTICLE VIII
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TERMINATION
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Section 8.1
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Termination
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Section 8.2
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Disposition of Assets Upon Termination
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ARTICLE IX
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GENERAL PROVISIONS
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Section 9.1
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Notices
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Section 9.2
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Entire Agreement
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Section 9.3
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Waiver and Amendment
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20
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Section 9.4
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Successors and Assigns
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Section 9.5
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Headings
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Section 9.6
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Governing Law and Jurisdiction
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Section 9.7
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No Third Party Beneficiaries
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Section 9.8
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Counterparts
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Section 9.9
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Severability
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Section 9.10
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Specific
Performance
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Section 9.11
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Waiver of Jury Trial
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Section 9.12
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Incontestability
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Section 9.13
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Set-Off
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Section 9.14
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Currency
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ii
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ARTICLE X
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DISPUTE RESOLUTION
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Section 10.1
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Dispute Resolution
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Section 10.2
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Negotiation Amongst the Parties
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Section 10.3
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Arbitration
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ARTICLE XI
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EFFECTIVE DATE AND EXECUTION
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Appendix A
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Trust Provisions Following a Reinsurance Credit Event
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iii
TRUST AGREEMENT
THIS TRUST AGREEMENT
(this
Trust Agreement
) is made and entered into as of August 31, 2010,
by and among
Continental Casualty Company
, an Illinois property and casualty insurance company
(
CCC
),
The Continental Insurance Company
, a Pennsylvania property and casualty insurance company
(
CIC
),
Continental Reinsurance Corporation International, Ltd.
, a Bermuda long-term insurance
company (
CRCI
), and
CNA Insurance Company Limited
, a United Kingdom property and casualty
insurance company (
CICL
) (each of CCC, CIC, CRCI and CICL, a
Beneficiary
and collectively, the
Beneficiaries
),
National Indemnity Company,
a Nebraska property and casualty insurance company
(the
Grantor
) and
Wells Fargo Bank, National Association
, a national banking association, as
trustee (hereinafter referred to as
Trustee
).
WHEREAS
, in accordance with that certain Master Transaction Agreement, dated July 14, 2010, by
and among the Beneficiaries, the Grantor and Berkshire Hathaway Inc., a Delaware corporation and
the ultimate parent company of the Grantor, the Beneficiaries and the Grantor have entered into
that certain Loss Portfolio Transfer Reinsurance Agreement of even date herewith (the
LPT
Reinsurance Agreement
), whereby, subject to the terms and conditions thereof, they have agreed
that the Beneficiaries will cede to the Grantor, and the Grantor will reinsure, all liabilities
related to asbestos and pollution claims under the Business Covered;
WHEREAS
, the LPT Reinsurance Agreement contemplates that the Grantor and the Beneficiaries
enter into this Trust Agreement whereby the Grantor creates a trust to hold assets as security for
the satisfaction of the obligations of the Grantor to the Beneficiaries under this Trust Agreement
with respect to the Business Covered; and
WHEREAS
, the parties intend that, in the event of a Reinsurance Credit Event, certain
provisions of this Trust Agreement shall cease to be effective, and other provisions shall be
effective thereafter, as described in Article III.
NOW THEREFORE
, the Grantor, the Beneficiaries and the Trustee, in consideration of the mutual
covenants contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and upon the terms and conditions hereinafter set
forth, agree as follows:
[Signature Page to the Trust Agreement]
ARTICLE I
DEFINED TERMS
Section 1.1
Definitions
. The following terms, when used in this Trust Agreement, shall have the
meanings set forth in this Section 1.1. The terms defined below shall be deemed to refer to the
singular or plural, as the context requires.
(a)
AAA
shall have the meaning ascribed to such term in Section 10.3(a).
(b)
Applicable Interest Rate
shall have the meaning ascribed to such term in the LPT
Reinsurance Agreement.
(c)
Applicable Law
means any domestic or foreign, federal, state or local statute, law,
ordinance or code, or any written rules, regulations or administrative interpretations issued by
any Governmental Authority pursuant to any of the foregoing, in each case applicable to any party
hereto, and any Order, writ, injunction, directive, judgment or decree of a court of competent
jurisdiction applicable to the parties hereto.
(d)
Assets
shall mean the assets held in the Trust Account, including, as applicable,
Eligible Investments and Permitted Investments.
(e)
Beneficiary
and
Beneficiaries
shall have the meaning ascribed to such term in the
Preamble.
(f)
Business Covered
shall have the meaning ascribed to such term in the LPT Reinsurance
Agreement.
(g)
Business Day
shall mean any day other than a Saturday, Sunday or a day on which
commercial banks in Illinois or New York are required or authorized by law to be closed.
(h)
Code
shall mean the Internal Revenue Code of 1986, as amended from time to time.
(i)
Collateral Triggering Agreement
means any agreement entered into by the Grantor at any
time after the date hereof with any party and with an effective date after the date hereof, which
contains a provision requiring the Grantor to post collateral (whether by the procurement of a
letter of credit, the establishment of a collateral trust or any other means)
2
for the benefit of the counterparty to such agreement upon the occurrence of certain specified
events, changes or conditions. For the avoidance of doubt, any agreement which requires the
establishment of collateral at the time such agreement becomes effective absent any other
triggering events shall not be considered a Collateral Triggering Agreement.
(j)
Collateral Reduction Event
shall have the meaning ascribed to such term in Section
2.1(c).
(k)
Collateral Triggering Event
shall have the meaning ascribed to such term in Section
2.1(a).
(l)
Dispute
shall have the meaning ascribed to such term in Section 10.1.
(m)
Eligible Investments
shall mean, with respect to Assets conforming to the provisions of
this Trust Agreement prior to the occurrence of a Reinsurance Credit Event, cash and any
investments of the types permitted under the laws and regulations of Grantors domiciliary state
for property and casualty insurance companies;
provided
,
however
, that no Eligible Investments may
be issued by an institution that is the parent, subsidiary or affiliate of the Grantor; and
provided
,
further
, no single Eligible Investment (except cash) shall comprise more than twenty-five
percent (25%) of the Assets in the Trust Account. All Eligible Investments deposited in the Trust
Account shall be free of all liens, charges or encumbrances at the time so deposited.
(n)
Governmental Authority
shall mean any government, political subdivision, court, board,
commission, regulatory or administrative agency or other instrumentality thereof, whether federal,
state, provincial, local or foreign and including any regulatory authority which may be partly or
wholly autonomous.
(o)
Grantor
shall have the meaning ascribed to such term in the Preamble.
(p)
Inception Date
shall have the meaning ascribed to such term in the LPT Reinsurance
Agreement.
(q)
Initial Reconciliation Statement
shall have the meaning ascribed to such term in the LPT
Reinsurance Agreement.
(r)
Initial Security Amount
shall have the meaning ascribed to such term in Section 4.1.
3
(s)
Insurance Commissioner
shall mean the Governmental Authority responsible for the
regulation of insurance companies in the jurisdiction in which the Beneficiary is domiciled.
(t)
LPT Limit
shall have the meaning ascribed to such term in the LPT Reinsurance Agreement.
(u)
LPT Reinsurance Agreement
shall have the meaning ascribed to such term in the Recitals.
(v)
Permitted Investments
shall mean, with respect to Assets conforming to the provisions of
this Trust Agreement upon the occurrence of a Reinsurance Credit Event, cash and any investments of
the types permitted under the laws and regulations of the Beneficiarys domiciliary state or
country for trusts providing full statutory financial statement credit for reinsurance ceded by
property and casualty insurance companies,
provided
,
however
, that no Permitted Investments may be
issued by an institution that is the parent, subsidiary or affiliate of the Grantor. All Permitted
Investments deposited in the Trust Account shall be free of all liens, charges or encumbrances at
the time so deposited.
(w)
Order
means any order, writ, judgment, injunction, decree, stipulation, determination or
award entered by or with any Governmental Authority.
(x)
Quarterly Certification
shall have the meaning ascribed to such term in Section 5.3.
(y)
Reinsurance Credit Event
shall mean any financial impairment of the Grantor that results
in any Beneficiary being unable to obtain full statutory financial statement credit for the
reinsurance provided by the LPT Reinsurance Agreement in any applicable United States jurisdiction
at any point in time during the term of the LPT Reinsurance Agreement.
(z)
Reinsurance Credit Event Certification
shall have the meaning ascribed to such term in
Section 3.1(a).
(aa)
Reinsurance Credit Event Trust Accounts
shall have the meaning ascribed to such term in
Section 3.1(d).
(bb)
Reinsurance Credit Event Trust Agreements
shall have the meaning ascribed to such term
in Section 3.1(c).
4
(cc)
Reinsurance Premium
shall have the meaning ascribed to such term in the LPT Reinsurance
Agreement.
(dd)
Reinsured Contracts
shall have the meaning ascribed to such term in the LPT Reinsurance
Agreement.
(ee)
Reinsured Liabilities
shall have the meaning ascribed to such term in the LPT
Reinsurance Agreement.
(ff)
Required Amount
shall mean an amount equal to the
least
of (i) the aggregate
gross Reserves of the applicable Beneficiary (including reserves for losses incurred but not
reported) calculated in accordance with SAP with respect to the Business Covered; (ii) the LPT
Limit less the Ultimate Net Loss paid in respect of the applicable Beneficiary; and (iii) the LPT
Limit less the Ultimate Net Loss paid.
(gg)
Reserves
shall mean, as required by SAP or Applicable Law of the jurisdiction of
domicile of any entity, reserves, funds or provisions for losses, claims, unearned premiums,
benefits, costs and expenses (including allocated loss adjustment expenses) in respect of the
Business Covered.
(hh)
Rules
shall have the meaning ascribed to such term in Section 10.3(a).
(ii)
SAP
shall mean, as to any entity, the statutory accounting principles prescribed or
permitted by the Governmental Authority responsible for the regulation of insurance companies in
the jurisdiction in which such entity is domiciled.
(jj)
Security Amount
shall mean, (i) prior to the occurrence of a Collateral Triggering
Event, an amount equal to the Initial Security Amount
minus
any Ultimate Net Loss paid by
the Grantor under the LPT Reinsurance Agreement as of the date of calculation of the Security
Amount; and (ii) on and after the occurrence of a Collateral Triggering Event, an amount equal to
the
lesser
of (A) the aggregate gross Reserves of the Beneficiaries (including reserves for
losses incurred but not reported) calculated in accordance with SAP with respect to the Business
Covered, and (B) the LPT Limit less the Ultimate Net Loss paid.
(kk)
Third Party Appraiser
shall mean an independent appraisal firm which is mutually
acceptable to the Grantor and the Beneficiaries, or, if Grantor and Beneficiaries cannot agree on
such an appraisal firm, an independent appraisal firm selected by the parties respective
accountants.
5
(ll)
Trust
shall mean the trust formed hereunder, including such trust following a
Reinsurance Credit Event.
(mm)
Trust Account
shall have the meaning ascribed to such term in Section 4.1(a).
(nn)
Trust Agreement
shall have the meaning ascribed to such term in the Preamble.
(oo)
Trustee
shall have the meaning ascribed to such term in the Preamble.
(pp)
Ultimate Net Loss
shall have the meaning ascribed to such term in the LPT Reinsurance
Agreement.
Section 1.2
Interpretation
. When a reference is made in this Trust Agreement to a Section or Article,
such reference shall be to a section or article of this Trust Agreement unless otherwise clearly
indicated to the contrary. The Article and Section headings contained in this Trust Agreement are
solely for the purpose of reference, are not part of the agreement of the parties and shall not
affect in any way the meaning or interpretation of this Trust Agreement. Whenever the words
include, includes or including are used in this Trust Agreement, they shall be deemed to be
followed by the words without limitation. The words hereof, herein and herewith and words
of similar import shall, unless otherwise stated, be construed to refer to this Trust Agreement as
a whole and not to any particular provision of this Trust Agreement. The meaning assigned to each
term used in this Trust Agreement shall be equally applicable to both the singular and the plural
forms of such term and to both the masculine as well as the feminine and neuter genders of such
term. Any agreement, instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or statute as from time to
time amended, modified or supplemented, including (in the case of agreements or instruments) by
waiver or consent and (in the case of statutes) by succession of comparable successor statutes.
Where a word or phrase is defined herein, each of its other grammatical forms shall have a
corresponding meaning. References to a person are also to its successors and permitted assigns.
6
ARTICLE II
MODIFICATION UPON A COLLATERAL TRIGGERING EVENT
Section 2.1
Collateral Triggering Event
.
(a) If, at any time after the date hereof, the Grantor is required to post collateral pursuant
to the terms of one or more Collateral Triggering Agreements as a result of the occurrence of one
or more events, changes or conditions specified in such agreements, and the amount of collateral
required to be posted by the Grantor pursuant to such Collateral Triggering Agreement(s) is
reasonably expected by the Grantor to equal, either on an individual or aggregate basis, one
billion dollars ($1,000,000,000) or more (such event, the
Collateral Triggering Event
), then the
Grantor shall promptly notify the Beneficiaries of the Collateral Triggering Event and take the
following additional actions as set forth in this Section 2.1.
(b) Upon the occurrence of a Collateral Triggering Event, all references in this Trust
Agreement to Security Amount shall be modified in accordance with its definition to give effect
to the Collateral Triggering Event. In addition, as soon as is practicable, but no later than
contemporaneously with the posting of the collateral under any Collateral Triggering Agreement that
results in the Grantor posting one billion dollars or more of collateral either on an individual or
aggregate basis, the Grantor shall deposit such additional assets into the Trust Account so that
the aggregate fair market value of the Eligible Investments in the Trust Account equals the newly
computed Security Amount.
(c) Until such time as (i) the events, changes or conditions that gave rise to the collateral
requirement under one or more of the Collateral Triggering Agreements cease to exist or apply and
(ii) the Grantor has withdrawn or reduced the aggregate amount of collateral posted under
Collateral Triggering Agreements ((i) and (ii) together, the
Collateral Reduction Event
), the
Grantor shall ensure that the Trust Account shall hold Eligible Investments at all times with a
fair market value of no less than 100% of the Security Amount (as defined in clause (ii) of
Section 1.1(jj))
;
provided
,
however
, if a Collateral Reduction Event has occurred, the
Security Amount shall be reduced by a percentage which is proportionate to each percentage
reduction of all collateral posted under the Collateral Triggering Agreements;
provided
,
further
,
however
, in no event shall the Security Amount be reduced to an amount less than 100% of the
Security Amount (as defined in clause (i) of
Section 1.1(jj))
.
ARTICLE III
MODIFICATION UPON A REINSURANCE CREDIT EVENT
Section 3.1
Reinsurance Credit Event
.
(a) Notwithstanding anything in this Trust Agreement to the contrary, in the event the
Beneficiaries provide a written notice to the Trustee (and contemporaneous notice to the Grantor)
certifying that a Reinsurance Credit Event has occurred (such notice, the
Reinsurance Credit Event
Certification
), upon receipt of such certification by the Trustee, the provisions set forth in
Sections 4.1, 4.2, 5.1(a), 5.3, 6.1, 6.2, 6.3, 7.4, 7.5, 7.8, 7.11 and 9.2 hereof shall
automatically be replaced by the provisions set forth in
Appendix A
hereof for the
equivalent Sections and thereafter not be effective, and the provisions set forth in
Appendix
A
shall automatically become effective without further action by any party. In addition, any
other
7
provisions required under Applicable Law and regulations governing trusts providing full
statutory financial statement credit for reinsurance ceded by property and casualty insurance
companies in the United States to the extent applicable to CCC and CIC, shall be incorporated
herein. Notwithstanding the foregoing, the Trust created hereunder shall continue in existence.
Furthermore, the Reinsurance Credit Event Certification may, but shall not be required to, name
either CCC or CIC as the sole Beneficiary of the Trust following a Reinsurance Credit Event. If
the Reinsurance Credit Event Certification names either CCC or CIC as the sole Beneficiary of the
Trust, then for purposes of the Trust following a Reinsurance Credit Event, all references to the
term Beneficiary or Beneficiaries shall mean either CCC or CIC, as set forth in the Reinsurance
Credit Event Certification. The choice as to which of CCC or CIC shall be named as the sole
Beneficiary of the Trust following a Reinsurance Credit Event shall be made by the Beneficiaries in
their sole discretion at the time the Beneficiaries become aware that a Reinsurance Credit Event
has occurred.
(b) Following a Reinsurance Credit Event, the Grantor shall be required to replace the Assets
held in the Trust Account which are not Permitted Investments for Assets which are Permitted
Investments within five (5) Business Days following the receipt by the Grantor of the Reinsurance
Credit Event Certification. Simultaneously with such replacement of the Assets, the Grantor shall
either: (i) deposit into the Trust Account sufficient additional Assets so that the aggregate fair
market value of the Permitted Investments in the Trust Account equals the Required Amount or (ii)
withdraw from the Trust Account, to the extent the aggregate fair market value of the Permitted
Investments in the Trust Account exceeds 100% of the Required Amount, Assets equal to such excess
amount;
provided
,
however
, with respect to the withdrawal referenced in clause (ii), all such
withdrawn Assets shall be deposited promptly into one or more of the new trust accounts established
pursuant to the Reinsurance Credit Event Trust Agreements referenced in subparagraph (c) of this
Section 3.1.
(c) If the Reinsurance Credit Event Certification names either CCC or CIC as the sole
Beneficiary of the Trust following a Reinsurance Credit Event, then within five (5) Business Days
following the receipt by the Grantor of the Reinsurance Credit Event Certification, the Grantor and
the Trustee shall enter into separate trust agreements with each of the remaining Beneficiaries not
named as the sole Beneficiary in the Reinsurance Credit Event Certification (such trust agreements,
the
Reinsurance Credit Event Trust Agreements
). The Reinsurance Credit Event Trust Agreements
shall contain provisions substantially similar to the provisions set forth in this Trust Agreement
(after incorporation of the provisions set forth in
Appendix A
hereof), as well as any
other provisions and modifications required under the laws and regulations of the applicable
domiciliary state or country of the remaining Beneficiaries for trusts providing full statutory
financial statement credit for reinsurance ceded by property and casualty insurance companies.
(d) The trust account or accounts established pursuant to the Reinsurance Credit Event Trust
Agreements (
Reinsurance Credit Event Trust Accounts
) shall initially be funded by such Permitted
Investments from the Trust Account that represent the percentage of the remaining value of Assets
reflecting the portion of the Reinsurance Premium
8
that was contributed by the applicable Beneficiary, less Ultimate Net Loss paid in respect of
such Beneficiary. In addition to such assets, the Grantor shall deposit into the Reinsurance
Credit Event Trust Accounts sufficient additional assets so that the aggregate fair market value of
each Reinsurance Credit Event Trust Account equals the applicable Required Amount, provided that
the aggregate fair market value of all Reinsurance Credit Event Trust Account(s) and this Trust
Account shall not exceed an amount equal to the LPT Limit less Ultimate Net Loss paid. The
Reinsurance Credit Event Trust Accounts shall be funded with Permitted Investments only.
(e) The provisions set forth in
Appendix A
shall remain effective, and the Reinsurance
Credit Event Trust Accounts shall remain in place only for the time, and only to the extent,
required to address the event, change or condition giving rise to the Reinsurance Credit Event.
Each Beneficiary agrees that in the event that the Reinsurance Credit Event ceases to exist or
apply, each Beneficiary shall promptly provide its approval for the termination of the respective
Reinsurance Credit Event Trust Accounts and for the return of all assets to the Grantor;
provided
however
, the fair market value of the Permitted Investments transferred from the Trust Account to
the Reinsurance Credit Event Trust Accounts less Ultimate Net Loss paid on behalf of the
Beneficiaries since such transfer shall be transferred to the Trust Account. In addition, to the
extent that the obligations of the Grantor to provide security diminish, each Beneficiary shall
provide its approval for the reduction of the Trust Account and the respective Reinsurance Credit
Event Trust Accounts.
ARTICLE IV
CREATION OF TRUST ACCOUNT
Section 4.1
Obligations of the Beneficiaries and the Grantor
.
(a) Prior to the execution of this Trust Agreement, the Grantor shall have procured with the
Trustee, in the name of the Trustee, to be held for the sole benefit of the Beneficiaries pursuant
to the provisions of this Trust Agreement, a segregated trust account maintained by the Trustee
with account number 80460400 (which shall be hereinafter referred to as the
Trust Account
).
Simultaneously with the execution of this Trust Agreement, (i) the Beneficiaries shall transfer and
assign to such Trust Account, on behalf of the Grantor, Assets consisting of cash in the aggregate
amount of the Reinsurance Premium, together with interest accrued from the Inception Date at the
Applicable Interest Rate, and (ii) the Grantor shall transfer and assign to such Trust Account,
Assets consisting of cash in the aggregate amount of two hundred million dollars ($200,000,000).
The sum of the amounts referenced in (i) and (ii) in the foregoing sentence shall be referred to
herein as the
Initial Security Amount
.
(b) If the Beneficiaries owe any amount to the Grantor resulting from the adjustment of the
Reinsurance Premium as reflected in the Initial Reconciliation Statement delivered pursuant to
Section 2.3 of the Master Transaction Agreement, the Beneficiaries shall transfer and assign to the
Trust Account, on behalf of the Grantor, assets consisting of cash in the
9
amount owed. If the Grantor owes any amount to the Beneficiaries resulting from the
adjustment of the Reinsurance Premium as reflected in the Initial Reconciliation Statement
delivered pursuant to Section 2.3 of the Master Transaction Agreement, the Grantor shall instruct
the Trustee to promptly withdraw from the Trust Account assets consisting of cash in the amount
owed and transfer such amount to an account of the Beneficiaries in accordance with written
instructions provided by the Beneficiaries at the time of such withdrawal. The Trustee shall
promptly comply with such instruction.
(c) Unless there is a Collateral Triggering Event, the Grantor shall not be required to
transfer and assign additional assets into the Trust Account after the date hereof. Upon the
occurrence of a Collateral Triggering Event, however, the Grantor shall transfer and assign such
additional assets into the Trust Account in accordance with Section 2.1(b). Until such time the
condition giving rise to the Collateral Triggering Event ceases to exist or apply, the Grantor
shall ensure that the Trust Account shall hold Eligible Investments at all times with a fair market
value of no less than 100% of the Security Amount.
Section 4.2
Purpose of the Trust
.
(a) The Assets in the Trust Account shall be held by the Trustee for the sole purpose of
satisfying any obligations of the Grantor to the Beneficiaries with respect to the Business Covered
under the LPT Reinsurance Agreement.
(b) The Grantor grants to the Trustee all trust powers necessary and reasonable in the
performance of its duties hereunder except as otherwise expressly provided herein.
Section 4.3
Grantor Trust for United States Federal Income Tax Purposes
. The Trust Account shall be
treated as a grantor trust (pursuant to sections 671 through 677 of the Code) for United States
federal income tax purposes. The Grantor shall constitute the grantor (within the meaning of
sections 671 and 677 of the Code) and, thus, any and all income derived from the Assets held in the
Trust shall constitute income or gain of the Grantor as the owner of such Assets.
Section 4.4
Designation of Agents
. Except as otherwise expressly provided in this Trust Agreement, any
statement, certificate, notice, request, consent, approval, or other instrument to be delivered or
furnished by the Grantor or the Beneficiaries shall be sufficiently executed if executed in the
name of the Grantor or the Beneficiaries by such officer or officers of Grantor or Beneficiaries or
by such other agent or agents of the Grantor or the Beneficiaries as may be designated in a
resolution of the Board of Directors of the Grantor or the Beneficiaries or Committee thereof or a
letter of advice issued by the President, Secretary or Treasurer of the Grantor or the
Beneficiaries, as applicable. Written notice of such designation by the Grantor or the
Beneficiaries shall be filed with the Trustee. The Trustee shall be protected in acting upon any
written statement or other instrument made by such officers or agents of the Grantor or the
Beneficiaries with respect to the authority conferred on it.
10
Section 4.5
Title to Assets
. Title to any Assets transferred by the Grantor to the Trustee for deposit
to the Trust Account will be recorded in the name of the Trustee. The out-of-pocket costs of
transfers of title between the Grantor and the Trustee shall be shared equally by the Grantor and
the Beneficiaries, and the Grantor shall use reasonable efforts to limit such costs. The
Beneficiaries shall not have legal title to any part of the Assets, but shall have an undivided
beneficial interest in all Assets.
ARTICLE V
MAINTENANCE OF THE TRUST
Section 5.1
Substitution of Trust Account Assets
.
(a) The Grantor may, from time to time, substitute or exchange Assets contained in the Trust
Account,
provided
,
however
, (i) the Assets so substituted or exchanged must be Eligible
Investments, (ii) after giving effect to such substitution, the fair market value of the newly
deposited Assets are at least equal to the fair market value of the substituted Assets and (iii)
the replacement Assets to be deposited in the Trust Account in such substitution or exchange are
deposited therein on the day of withdrawal of the substituted or exchanged Assets. Upon any
substitution or exchange as provided for herein, the Grantor shall certify to the Trustee and
Beneficiaries that such substitution or exchange meets the requirements of this Section 5.1. The
Trustee shall act on the instruction and certification of the Grantor and shall give the
Beneficiaries prompt written notice of any substitution made pursuant hereto.
(b) The Grantor shall, prior to depositing any Assets into the Trust Account, and from time to
time as required, execute all assignments and endorsements in blank, or transfer legal title to the
Trustee of all shares, obligations or any other assets requiring assignment in order that the
Trustee, upon direction of the Beneficiaries, may whenever necessary negotiate any such assets
without consent or signature from the Grantor or any other entity.
Section 5.2
Valuation of Assets
. The Grantor shall determine the fair market value of any Assets in
the Trust Account. In making this determination, the Grantor shall use prices published by a
nationally recognized pricing service for Assets for which such prices are available, and for
Assets for which such prices are not available, the Grantor shall use methodologies consistent with
those which it uses for determining the fair market value of assets held in its own general account
(other than the Assets) in the ordinary course of business.
Section 5.3
Quarterly Certification
. Within fourteen (14) calendar days following the end of each
calendar quarter, the Grantor shall provide the Beneficiaries (with a copy to the Trustee) a
written certification (the
Quarterly Certification
) stating the Security Amount as of the
calendar quarter end and the aggregate fair market value of the Eligible Investments held in the
Trust Account as of the calendar quarter end (both on an asset-by-asset basis and a cumulative
basis). Such certification shall separately state the effect on the fair
11
market value of the Assets of withdrawals by the Grantor from the Trust Account effected during
such calendar quarter. As soon as is practicable, but in no event more than ten (10) Business Days
following its receipt of the Quarterly Certification, CCC, on behalf of the Beneficiaries, shall
either (i) countersign such certification and forward it to the Trustee or (ii) notify the Grantor
that it objects to the Grantors calculation of the Security Amount or the Grantors valuation of
any Asset. If the parties are able to resolve such dispute within ten (10) Business Days of CCCs
transmittal to the Grantor of its notice of objection, they shall promptly forward to the Trustee a
jointly signed certification of the Security Amount. If the parties are unable to resolve such
dispute within ten (10) Business Days of CCCs transmittal to the Grantor of its notice of
objection, and the dispute relates to the valuation of an Asset, the value of such Asset shall be
determined by a Third Party Appraiser and the parties shall be bound by such valuation. All other
disputes shall be resolved in accordance with Section 10.1. Upon resolution of such dispute, the
parties shall forward to the Trustee a copy of the corrected Quarterly Certification setting forth
the Security Amount as resolved through such Third Party Appraiser or arbitration. The Grantor
shall, to the extent reasonably necessary or required in order to verify Grantors certification,
permit CCC to audit its records in order to determine its compliance with this Section 5.3. The
Grantor shall cooperate fully with such audit. Access to the Grantor and its employees by CCC in
connection with such audit shall be at reasonable times during regular business hours upon
reasonable prior written notice (including by e-mail) in a manner which does not unreasonably
interfere with the business or operations of the Grantor.
ARTICLE VI
RELEASE AND ADJUSTMENT OF TRUST ACCOUNT ASSETS
Section 6.1
Adjustment of Trust Account Assets
.
(a) The Security Amount as of the end of each calendar quarter shall be certified to the
Trustee by the Grantor in the manner set forth in Section 5.3 hereof.
(b) Following the occurrence of a Collateral Triggering Event, if the aggregate fair market
value of the Eligible Investments maintained in the Trust Account as of any calendar quarter end is
less than the Security Amount (computed taking into account the occurrence of the Collateral
Triggering Event) as of such calendar quarter end, then within five (5) Business Days Grantor shall
deposit into the Trust Account such additional Assets with an aggregate fair market value as are
necessary to ensure that the aggregate fair market value of the Eligible Investments held in the
Trust Account is no less than 100% of the Security Amount as of the immediately prior calendar
quarter end.
(c) If, following a Collateral Triggering Event, the event, change or condition which gave
rise to the collateralization requirement ceases to exist or apply, then the Security Amount shall
thereafter (until the occurrence of a further Collateral Triggering Event) be computed without
regard to such Collateral Triggering Event.
12
Section 6.2
Release of Trust Account Assets to the Beneficiaries
. By transmittal of prior written
notice to the Trustee (with a copy to Grantor), together with a final order of an arbitration panel
or court of competent jurisdiction, any of the Beneficiaries may withdraw Assets from the Trust
Account to make payment of, or reimburse itself for, any amount which it may be required to pay
under or arising out of the Reinsured Contracts to the extent relating to the Business Covered;
provided that notice of such withdrawal is provided not less than five (5) Business Days in advance
of the requested withdrawal. The Trustee shall promptly comply with such notice. The Security
Amount shall be reduced by any amount so withdrawn.
Section 6.3
Release of Trust Account Assets to the Grantor
.
(a) The Grantor agrees that all proceeds from the sale or substitution of the Assets in the
Trust Account and the collection of interest, dividends and other income in respect to the Assets
in the Trust Account shall be retained in the Trust Account and shall not be released to the
Grantor, except in accordance with the provisions set forth in subparagraphs (b) and (c) in this
Section 6.3.
(b) At each calendar quarter end, by transmittal of prior written notice to the Trustee and
contemporaneous notice to the Beneficiaries, the Grantor may withdraw Assets from the Trust Account
in the amount of the Ultimate Net Loss it has actually paid under the LPT Reinsurance Agreement
during such quarter;
provided
,
however
, that in connection with any such withdrawal, the Grantor
shall provide a written certification to the Trustee stating the fair market value of each non-cash
Asset withdrawn. The Trustee shall promptly comply with such notice.
(c) Commencing at the fifth anniversary of the date hereof, at any calendar quarter end
following the delivery of the Quarterly Certification as to which there is no dispute outstanding
between the Grantor and the Beneficiaries, in the event the aggregate fair market value of the
Eligible Investments maintained in the Trust Account exceeds 150% of the gross Reserves of the
Beneficiaries (including reserves for losses incurred but not reported) calculated in accordance
with SAP with respect to the Business Covered as of such calendar end, then by transmittal of
fourteen (14) calendar days prior written notice to the Trustee and the Beneficiaries, the Grantor
may direct the Trustee to withdraw from the Trust Account and transfer to the Grantor Assets having
a fair market value equal to the amount of such excess;
provided
,
however
, following a Collateral
Triggering Event, the Grantor shall be permitted to withdraw Assets from the Trust Account pursuant
to this Section 6.3(c) only to the extent that the aggregate fair market value of the Eligible
Investments remaining in the Trust Account after such withdrawal is not less than 100% of the
Security Amount. The Trustee shall promptly comply with such notice.
13
ARTICLE VII
DUTIES OF THE TRUSTEE
Section 7.1
Acceptance of Assets by the Trustee
.
(a) The Trustee shall not accept any Assets (other than cash) for deposit into the Trust
Account unless the Trustee determines that it is or will be the registered owner of and holder of
legal title to the Assets or that such Assets are in such form that the Trustee may, if applicable
to such asset class, negotiate any such Assets, without consent or signature from the Grantor or
any other person or entity. Any Assets received by the Trustee which, if applicable to such asset
class, are not in such proper negotiable form or for which title has not been transferred to the
Trustee shall not be accepted by the Trustee and shall be returned to the Grantor as unacceptable.
(b) The Trustee and its lawfully appointed successors is and are authorized and shall have the
power to receive such Assets as the Grantor (or the Beneficiaries on behalf of the Grantor) from
time to time may transfer or remit to the Trust Account and to hold and dispose of the same for the
uses and purposes and in the manner and according to the provisions herein set forth. All such
Assets at all times shall be maintained as a trust account, separate and distinct from all other
assets on the books and records of the Trustee, and shall be continuously kept in a safe place
within the United States.
Section 7.2
Collection of Interest and Dividends; Voting Rights
. The Trustee is hereby authorized,
without prior notice to the Grantor or the Beneficiaries, to demand payment of and collect all
interest or dividends on the Assets comprising the Trust Account if any. All payments of interest,
dividends and other income in respect to Assets in the Trust Account shall be deposited promptly
upon receipt by the Trustee into the Trust Account. Subject to the other provisions of this Trust
Agreement, the Grantor shall have the full and unqualified right to direct the Trustee to vote, and
to execute consents, bond powers, stock powers, mortgage and title instruments and other
instruments of transfer, pledge and release with respect to any Assets comprising the Trust
Account.
Section 7.3
Obligations of the Trustee
. The Trustee agrees to hold and disburse the various Assets of
the Trust Account in accordance with the provisions expressed herein.
Section 7.4
Responsibilities of the Trustee
.
(a) The Trustee, in the administration of the Trust Account, is to be bound solely by the
express provisions herein, and such further written and signed directions as the appropriate party
or parties may, under the conditions herein provided, deliver to the Trustee. The Trustee shall be
under no obligation to enforce the Grantors obligations under this Trust Agreement, except as
otherwise expressly provided or directed pursuant hereto. The Trustee
14
shall be restricted to holding title to, operating and collecting the Assets comprising the
Trust Account and the payment and distribution thereof for the purposes set forth in this Trust
Agreement and to the conservation and protection of such Assets and the administration thereof in
accordance with the provisions of this Trust Agreement, and the Trustee shall be liable only for
its own negligence, willful misconduct or lack of good faith and for the breach of the Trustees
obligations under this Trust Agreement;
provided
,
however
, that any actions taken in strict
accordance with written instructions provided to the Trustee from the parties hereto will not
constitute a breach of the Trustees obligations under this Trust Agreement. Upon request of the
Grantor or the Beneficiaries, the Trustee further agrees promptly to forward to such party a
statement and valuation of all Assets held in the Trust Account.
(b) Subject to the other provisions of this Trust Agreement, including the requirement that
only Eligible Investments may be held in the Trust Account, and provisions relating to the
substitution of Assets, (i) the Grantor shall have the irrevocable authority and sole power to
direct the Trustee, in the Grantors sole discretion, with respect to all aspects of the management
or investment of the Assets contained in the Trust Account, including, but not limited to,
directing the Trustee to enter into one or more investment management, advisory, custodial,
depository or other agreements of form and substance specified by the Grantor, with any other
person, including any affiliate of the Grantor, selected by the Grantor and (ii) the Trustee and
the Beneficiaries each acknowledges that it has no authority with respect to such management or
investment activities, the Trustee agrees it will not exercise any discretion or take any action
with respect to the matters in clause (i) above and the Trustee will take any actions related
thereto as directed by the Grantor in accordance therewith.
Section 7.5
Books and Records
. The Trustee shall keep full and complete records of the
administration of the Trust Account. The Grantor and the Beneficiaries may examine such records,
upon reasonable notice to the Trustee, at any time during business hours through any person or
persons duly authorized in writing by Grantor or the Beneficiaries, at the requesting partys
expense.
Section 7.6
Activity Reports
. The Trustee agrees to provide an activity report to the Beneficiary and
the Grantor upon creation of the Trust Account and within five (5) days following receipt of the
report from the Grantor, which report shall, in reasonable detail, show (i) all deposits,
withdrawals and substitutions during such quarter; (ii) a listing of securities and other assets
held and cash balances in the Trust Account as of the last day of such quarter and (iii) the fair
market value (determined in accordance with Section 5.2) of each Asset held in the Trust Account
(other than cash) and the amount of cash held in the Trust Account as of the last day of such
quarter. The Trustee agrees to provide written notification to the Grantor and the Beneficiaries
within five (5) days of any deposits to or withdrawals from the Trust Account.
Section 7.7
Resignation or Removal of the Trustee; Appointment of Successor
Trustee
.
(a) The Trustee may at any time resign as Trustee and terminate its capacity hereunder by
delivery of written notice of resignation, effective not less than ninety (90)
15
days after receipt by both the Beneficiaries and the Grantor. The Trustee may be removed by
the Grantor by (i) delivery to the Trustee and the Beneficiaries of a written notice of removal,
effective not less than ninety (90) days after receipt by the Trustee and the Beneficiaries of the
notice and (ii) receipt of the Beneficiaries consent to such action, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, no such resignation by the Trustee or
removal by the Grantor shall be effective until a successor to the Trustee shall have been duly
appointed by the Grantor and approved by the Beneficiaries and all the securities and other Assets
in the Trust Account have been duly transferred to such successor. The Grantor, upon receipt of
such notice of resignation, shall undertake to obtain the agreement of a qualified, successor
depository, agreeable to the Beneficiaries, to act as a successor Trustee in accordance with all
agreements of the Trustee herein and upon duly qualifying to act as such pursuant to Section
7.7(b). The Beneficiaries agree not to withhold unreasonably approval of such Trustee. Upon the
Trustees delivery of the Assets to the qualified, successor depository, along with a closing
statement showing all activities from the last quarterly report, the Trustee shall be discharged of
further responsibilities hereunder, subject to any remaining obligations under Sections 7.4 and
7.7(b).
(b) Any successor Trustee appointed hereunder shall execute an instrument accepting such
appointment hereunder and shall deliver the same to the Grantor and to the then acting Trustee.
Thereupon such successor Trustee shall, without any further act, become vested with all the
estates, properties, rights, powers, trusts and duties of its predecessor in the Trust with like
effect as if originally named herein; but the predecessor Trustee shall nevertheless, when
requested in writing by the successor Trustee, execute an instrument or instruments conveying and
transferring to the Trustee upon the Trust herein all the estates, properties, rights, powers and
trusts of such predecessor Trustee, and shall duly assign, transfer and deliver to the Trustee all
property and money held by such predecessor hereunder. The predecessor Trustee shall be entitled
to reimbursement in accordance with Section 7.10 for all expenses it incurs in connection with the
settlement of its accounts and the transfer and delivery of the Trust assets to its successor. The
predecessor Trustee shall continue to be indemnified by reason of such entity being or having been
a Trustee in accordance with Section 7.9.
Section 7.8
Release of Information
. The Trustee shall promptly respond to any and all reasonable
requests for information concerning the Trust Account or the Assets held therein by any of the
parties to this Trust Agreement. Furthermore, the Trustee shall fully and completely respond to
any direct inquiries of any applicable regulatory authority with jurisdiction over the Grantor or
any of the Beneficiaries concerning the Trust Account or the Assets held hereunder, including
detailed inventories of securities or funds, and the Trustee shall permit such regulatory authority
to examine and audit all securities or funds held hereunder. The Trustee shall promptly provide
notice to the Beneficiaries and the Grantor concerning all such inquiries, and shall provide seven
(7) days prior notice to the Beneficiaries and the Grantor of all such examinations and audits.
Section 7.9
Indemnification of the Trustee
. In consideration of the Trustees acceptance of this Trust
Agreement, if the Trustee renders any service not provided for in this Trust Agreement, the Grantor
and the Beneficiary shall, severally and not jointly, reasonably compensate the Trustee for such
extraordinary services, reimburse the Trustee for all reasonable
16
costs, attorneys fees and expenses occasioned thereby, and indemnify, defend and hold the Trustee
(and its directors, officers and employees) harmless from and against any loss, liability, damage,
cost and expense of any nature arising out of or in connection with this Trust Agreement or with
the performance of its duties hereunder, including, among other things, reasonable attorneys fees
and court costs, except to the extent such loss, liability, damage, cost and expense shall be
caused by the Trustees own negligence, willful misconduct or lack of good faith. Whenever an
action by the Trustee is authorized by written signed direction pursuant to the provisions of this
Trust Agreement and such action is taken strictly in accordance with such written and signed
direction by the appropriate party or parties, the party or parties authorizing such action hereby
agree to indemnify the Trustee against all losses, damages, costs and expenses, including
reasonable attorneys fee, resulting from any action so taken by the Trustee. The provisions of
this paragraph shall survive the termination of this Trust Agreement and the resignation or removal
of the Trustee for any reason.
Section 7.10
Charges of the Trustee
. The Grantor agrees to pay all reasonable costs or fees charged by
the Trustee for acting as the Trustee pursuant to this Trust Agreement, as agreed between the
Grantor and the Trustee, including fees incurred by the Trustee for legal services deemed
reasonably necessary by the Trustee as a result of the Trustees so acting;
provided
,
however
, that
no such costs, fees or expenses shall be paid out of the Assets held in or credited to the Trust
Account.
Section 7.11
Limitations of the Trustee
. The Trustee shall in no way be responsible for determining the
amount of Assets required to be deposited, or monitoring whether or not the Assets held within the
Trust Account are Eligible Investments. The Trustee shall be under no liability for any release of
Assets made by it to the Grantor in accordance with Article VI.
Section 7.12
Concerning the Trustee
.
(a) No provision in this Trust Agreement shall require the Trustee to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers.
(b) The Trustee shall be entitled to rely on advice of or on an opinion of counsel concerning
all matters of trust and its duty hereunder and shall not be liable for any action taken or not
taken by it in reliance on such advice or on such opinion of counsel.
(c) The Trustee may conclusively rely and shall be fully protected in acting or refraining
from acting upon any resolution notice, request, consent, certificate, order, entitlement order,
affidavit, letter, telegram, facsimile transmission, electronic mail or other paper or document
believed by it to be genuine and to have been signed or sent by the proper person or persons. The
Trustee shall not be bound to make any investigation into the facts or matters stated in any
resolution, notice, consent, request, certificate, order, entitlement order, affidavit, letter,
telegram, facsimile transmission, electronic mail or other paper or document.
17
(d) The permissive right of the Trustee to take action enumerated in this Trust Agreement
shall not be construed as a duty and it shall not be answerable for other than its negligence,
willful misconduct or lack of good faith. In no event shall the Trustee be liable for indirect,
special, incidental, punitive or consequential losses or damages, including but not limited to lost
profits, whether or not foreseeable, even if the Trustee has been advised of the possibility
thereof.
(e) The Trustee shall not be required to give any bond or surety in respect of the execution
of the said trusts and powers or otherwise in respect of the Assets.
(f) The Trustee shall not be accountable for the use or application by the Grantor or any
Beneficiary or any other party of Assets which the Trustee has released in accordance with the
terms of this Trust Agreement.
(g) The Trustee makes no representations as to the validity or sufficiency of the Assets and
the Trust Account for any particular purpose and shall incur no responsibility in respect thereof,
other than in connection with the duties or obligations assigned to or imposed upon it as provided
herein.
(h) The Trustee shall not be responsible for the perfection, priority or enforceability of any
lien or security interest in any of the Assets or in the Trust Account.
(i) In accepting the trust hereby created, the Trustee acts solely as trustee and not in its
individual capacity, and all persons having any claim against the Trustee arising from this Trust
Agreement, shall look only to the Assets held by the Trustee hereunder for payment except as
otherwise provided herein.
(j) The Trustee shall not be considered in breach of or in default in its obligations
hereunder in the event of delay in the performance of such obligations due to unforeseeable causes
beyond its control (including, but not limited to, any act or provision of any present or future
law or regulation or governmental authority, any act of God or war, civil unrest, local or national
disturbance or disaster, any act of terrorism, or the unavailability of the Federal Reserve Bank
wire or other wire or communication facility) or without its willful misconduct, negligence or lack
of good faith.
ARTICLE VIII
TERMINATION
Section 8.1
Termination
. This Trust Agreement may not be terminated by the Grantor unless the Grantor
has obtained, and the Trustee has received, a written consent signed
18
by the General Counsel of CCC to terminate this Trust Agreement. The Beneficiaries shall provide
their consent to the termination of this Trust Agreement if the Grantor seeks to terminate this
Trust Agreement as a result of the exhaustion of the LPT Limit.
Section 8.2
Disposition of Assets Upon Termination
. Upon a termination pursuant to this Article VIII,
the Trustee shall distribute all Assets held and deposited under this Trust Agreement, subject to
the written approval of the Beneficiaries, to the Grantor and shall take any and all steps
necessary to transfer absolutely and unequivocally all right, title and interest in such Assets and
to deliver physical custody, if applicable, in such Assets to the Grantor or as otherwise directed
by the Grantor.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1
Notices
. Any notice, request, demand, waiver, consent, approval or other communication
required or permitted to be given by any party under this Trust Agreement shall be in writing and
shall be delivered personally, sent by facsimile transmission, sent by registered or certified
mail, postage prepaid, or sent by a standard overnight courier of national reputation with written
confirmation of delivery. Any such notice shall be deemed given when so delivered personally, or
if sent by facsimile transmission, on written confirmation of receipt, or if mailed, on the date
shown on the receipt therefor, or if sent by overnight courier, on the date shown on the written
confirmation of delivery. Such notices shall be given to the following addresses:
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If to the Trustee:
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Wells Fargo Bank, National Association
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5 Broadway, 14
th
floor
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New York, New York 10006
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Attention: Stephen Bruce
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Facsimile: (212) 509-1716
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If to the Grantor:
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National Indemnity Company
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100 First Stamford Place
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Stamford, CT 06902
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Attention: General Counsel
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Fax: 203-363-5221
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With a copy to:
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National Indemnity Company
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3024 Harney Street
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Omaha, NE 68131
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Attention: Treasurer
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Fax: 402-916-3030
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If to the Beneficiaries:
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CNA Financial Corporation
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333 S. Wabash Avenue
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Chicago, IL 60604
Attention: Jonathan D. Kantor
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Executive Vice President,
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General Counsel and Secretary
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Fax: 312-817-0511
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With a copy to:
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CNA Financial Corporation
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333 S. Wabash Avenue
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Chicago, IL 60604
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Attention: Michael P. Warnick
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Senior Vice President and
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Deputy General Counsel
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Fax: 312-755-2479
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Each party to this Trust Agreement may change its notice provisions on fifteen (15) calendar days
advance notice in writing to the other parties to this Trust Agreement.
Section 9.2
Entire Agreement
. Subject to the provisions of Section 7.4(a), this Trust Agreement,
including
Appendix A
hereto, the LPT Reinsurance Agreement and any other documents
delivered pursuant hereto or thereto, constitute the entire agreement among the parties hereto and
their respective affiliates with respect to the subject matter hereof and supersede all prior
negotiations, discussions, writings, agreements and understandings, oral and written, among the
parties hereto with respect to the subject matter hereof and thereof.
Section 9.3
Waiver and Amendment
. This Trust Agreement and the Trust created hereunder shall be
irrevocable, subject solely to the termination provisions set forth herein. The Grantor shall have
no right or power in any capacity to revoke, terminate or, except as provided in Section 3.1, alter
or amend any terms of this Trust Agreement, in whole or in part, without the prior written consent
of the Beneficiaries and the Trustee. Notwithstanding the foregoing, this Trust Agreement may be
altered, amended or terminated at any time by written agreement executed by each party hereto. The
Beneficiaries failure at any time to exercise any of the rights or powers conferred upon them
herein shall constitute neither a waiver of their right to exercise, nor stop them from exercising,
any rights at any subsequent time, nor shall such failure reduce in any degree any liability or
obligation for which the Grantor is bound hereunder.
Section 9.4
Successors and Assigns
. The rights and obligations of a party under this Trust Agreement
shall not be subject to assignment without the prior written consent of the other parties hereto,
and any attempted assignment without the prior written consent of the other parties hereto shall be
invalid
ab initio
. The terms of this Trust Agreement shall be binding upon, inure to the benefit
of and be enforceable by and against the successors and permitted assigns of the parties hereto.
Notwithstanding the foregoing, any corporation or association into which the Trustee may be merged
or converted, or with which it may be consolidated, or to which it may sell or transfer all or
substantially all of its corporate trust business shall be the successor to the Trustee without the
execution or filing of any paper or further act.
Section 9.5
Headings
. The headings of this Trust Agreement are for convenience of reference only and
shall not define or limit any of the terms or provisions hereof.
Section 9.6
Governing Law and Jurisdiction
. This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard
20
to such states principles of conflict of laws that could compel the application of the laws
of another jurisdiction. SUBJECT TO ARTICLE X, ANY SUIT, ACTION OR PROCEEDING TO COMPEL
ARBITRATION OR FOR TEMPORARY INJUNCTIVE RELIEF IN AID OF ARBITRATION OR TO PRESERVE THE STATUS QUO
PENDING THE APPOINTMENT OF THE ARBITRATOR(S) SHALL BE BROUGHT BY THE PARTIES HERETO SOLELY IN THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, PROVIDED THAT IF SAID COURT
DETERMINES THAT IT DOES NOT HAVE SUBJECT MATTER JURISDICTION THEN SAID ACTIONS MAY BE BROUGHT IN
THE SUPREME COURT OF THE STATE OF NEW YORK FOR NEW YORK COUNTY; AND EACH OF THE BENEFICIARIES, THE
GRANTOR AND THE TRUSTEE EACH HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS
FOR SUCH PURPOSE AND ANY APPELLATE COURTS THEREOF, EXCEPT THAT ANY FINAL ARBITRAL AWARD RENDERED IN
ACCORDANCE WITH ARTICLE XIV MAY BE ENTERED AND ENFORCED IN ANY COURT HAVING JURISDICTION OVER ANY
PARTY HERETO OR ANY OF ITS ASSETS.
Section 9.7
No Third Party Beneficiaries
. Nothing in this Trust Agreement is intended or shall be
construed to give any person, other than the parties hereto, any legal or equitable right, remedy
or claim under or in respect of this Trust Agreement or any provision contained herein.
Section 9.8
Counterparts
. This Trust Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument binding upon all of the parties
hereto notwithstanding the fact that all parties hereto are not signatory to the original or the
same counterpart. Each counterpart may consist of a number of copies hereof each signed by less
than all, but together signed by all of the parties hereto. Each counterpart may be delivered by
facsimile transmission, which transmission shall be deemed delivery of an originally executed
document.
Section 9.9
Severability
. Any term or provision of this Trust Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Trust Agreement or affecting the validity or enforceability of any of the
terms or provisions of this Trust Agreement in any other jurisdiction, so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any manner materially
adverse to any party hereto. If any provision of this Trust Agreement is so broad as to be
unenforceable, that provision shall be interpreted to be only so broad as is enforceable. In the
event of such invalidity or unenforceability of any term or provision of this Trust Agreement, the
parties hereto shall use their commercially reasonable efforts to reform such terms or provisions
to carry out the commercial intent of the parties hereto as reflected herein, while curing the
circumstance giving rise to the invalidity or unenforceability of such term or provision.
Section 9.10
Specific Performance
. Each of the parties hereto acknowledges and agrees that the other
parties hereto would be irreparably damaged in the event that any of the provisions of this Trust
Agreement were not performed or complied with in accordance with
21
their specific terms or were otherwise breached, violated or unfulfilled. Accordingly, each of the
parties hereto agrees that the other parties hereto shall be entitled to an injunction or
injunctions to prevent noncompliance with, or breaches or violations of, the provisions of this
Trust Agreement by the other parties hereto and to enforce specifically this Trust Agreement and
the terms and provisions hereof in any action instituted in accordance with Section 9.6, in
addition to any other remedy to which such party may be entitled, at law or in equity. In the
event that any action is brought in equity to enforce the provisions of this Trust Agreement, no
party hereto will allege, and each party hereto hereby waives the defense or counterclaim, that
there is an adequate remedy at law. The parties hereto further agree that (i) by seeking the
remedies provided for in this Section 9.10, a party hereto shall not in any respect waive its right
to seek any other form of relief that may be available to a party under this Trust Agreement,
including monetary damages in the event that this Trust Agreement has been terminated or in the
event that the remedies provided for in this Section 9.10 are not available or otherwise are not
granted and (ii) nothing contained in this Section 9.10 shall require any party hereto to institute
any action for (or limit any partys right to institute any action for) specific performance under
this Section 9.10 before exercising any termination right under Article VIII, nor shall the
commencement of any action pursuant to this Section 9.10 or anything contained in this Section 9.10
restrict or limit any partys right to terminate this Trust Agreement in accordance with the terms
of Article VIII or pursue any other remedies under this Trust Agreement that may be available then
or thereafter.
Section 9.11
Waiver of Jury Trial
. EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS TRUST AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS TRUST AGREEMENT. EACH OF THE PARTIES HERETO HEREBY (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTIES HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PARTIES WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS TRUST AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED BY THIS TRUST AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.
Section 9.12
Incontestability
. In consideration of the mutual covenants and agreements contained
herein, each party hereto does hereby agree that this Trust Agreement, and each and every provision
hereof, is and shall be enforceable by and between them according to its terms, and each party
hereto does hereby agree that it shall not contest in any respect the validity or enforceability
hereof.
Section 9.13
Set-Off
. Any debts or credits, matured or unmatured, liquidated or unliquidated,
regardless of when they arose or were incurred, in favor of or against any of the Beneficiaries or
the Grantor with respect to this Trust Agreement are deemed mutual debts or credits, as the case
may be, and shall be set off, and only the net balance shall be allowed or paid.
22
Section 9.14
Currency
. All financial data required to be provided pursuant to the terms of this Trust
Agreement shall be expressed in United States dollars. All payments and all settlements of account
between the parties hereto shall be in United States currency unless otherwise agreed by the
parties hereto.
ARTICLE X
DISPUTE RESOLUTION
Section 10.1
Dispute Resolution
. Notwithstanding anything contained herein to the contrary, any dispute
between the Beneficiary and the Grantor arising out of or relating to this Trust Agreement or the
breach, termination or validity hereof (
Dispute
) will be first addressed in accordance with the
procedures specified in Section 10.2, and subsequently, if necessary, Section 10.3, which will be
the sole and exclusive procedures for the resolution of any such Disputes.
Section 10.2
Negotiation Amongst the Parties
.
(a) The Beneficiaries and the Grantor agree that they shall first attempt to resolve Disputes
by informal in-person discussions and negotiations of their respective representatives. If a
Beneficiary and the Grantor are unable to resolve any such Dispute through such in-person
discussions and negotiations within thirty (30) calendar days of the day on which either the
Beneficiary and the Grantor receives from the other party or parties written notice of a Dispute,
the Dispute shall be submitted for resolution to a designated executive officer of each of the
Beneficiary and the Grantor with authority to make a decision. If the designated executive
officers are unable to reach a mutually acceptable resolution within ten (10) calendar days after
expiration of such thirty-day period, on the request of either the Beneficiary or the Grantor, the
Dispute shall be resolved in accordance with subsection (b). All negotiations, discussions, and
communications made or conducted pursuant to the procedures set forth in this Section 10.2(a) are
confidential and will be treated as compromise and settlement negotiations for purposes of the
Federal Rules of Evidence and any other applicable rules of evidence.
(b) Upon completion of the dispute resolution process described in subsection (a) of this
Section 10.2 without resolution of the Dispute, either the Beneficiary or the Grantor may submit
the Dispute for resolution in accordance with Section 10.3.
Section 10.3
Arbitration
.
(a) Except as provided in Sections 10.1 and 10.2, any Dispute shall be finally determined by
arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration
Association (
AAA
) then in effect (the
Rules
), except as modified herein. If the amount in
controversy is five million dollars ($5,000,000) or less (including all claims and counterclaims)
there shall be one arbitrator who shall be agreed upon by the Beneficiary and the Grantor within
twenty (20) calendar days of receipt by respondent(s) of a
23
copy of the demand for arbitration. The single arbitrator may not award an amount greater
than five million dollars ($5,000,000) in value under any circumstances. If the amount in
controversy is more than five million dollars ($5,000,000) (including all claims and counterclaims)
there shall be three neutral and impartial arbitrators, one of whom shall be appointed by each of
(i) the Beneficiary, on the one hand and (ii) the Grantor, on the other hand, within thirty (30)
calendar days of receipt by respondent(s) of the demand for arbitration, and the third arbitrator,
who shall chair the arbitral tribunal, shall be appointed by the party appointed arbitrators within
fifteen (15) calendar days of the appointment of the second arbitrator. If any arbitrator is not
appointed within the time limit provided herein, such arbitrator shall be appointed by the AAA in
accordance with the listing, striking and ranking procedure in the Rules, with each of the
Beneficiary and the Grantor being given a limited number of strikes, except for cause. Any
arbitrator appointed by the AAA shall be a retired federal or state appellate court judge or a
current or retired officer of an insurance company with no less than fifteen (15) years of
experience in the property casualty insurance industry. The arbitration hearing on the merits
shall be commenced within ninety (90) calendar days of the appointment of the arbitrator(s) or as
soon thereafter as practicable. In rendering an award, the arbitral tribunal shall be required to
follow the laws of the State of New York. The award shall be in writing and shall briefly state
the findings of fact and conclusions of law on which it is based. The arbitrator(s) shall be
permitted to award any relief permitted under New York law, including damages and any form of
temporary or permanent injunctive relief, but shall not be permitted to award special, indirect,
punitive or incidental damages or damages for lost profits or any other consequential damages or
damages based on multiples or similar valuation techniques. The award shall be final and binding
upon the Beneficiary and the Grantor and shall be the sole and exclusive remedy between the
Beneficiary and the Grantor regarding any claims, counterclaims, issues or accounting presented to
the arbitrator(s). Judgment upon the award may be entered in any court having jurisdiction over
the Beneficiary and the Grantor or any of their respective assets. Any costs or fees (including
attorneys fees and expenses) incident to enforcing the award shall be charged against the
Beneficiary and the Grantor resisting such enforcement. Arbitrability of any and all disputes
shall be decided by the arbitrator(s). In the event of any inconsistency between the Rules and the
provisions of this Article X, the provisions of this Article X shall control.
(b) Arbitration hereunder shall be conducted in Chicago, Illinois or New York, New York, as
determined by the party against whom the arbitration is demanded.
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ARTICLE XI
EFFECTIVE DATE AND EXECUTION
IN WITNESS OF THE ABOVE, this Trust Agreement is executed in triplicate by the parties duly
authorized officers on the dates indicated below with an effective date of: August 31, 2010.
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CONTINENTAL CASUALTY COMPANY, as Beneficiary
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By:
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/s/ Lawrence J. Boysen
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Title: Senior Vice President and Corporate Controller
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Date: August 25, 2010
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Attest:
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/s/ Mary A. Ribikawskis
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Title: Assistant Vice President and Assistant Secretary
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Date: August 25, 2010
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THE CONTINENTAL INSURANCE COMPANY, as Beneficiary
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By:
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/s/ Lawrence J. Boysen
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Title: Senior Vice President and Corporate Controller
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Date: August 25, 2010
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Attest:
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/s/ Mary A. Ribikawskis
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Title: Assistant Vice President and Assistant Secretary
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Date: August 25, 2010
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CONTINENTAL REINSURANCE CORPORATION INTERNATIONAL, LTD., as Beneficiary
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By:
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/s/ Lawrence J. Boysen
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Title: Chairman of the Board and President
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Date: August 25, 2010
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[Signature Page to the Trust Agreement]
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Attest:
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/s/ Mary A. Ribikawskis
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Title: Assistant Vice President and Assistant Secretary
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Date: August 25, 2010
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CNA INSURANCE COMPANY LIMITED, as Beneficiary
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By:
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/s/ Lawrence J. Boysen
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Title: Authorized Representative
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Date: August 25, 2010
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Attest:
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/s/ Stephen Baker
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Title: Company Secretary
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Date: August 27, 2010
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NATIONAL INDEMNITY COMPANY, as Grantor
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By:
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/s/ Brian Snover
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Title: VP
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Date: August 26, 2010
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Attest:
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Kara Raiguel
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Title:
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Vice President
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Date:
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August 26, 2010
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WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee
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By:
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/s/ Stephen M. Bruce
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Title: Vice President, Wells Fargo Bank, N.A., Insurance Trust
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Date:
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Attest:
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/s/ Donny Tong
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Title: Vice President
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Date: August 25, 2010
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[Signature Page to the Trust Agreement]
APPENDIX A
TRUST PROVISIONS FOLLOWING A REINSURANCE CREDIT EVENT
In accordance with Article III of this Trust Agreement, upon the occurrence of a Reinsurance
Credit Event, the provisions set forth in this
Appendix A
shall automatically replace the
provisions of the equivalent Sections in this Trust Agreement and become effective.
Section 4.1
Continuing Obligation of the Grantor
.
(a) The segregated trust account maintained by the Trustee with account number 80460400 (which
shall be hereinafter referred to, including all successor accounts thereto, as the
Trust Account
)
shall continue in existence upon the occurrence of a Reinsurance Credit Event with a single
Beneficiary and the substitution of Assets as required under Section 3.1 of this Trust Agreement.
(b) The Grantor shall ensure that the Trust Account shall hold Permitted Investments at all
times with a fair market value of no less than 100% of the Required Amount, as determined in
accordance with Section 7.6 of this Trust Agreement.
Section 4.2
Purpose of the Trust
. The Assets in the Trust Account shall be held by
the Trustee for the sole benefit of the Beneficiary. The Grantor grants to the Trustee all trust
powers necessary and reasonable in the performance of its duties hereunder except as otherwise
expressly provided herein.
Section 5.1 (a)
Substitution of Trust Account Assets
. Upon receipt of the prior
written consent of the Beneficiary, the Grantor may, from time to time, substitute or exchange
Assets contained in the Trust Account,
provided
,
however
, (i) the Assets so substituted or
exchanged must be Permitted Investments, (ii) after giving effect to such substitution, the fair
market value of the newly deposited Assets are at least equal to the fair market value of the
substituted Assets and (iii) the replacement Assets to be deposited in the Trust Account in such
substitution or exchange are deposited therein on the day of withdrawal of the substituted or
exchanged Assets. Upon any substitution or exchange as provided for herein, the Grantor shall
certify to the Trustee and Beneficiary that such substitution or exchange meets the requirements of
this Section 5.1. The Trustee shall act on the instruction and certification of the Grantor and
shall give the Beneficiary prompt written notice of any substitution made pursuant hereto.
Section 5.3
Quarterly Certification
. Within fourteen (14) calendar days following the
end of each calendar quarter, the Grantor shall provide the Beneficiary (with a copy to the
Trustee) a written certification (the
Quarterly Certification
) stating the Required Amount as of
the calendar quarter end and the aggregate fair market value of the Permitted
Investments held in the Trust Account as of the calendar quarter end (both on an
asset-by-asset basis and a cumulative basis). Such certification shall separately state the effect
on the fair market value of the Assets of withdrawals by the Grantor from the Trust Account
effected during such calendar quarter. As soon as is practicable, but in no event more than ten
(10) Business Days following its receipt of the Quarterly Certification, the Beneficiary shall
either (i) countersign such certification and forward it to the Trustee or (ii) notify the Grantor
that it objects to the Grantors calculation of the Required Amount or the Grantors valuation of
any Asset. If the parties are able to resolve such dispute within ten (10) Business Days of the
Beneficiarys transmittal to the Grantor of its notice of objection, they shall promptly forward to
the Trustee a jointly signed certification of the Required Amount. If the parties are unable to
resolve such dispute within ten (10) Business Days of the Beneficiarys transmittal to the Grantor
of its notice of objection, and the dispute relates to the valuation of an Asset, the value of such
Asset shall be determined by a Third Party Appraiser and the parties shall be bound by such
valuation. All other disputes shall be resolved in accordance with Section 10.1 of this Trust
Agreement. Upon resolution of such dispute, the parties shall forward to the Trustee a copy of the
corrected Quarterly Certification setting forth the Required Amount as resolved through such Third
Party Appraiser or arbitration. The Grantor shall, to the extent reasonably necessary or required
in order to verify Grantors certification, permit the Beneficiary to audit its records in order to
determine its compliance with this Section 5.3. The Grantor shall cooperate fully with such audit.
Access to the Grantor and its employees by the Beneficiary in connection with such audit shall be
at reasonable times during regular business hours upon reasonable prior written notice (including
by e-mail) in a manner which does not unreasonably interfere with the business or operations of the
Grantor.
Section 6.1
Adjustment of Trust Account Assets
.
(a) The Required Amount as of the end of each calendar quarter shall be certified to the
Trustee by the Grantor in the manner set forth in Section 5.3 hereof.
(b) If the aggregate fair market value of the Permitted Investments maintained in the Trust
Account as of any calendar quarter end is less than the Required Amount as of such calendar quarter
end, then within five (5) Business Days of its receipt of the certification set forth in Section
5.3, the Grantor shall deposit into the Trust Account such additional Assets with an aggregate fair
market value as are necessary to ensure that the aggregate fair market value of the Permitted
Investments held in the Trust Account is no less than 100% of the Required Amount as of the
immediately prior calendar quarter end.
Section 6.2
Release of Trust Account Assets to the Beneficiary
.
(a) Notwithstanding anything in this Trust Agreement to the contrary, the Beneficiary shall
have the right to withdraw Assets from the Trust Account at any time, without notice to the
Grantor, subject only to written notice to the Trustee from the Beneficiary given in accordance
with Section 9.1 of this Trust Agreement. Other than such notice, no other statement or document
need be presented by the Beneficiary to withdraw such Assets except that the Beneficiary shall
acknowledge to the Trustee receipt of such withdrawn Assets. Upon such
written notice of demand of the Beneficiary, the Trustee shall immediately take any and all
steps necessary to transfer absolutely and unequivocally all right, title and interest in the
Assets to the Beneficiary and, to the extent applicable, deliver physical custody of such Assets to
the Beneficiary. Upon such transfer, Trustee shall promptly forward a copy of such notice to the
Grantor. The Trustee shall not be subject to any liability for any payment made by it to the
Beneficiary pursuant to such written demand by the Beneficiary.
(b) The Grantor and the Beneficiary agree that the Assets from the Trust Account may only be
withdrawn by the Beneficiary, and utilized and applied by the Beneficiary, or any successor by
operation of law of the Beneficiary including any liquidator or rehabilitator, receiver or
conservator of the Beneficiary, without diminution because of insolvency on the part of the
Beneficiary or the Grantor, for one or more of the following purposes:
(i) to pay or reimburse the Beneficiary for the Grantors share of premiums
returned to policyholders or ceding companies of the Reinsured Contracts because of
cancellations of such contracts to the extent same constitute Ultimate Net Loss;
(ii) to reimburse the Beneficiary for the Grantors share of surrenders and
benefits or losses paid by the Beneficiary pursuant to the provisions of the
Reinsured Contracts to the extent same constitute Ultimate Net Loss;
(iii) to fund an account with the Beneficiary in an amount at least equal to
the deduction, for reinsurance ceded, from the Beneficiarys liabilities for the
Reinsured Liabilities. The account must include, but not be limited to, amounts for
policy reserves, claims and losses incurred, including losses incurred but not
reported, allocated loss adjustment expenses, and unearned premium reserves; and
(iv) to pay any other amounts the Beneficiary claims are due under the LPT
Reinsurance Agreement.
Section 6.3
Release of Trust Account Assets to the Grantor
. Subject to receipt of the
Beneficiarys prior written instructions, the Trustee may, from time to time, release to the
Grantor Assets with an aggregate fair market value equal to the excess over 102% of the Required
Amount as of the prior calendar quarter end. In connection with any such release of Assets, the
Trustee shall take any and all necessary steps to transfer absolutely and unequivocally all right,
title and interest in such released Assets to the Grantor or its designee. The Trustee shall not
be subject to any liability for any payment made by it to the Grantor pursuant to such written
instructions received by it from the Beneficiary.
Section 7.4
Responsibilities of the Trustee
.
(a) The Trustee, in the administration of the Trust Account, is to be bound solely by the
express provisions herein, and such further written and signed directions as the appropriate party
or parties may, under the conditions herein provided, deliver to the Trustee. The Trustee shall be
under no obligation to enforce the Grantors obligations under this Trust Agreement, except as
otherwise expressly provided or directed pursuant hereto. The Trustee shall be restricted to
holding title to, operating and collecting the Assets comprising the Trust Account and the payment
and distribution thereof for the purposes set forth in this Trust Agreement and to the conservation
and protection of such Assets and the administration thereof in accordance with the provisions of
this Trust Agreement, and the Trustee shall be liable only for its own negligence, willful
misconduct or lack of good faith. The Trustee further agrees to forward upon request of the
Beneficiary, the Grantor or any Insurance Commissioner a statement and valuation of all Assets held
under this Trust Agreement.
(b) Subject to the other provisions of this Trust Agreement, including the requirements that
only Permitted Investments may be held in the Trust Account and provisions relating to the
substitution of Assets, (i) the Grantor shall have the irrevocable authority and sole power to
direct the Trustee, in the Grantors sole discretion, with respect to all aspects of the management
or investment of the Assets contained in the Trust Account, including, but not limited to,
directing the Trustee to enter into one or more investment management, advisory, custodial,
depository or other agreements of form and substance specified by the Grantor, with any other
person, including any affiliate of the Grantor, selected by the Grantor and (ii) the Trustee and
the Beneficiary each acknowledges that it has no authority with respect to such management or
investment activities, the Trustee agrees it will not exercise any discretion or take any action
with respect to the matters in clause (i) above and will take any actions related thereto as
directed by the Grantor in accordance therewith.
Section 7.5
Books and Records
. The Trustee shall keep full and complete records of
the administration of the Trust Account. The Grantor, the Beneficiary and/or the Insurance
Commissioner may examine such records, upon reasonable notice to the Trustee, at any time during
business hours through any person or persons duly authorized in writing by Grantor, the Beneficiary
and/or the Insurance Commissioner, at the requesting partys expense.
Section 7.8
Release of Information
. The Trustee shall promptly respond to any and all
reasonable requests for information concerning the Trust Account or the Assets held therein by any
of the parties to this Trust Agreement. Furthermore, the Trustee shall fully and completely
respond to any direct inquiries of the Insurance Commissioner, or any of its representatives,
concerning the Trust Account or the Assets held hereunder, including, detailed inventories of
securities or funds, and the Trustee shall permit the Insurance Commissioner, or its
representatives, to examine and audit all securities or funds held hereunder. The Trustee shall
promptly provide notice to the Beneficiary and the Grantor concerning all such inquiries, and shall
provide seven (7) days prior notice to the Beneficiary and the Grantor of all such examinations and
audits.
Section 7.11
Limitations of the Trustee
. The Trustee shall in no way be responsible
for determining the amount of Assets required to be deposited, or monitoring whether or not the
Assets held within the Trust Account are Permitted Investments. The Trustee shall be under no
liability for any release of Assets made by it to the Grantor in accordance with this Article VI.
Section 9.2
Construction and Effect
. This Trust Agreement and the enforceability
hereof shall not be subject to the satisfaction of any conditions or qualifications not expressly
included herein.
Exhibit 10.3
EXECUTION VERSION
LOSS PORTFOLIO TRANSFER REINSURANCE AGREEMENT
by and among
CONTINENTAL CASUALTY COMPANY,
THE CONTINENTAL INSURANCE COMPANY,
CONTINENTAL REINSURANCE CORPORATION INTERNATIONAL, LTD.,
CNA INSURANCE COMPANY LIMITED
and
NATIONAL INDEMNITY COMPANY
Dated as of August 31, 2010
TABLE OF CONTENTS
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ARTICLE I
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DEFINITIONS
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1.1
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Definitions
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1
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ARTICLE II
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REINSURANCE CEDED
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2.1
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Reinsurance Coverage
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12
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2.2
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Commencement of the Reinsurers Liability
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12
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2.3
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Ultimate Net Loss
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12
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2.4
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Exclusions
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12
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2.5
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Unallocated Loss Adjustment Expenses
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13
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2.6
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Notice Regarding LPT Limit
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14
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2.7
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Territory
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14
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2.8
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Change of Control
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14
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2.9
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Redomestication
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14
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2.10
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CNA Insurers Bound
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14
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ARTICLE III
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REINSURANCE CONSIDERATION
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3.1
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Reinsurance Premium
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15
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3.2
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Transfer of Pre-Inception Date Receivables
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15
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3.3
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Payments
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15
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ARTICLE IV
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ADMINISTRATION
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4.1
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Administration
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16
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ARTICLE V
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RESERVING REQUIREMENTS
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5.1
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Reserve Assumption Changes
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16
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i
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ARTICLE VI
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DURATION AND TERMINATION
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6.1
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Duration and Termination
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16
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6.2
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Effect of Termination
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17
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ARTICLE VII
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ACCOUNTING AND SETTLEMENT REPORTS
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7.1
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Accounting and Settlement Reports
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17
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7.2
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Tax Reporting
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17
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ARTICLE VIII
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INSOLVENCY
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8.1
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Insolvency of Reinsured
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17
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ARTICLE IX
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COLLATERAL TRUST ACCOUNT
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9.1
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Establishment of Collateral Trust Account
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18
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9.2
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Ongoing Funding of Collateral Trust Account
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18
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9.3
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Collateral Trust Assets
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19
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9.4
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Settlements
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19
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9.5
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Modification Upon Occurrence of Collateral Triggering Event
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19
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9.6
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Modification Upon Occurrence of a Reinsurance Credit Event
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20
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9.7
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Withdrawal of Collateral Trust Assets by Reinsured Prior to the Occurrence of a Reinsurance Credit Event
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21
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9.8
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Withdrawal of Collateral Trust Assets by Reinsured After the Occurrence of a Reinsurance Credit Event
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22
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ARTICLE X
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DISPUTE RESOLUTION
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10.1
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Dispute Resolution
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23
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10.2
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Negotiation Amongst the Parties
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24
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ARTICLE XI
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ARBITRATION
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11.1
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Arbitration
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24
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ii
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ARTICLE XII
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EXTRACONTRACTUAL DAMAGES
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12.1
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Extracontractual Damages
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25
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ARTICLE XIII
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SALVAGE AND SUBROGATION
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13.1
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Salvage and Subrogation
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26
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13.2
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Expenses
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26
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ARTICLE XIV
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THIRD PARTY REINSURANCE AGREEMENTS
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14.1
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Third Party Reinsurance Agreements
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27
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14.2
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Collection Responsibility
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27
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ARTICLE XV
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REINSURANCE CREDIT
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15.1
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Reinsurance Credit
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27
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ARTICLE XVI
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REGULATORY MATTERS
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16.1
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Regulatory Matters
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28
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ARTICLE XVII
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CONFIDENTIALITY
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17.1
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Confidentiality
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29
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ARTICLE XVIII
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ERRORS AND OMISSIONS
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18.1
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Errors and Omissions
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30
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iii
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ARTICLE XIX
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MATERIAL CHANGES
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19.1
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Material Changes to Reinsured Contracts and Third Party Reinsurance Agreements
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31
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ARTICLE XX
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RIGHT TO ASSOCIATE
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20.1
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Right to Associate
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32
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ARTICLE XXI
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MULTIPLE PARTIES
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21.1
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Multiple Parties
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32
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ARTICLE XXII
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MISCELLANEOUS PROVISIONS
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22.1
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Notices
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33
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22.2
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Entire Agreement
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34
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22.3
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Waiver and Amendment
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34
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22.4
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Successors and Assigns
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34
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22.5
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Headings
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35
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22.6
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Construction; Interpretation
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35
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22.7
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Governing Law and Jurisdiction
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35
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22.8
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No Third Party Beneficiaries
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36
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22.9
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Counterparts
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36
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22.10
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Severability
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36
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22.11
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Specific Performance
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36
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22.12
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Waiver of Jury Trial
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37
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22.13
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Incontestability
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37
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22.14
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Set-Off
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37
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22.15
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Currency
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38
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EXHIBITS
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Exhibit A
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-
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Form of Administrative Services Agreement
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Exhibit B
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-
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Form of Collateral Trust Agreement
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Exhibit C
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-
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Form of Third Party Reinsurance Allocation Agreement
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Exhibit D
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-
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Form of Reinsurance Credit Event II Trust Agreement
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iv
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SCHEDULES
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Schedule 1.1(a)
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-
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Asbestos Accounts
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Schedule 1.1(b)
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-
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GRM Direct & Assumed, Syndicates, Pools and
Associations
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Schedule 1.1(c)
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Pollution Accounts
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Schedule 1.1(d)
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-
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Pre-Inception Date Receivables
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Schedule 2.4(h)
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-
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Exclusions
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v
LOSS PORTFOLIO TRANSFER REINSURANCE AGREEMENT
THIS LOSS PORTFOLIO TRANSFER REINSURANCE AGREEMENT
, dated as of August 31, 2010 (this
Reinsurance Agreement
), is made and entered into by and among
Continental Casualty
Company
, an Illinois property and casualty insurance company (
CCC
),
The Continental
Insurance Company
, a Pennsylvania property and casualty insurance company (
CIC
),
Continental Reinsurance Corporation International, Ltd.,
a Bermuda long-term insurance company
(
CRCI
), and
CNA Insurance Company Limited
, a United Kingdom property and casualty
insurance company (
CICL
and each of CCC, CIC, and CRCI is individually and all of CCC,
CIC, CRCI and CICL are collectively hereinafter referred to as the
Reinsured
), and
National Indemnity Company
, a Nebraska property and casualty insurance company (hereinafter
referred to as the
Reinsurer
).
WHEREAS
, the Parties are entering into this Reinsurance Agreement pursuant to that certain
Master Transaction Agreement, dated as of July 14, 2010 (the
Master Transaction
Agreement
), by and among the Parties (as defined below) and Berkshire Hathaway Inc., a
Delaware corporation and the ultimate parent company of the Reinsurer (
Berkshire
);
NOW, THEREFORE
, in consideration of the mutual and several promises and undertakings herein
contained, and for good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Reinsured and the Reinsurer (individually, a
Party
and collectively,
the
Parties
) hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1
Definitions
. The following terms shall have the respective meanings set forth below
throughout this Reinsurance Agreement (definitions are applicable to both the singular and the
plural forms of each term defined in this
Article I
):
A&P Business
means the business of the Reinsured and the CNA Insurers of insuring,
reinsuring and administering, as applicable, the Reinsured Contracts and the Third Party
Reinsurance Agreements as respects the Business Covered.
A&P Claims
means an Asbestos Claim and/or a Pollution Claim.
AAA
has the meaning set forth in
Section 11.1(a)
.
Administrative Services Agreement
means the Administrative Services Agreement by and
among the Reinsured and the Reinsurer, substantially in the form of
Exhibit A
attached
hereto.
Affiliate
means, with respect to any Person, another Person that, directly or
indirectly, controls, is controlled by, or is under common control with, such first Person, where
control means the possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
Allocated Loss Adjustment Expenses
means all court costs, arbitration, mediation or
other dispute resolution costs, attorneys fees including staff counsel expressly charged with
performing functions generally performed by outside counsel, expenses, fees and interest accrued
prior to or after any judgment, award, agreement or compromise incurred in connection with or in
any way relating to the adjustment, appraisal, defense, resistance, investigation, audit
negotiation, settlement, payment or appeal of, or the pursuit or collection of any reinsurance on,
or the pursuit or enforcement of any right of subrogation with respect to any Reinsured Liability;
provided
,
however
, in no event shall Allocated Loss Adjustment Expenses include any overhead or
similar internal costs that are attributable to the handling of a claim file arising from the
Business Covered. For the purposes of this Reinsurance Agreement, this definition of Allocated
Loss Adjustment Expenses will apply regardless of how the Reinsured reserves for Allocated Loss
Adjustment Expenses on its annual and quarterly statutory financial statements filed with
Governmental Authorities.
Applicable Interest Rate
means 4.5% (four point five percent) per annum.
Applicable Law
means any domestic or foreign, federal, state or local statute, law,
ordinance or code, or any written rules, regulations or administrative interpretations issued by
any Governmental Authority pursuant to any of the foregoing, in each case applicable to any Party,
and any Order, writ, injunction, directive, judgment or decree of a court of competent jurisdiction
applicable to the Parties.
Asbestos Claim
means the following: (i) for claims shown on the Books and Records
of any Reinsured or CNA Insurer as having been made on or prior to December 31, 2009, all claims
coded as asbestos claims on the Books and Records of any Reinsured or CNA Insurer and arising
under the accounts listed on
Schedule 1.1(a)
attached hereto, (ii) for claims shown in the
files and records of any GRM Direct & Assumed, Syndicate, Pool or Association as having been made
on or prior to December 31, 2009, all claims coded as asbestos claims in the files and records of
any GRM Direct & Assumed, Syndicate, Pool or Association, and (iii) for claims made after December
31, 2009, any claim involving allegations, in whole or in part, of Property Damage, Bodily Injury,
personal injury, mental anguish, medical monitoring, nuisance and trespass, including claims for
equitable relief, arising out of, or relating to, exposure to asbestos. For the avoidance of
doubt, the Parties acknowledge and agree that, claims asserting
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that any Reinsured or CNA Insurer (A) failed to warn any Person of potential asbestos
exposure, (B) engaged in any unfair trade practice or failed to handle claims in good faith, (C)
negligently conducted loss control functions, (D) failed to settle or pay claims within the limits
of any Reinsured Contract, (E) otherwise negligently conducted claims handling, (F) misrepresented,
or otherwise committed a tort or fraud in connection with the Business Covered, or (G) failed to
properly comply with Medicare or other liens, in each case, as long as such assertions arise out
of, relate to, or are in connection with, Asbestos Claims, shall be deemed Asbestos Claims. If a
claim alleges both an exposure to asbestos and an exposure to another toxin (e.g., mixed dust
claims) and the Reinsured Contract contains an asbestos exclusion, the claim will be an Asbestos
Claim to the extent the claim involves asbestos exposure or injury. While the coding of any
Reinsured or CNA Insurer made prior to the Inception Date shall be conclusive as to whether a claim
made on or prior to December 31, 2009 is an Asbestos Claim, for a claim made after December 31,
2009, the past coding of any Reinsured or CNA Insurer of a similar claim shall not be conclusive as
to whether the claim is an Asbestos Claim. Asbestos Claims shall not include Non A&P Claims.
Berkshire
has the meaning set forth in the
Recitals
.
Bodily Injury
means actual or threatened bodily injury, sickness or disease
sustained by a person, including death, humiliation, shock, mental anguish or mental injury by that
person at any time which results as a consequence of the bodily injury, sickness or disease.
Books and Records
means originals or copies of all records and all other data and
information (in whatever form maintained) in the possession or control of a Party or its Affiliates
and relating to the Business Covered, including (i) administrative records, (ii) claim records,
(iii) policy files, (iv) sales records, (v) files and records relating to Applicable Law, (vi)
reinsurance records, (vii) underwriting records, (viii) accounting records, and (ix) files and
records (including claims bordereaux) of any GRM Direct & Assumed, Syndicate, Pool or Association,
but excluding any (a) Tax Returns and Tax records and all other data and information with respect
to Tax, (b) files, records, data and information with respect to the employees, (c) records, data
and information with respect to any employee benefit plan, (d) files, records, data and information
relating to Retrospective Premiums, (e) any files, records, data and information not reasonably
related to the Reinsurers administration of the Business Covered, including the monitoring and
auditing of the Reinsured and their Affiliates of the Reinsurers performance in administering the
Business Covered and any internal reports related to such monitoring and auditing, (f) any
materials prepared for the boards of directors of the Reinsured or their Affiliates and (g) any
materials that are privileged and/or confidential for which the Reinsured or their Affiliates do
not have a common interest with the Reinsurer;
provided
, that if any such records or data referred
to in the foregoing clauses (i) through (ix) contain information which does not relate to the
Business Covered, such information shall not constitute Books and Records for purposes of this
Reinsurance Agreement.
Business Covered
means:
3
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(1)
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All losses relating to A&P Claims that are unpaid, as reflected on the Books
and Records, either on a direct or assumed basis, as of the Inception Date;
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(2)
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All losses relating to Asbestos Claims arising out of or relating to (A)
policies, certificates, binders, contracts or cover notes of insurance or reinsurance
issued by, or on behalf of, any Reinsured or CNA Insurer, (B) insurance or reinsurance
obligations assumed by any Reinsured or CNA Insurer by means of acquisitions,
assumption reinsurance, loss portfolio transfers (whether affected by reinsurance or
otherwise) or otherwise or (C) any participation by any Reinsured or CNA Insurer in any
insurance or reinsurance pool, syndicate or association, in all instances under (A),
(B) and (C) prior to January 1, 2010; and
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(3)
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All losses relating to Pollution Claims arising out of or relating to (A)
policies, certificates, binders, contracts or cover notes of insurance or reinsurance
issued by, or on behalf of, any Reinsured or CNA Insurer, (B) insurance or reinsurance
obligations assumed by any Reinsured or CNA Insurer by means of acquisitions,
assumption reinsurance, loss portfolio transfers (whether affected by reinsurance or
otherwise) or otherwise or (C) any participation by any Reinsured or CNA Insurer in any
insurance or reinsurance pool, syndicate or association, in all instances under (A),
(B) and (C) prior to January 1, 1989.
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Business Day
means any day other than a Saturday, Sunday or a day on which
commercial banks in Illinois or New York are required or authorized by law to be closed.
CCC
has the meaning set forth in the
Preamble
.
Change of Control
shall be deemed to have occurred if: (i) any Person, organization
or association of persons or organizations acting in concert, excluding Affiliates of the Parties,
as applicable, shall acquire more than twenty percent (20%) of the outstanding voting stock of any
of the Parties, CNA, any CNA Insurer or Berkshire; (ii) any Person, organization or association of
persons or organizations acting in concert shall succeed in electing two or more directors to the
boards of directors of any of the Parties, CNA or Berkshire, in any one election in opposition to
those proposed by the Board of Directors of such Party, CNA or Berkshire, as applicable; (iii) any
of the Parties, CNA or Berkshire, as applicable, transfers all or substantially all of its or any
of its Affiliates operating properties and assets to another Person, organization or association
of persons or organizations, excluding Affiliates of the Parties, as applicable or (iv) any of the
Parties, CNA or Berkshire, as applicable, shall consolidate with or merge into any Person, firm,
corporation or other entity unless such entity or any one of its Affiliates shall be the continuing
corporation or the successor corporation.
CIC
has the meaning set forth in the
Preamble
.
4
CICL
has the meaning set forth in the
Preamble
.
Closing Date
means the day on which the closing of the transactions contemplated by
this Reinsurance Agreement and the Transaction Documents takes place.
CNA
means CNA Financial Corporation, a Delaware corporation.
CNA Insurers
means all property and casualty insurance companies which, as of the
Inception Date, (a) are current or were former Affiliates of the Reinsured, other than (i) the
Reinsured, (ii) First Insurance Company of Hawaii, Ltd. and its insurance company Subsidiaries as
of the Inception Date and (iii) CNA Surety Corporation and its Subsidiaries as of the Inception
Date and (b) ceded an A&P Claim to any Reinsured under a reinsurance agreement or cover note or
whose liability for an A&P Claim was transferred to, or otherwise assumed by, any Reinsured by
means of an acquisition, assumption reinsurance, loss portfolio transfer (whether affected by
reinsurance or otherwise) or otherwise, in each case entered into prior to the Inception Date, and
when such company was an Affiliate of any Reinsured. The term CNA Insurers as used herein shall
include any predecessor or successor of such companies, including by reason of merger,
consolidation or otherwise.
Collateral Reduction Event
has the meaning set forth in
Section 9.5
.
Collateral Triggering Agreement
shall have the meaning set forth in the Collateral
Trust Agreement.
Collateral Triggering Event
shall have the meaning set forth in the Collateral Trust
Agreement.
Collateral Trust Account
has the meaning set forth in
Section 9.1(a)
.
Collateral Trust Agreement
means the trust agreement by and among the Reinsured,
Reinsurer and Trustee, substantially in the form of
Exhibit B
attached hereto.
Collateral Trust Assets
means the assets held in the Collateral Trust Account,
including, as applicable, Eligible Investments and Permitted Investments.
Collection Expenses
means the reasonable out-of-pocket expenses incurred by any
Party in connection with the negotiation and collection of Third Party Reinsurance Recoverables or
Commutation Payments.
5
Commutation Payments
means Gross Commutation Payments, less Collection Expenses.
Confidential Information
has the meaning set forth in
Section 17.1(c)
.
CRCI
has the meaning set forth in the
Preamble
.
Declaratory Judgment Expense
means all Collection Expenses, attorneys fees,
expenses and other costs attributable to coverage analysis, declaratory judgment actions or other
coverage dispute resolution procedures brought to determine defense, indemnification and/or payment
obligations for any Business Covered, whether or not a loss has been paid. For purposes of this
Reinsurance Agreement, this definition of Declaratory Judgment Expenses shall apply regardless of
how the Reinsured reserves for Declaratory Judgment Expenses on its annual and quarterly statutory
financial statements filed with Governmental Authorities.
Disclosing Party
has the meaning set forth in
Section 17.1(a)
.
Dispute
has the meaning set forth in
Section 10.1
.
Eligible Investments
shall have the meaning set forth in the Collateral Trust
Agreement.
Excluded Liabilities
has the meaning set forth in
Section 2.4(g)
.
Extracontractual Damages
has the meaning set forth in
Section 12.1(a)
.
Governmental Authority
means any government, political subdivision, court, board,
commission, regulatory or administrative agency or other instrumentality thereof, whether federal,
state, provincial, local or foreign and including any regulatory authority which may be partly or
wholly autonomous.
GRM Direct & Assumed, Syndicate, Pool or Association
means (a) any counterparty
under any insurance or reinsurance agreement or cover note with any Reinsured, (b) any Person whose
liability for an A&P Claim has been transferred to, or otherwise assumed by, any Reinsured by means
of an acquisition, direct insurance, assumption reinsurance, loss portfolio transfer (whether
affected by reinsurance or otherwise) or otherwise, or (c) any insurance or reinsurance pool,
syndicate or association that, in the case of clauses (a), (b) and (c) is listed on
Schedule
1.1(b)
attached hereto, in all cases as such assumptions or transfers were in place as of the
Inception Date.
6
Gross Commutation Payments
means any payments received by the Reinsured or the
Reinsurer (acting on behalf of the Reinsured) from a reinsurer counterparty under a Third Party
Reinsurance Agreement in connection with the recapture, commutation, termination or reduction of
any reinsurance under a Third Party Reinsurance Agreement that is effectuated on or after the
Inception Date, but prior to the expiration or termination of this Reinsurance Agreement.
Gross Third Party Reinsurance Recoverables
means any amounts actually collected by
the Reinsured or the Reinsurer (acting on behalf of the Reinsured) in connection with Third Party
Reinsurance Agreements.
Inception Date
means 12:01 a.m. Central Standard Time on January 1, 2010.
Initial Reconciliation Statement
means the estimated reconciliation statement as of
the month ending prior to the Closing Date provided by the Reinsured to the Reinsurer five (5)
Business Days prior to the Closing Date pursuant to
Schedule 2.3
of the Master Transaction
Agreement.
LPT Limit
has the meaning set forth in
Section 2.1
.
Master Transaction Agreement
has the meaning set forth in the
Recitals
.
Non-A&P Claims
means: (i) all claims that are not defined as an Asbestos Claim or a
Pollution Claim herein or (ii) all claims made after December 31, 2009 alleging Bodily Injury as a
result of exposure to a Pollutant, except for those Bodily Injury claims that otherwise meet the
definition of a Pollution Claim as defined and set forth herein. For the avoidance of doubt, the
following types of claims are Non-A&P Claims: silica, breast implants, indoor mold, blood
factorates, repetitive stress injuries, noise induced hearing loss, lead pigment on buildings,
indoor air pollution (unless caused by actual, alleged or threatened pollution of land, the
external atmosphere, or any watercourse or body of water) and firearms.
Order
means any order, writ, judgment, injunction, decree, stipulation,
determination or award entered by or with any Governmental Authority.
Other Recoveries
means any and all payments, collections and recoveries relating to
A&P Claims paid on and after the Inception Date, other than (i) Third Party Reinsurance
Recoverables and (ii) Retrospective Premiums, and shall include, among other things, any salvage
and subrogation received as further set forth in
Section 13.1
.
Party
or
Parties
has the meaning set forth in the
Recitals
.
7
Person
means any natural person, corporation, partnership, limited liability
company, trust, joint venture or other entity, including a Governmental Authority.
Permitted Investments
shall have the meaning set forth in the Collateral Trust
Agreement.
Pollutants
as used in the definition of Pollution Claim includes any solid,
liquid, gaseous or thermal substance, irritant or contaminant, including smoke, vapor, soot, fumes,
acids, alkalis, chemicals and waste (including any materials to be recycled, reconditioned or
reclaimed).
Pollution Claim
means the following: (i) for claims shown on the Books and Records
of any Reinsured or CNA Insurer as having been made on or prior to December 31, 2009, all claims
coded as pollution claims or environmental claims on the Books and Records of any Reinsured or
CNA Insurer and arising under the accounts listed on
Schedule 1.1(c)
attached hereto, (ii)
for claims shown in the files and records of any GRM Direct & Assumed, Syndicate, Pool or
Association as having been made on or prior to December 31, 2009, all claims coded as pollution
claims or environmental claims in the files and records of any GRM Direct & Assumed, Syndicate,
Pool or Association, and (iii) for claims made after December 31, 2009, (A) any claim involving
allegations, in whole or in part, of Property Damage arising out of, or relating to, an actual,
alleged or threatened discharge, emission, dispersal, seepage, migration, release or escape of
Pollutants into or upon land, the atmosphere or any watercourse or body of water including claims
for nuisance and trespass and claims for equitable relief and (B) any claim involving allegations
of Bodily Injury, personal injury, mental anguish, medical monitoring, nuisance and trespass,
including claims for equitable relief, associated with, related to or resulting from any actual,
alleged or threatened discharge, emission, dispersal, seepage, migration, release or escape of
Pollutants into or upon land, the atmosphere or any watercourse or body of water which caused or
threatened to cause Property Damage. For the avoidance of doubt, the Parties acknowledge and agree
that claims arising from actual, alleged or threatened pollution of the air inside a building
(e.g., indoor mold claims) are not a Pollution Claim unless the pollution was caused by actual,
alleged or threatened pollution of land, the external atmosphere or any watercourse or body of
water. For the further avoidance of doubt, the Parties also acknowledge and agree that claims
asserting that any Reinsured or CNA Insurer (A) failed to warn any Person of potential Pollutants,
(B) engaged in any unfair trade practice or failed to handle claims in good faith, (C) negligently
conducted loss control functions, (D) failed to settle or pay claims within the limits of any
Reinsured Contract, (E) otherwise negligently conducted claims handling, (F) misrepresented, or
otherwise committed a tort or fraud in connection with the Business Covered, or (G) failed to
properly comply with Medicare or other liens, in each case, as long as such assertions arise out
of, relate to, or are in connection with, Pollution Claims, shall be deemed Pollution Claims.
While the coding of any Reinsured or CNA Insurer shall be conclusive as to whether a claim made on
or prior to December 31, 2009 is a Pollution Claim, for a claim made after December 31, 2009, the
past coding of any Reinsured or CNA Insurer of a similar claim shall not be conclusive as to
whether the claim is a Pollution Claim. Pollution Claims shall not include Non A&P Claims.
8
Pre-Inception Date Receivables
means all receivables that arise out of or relate to
the Business Covered and which are payable under the Third Party Reinsurance Agreements
attributable to Asbestos Claims and Pollution Claims paid by or on behalf of the Reinsured prior to
the Inception Date, including those set forth on
Schedule 1.1(d)
hereto.
Property Damage
means actual or threatened or potential: (i) physical injury to
tangible property, including all resulting loss of use of that property; or (ii) loss of use of
tangible property that is not physically injured. For the avoidance of doubt, electronic data
shall not be considered to be tangible property.
Receiving Party
has the meaning set forth in
Section 17.1(a)
.
Reinsurance Agreement
has the meaning set forth in the
Preamble
.
Reinsurance Credit Event
has the meaning set forth in
Section 15.1(a)
.
Reinsurance Credit Event I
has the meaning set forth in
Section 9.6(a)(i)
.
Reinsurance Credit Event II
has the meaning set forth in
Section 9.6(a)(i)
.
Reinsurance Credit Event II Trust Accounts
has the meaning set forth in
Section
9.6(a)(iv)
.
Reinsurance Credit Event II Trust Agreement
has the meaning set forth in
Section
9.6(a)(iii)
.
Reinsured
has the meaning set forth in the
Preamble
. The term Reinsured
as used herein shall include any predecessor or successor of such companies, including by reason of
merger, consolidation or otherwise.
Reinsured Contracts
means all policies, contracts, certificates, binders and cover
notes of insurance or reinsurance issued by any Reinsured or CNA Insurer, or by any GRM Direct &
Assumed, Syndicate, Pool or Association, covering or pertaining to the Business Covered.
Reinsured Liabilities
has the meaning set forth in
Section 2.1
.
Reinsurance Premium
has the meaning set forth in
Section 3.1
.
9
Reinsurer
has the meaning set forth in the
Preamble
. The term Reinsurer
as used herein shall include any predecessor or successor of such company, including by reason of
merger, consolidation or otherwise.
Representatives
means, with respect to any Person, such Persons officers,
directors, employees, managing directors, agents, advisors and other representatives.
Required Amount
has the meaning set forth in the Collateral Trust Agreement.
Reserves
means, as required by SAP or Applicable Law of the jurisdiction of domicile
of such Person, reserves (including any gross, net and ceded reserves), funds or provisions for
losses, claims, unearned premiums, benefits, costs and expenses (including Allocated Loss
Adjustment Expenses) in respect of the Business Covered.
Retrospective Premiums
means any amounts due from a policyholder or insured under a
Reinsured Contract as a result of any increase in premiums charged thereunder or additional premium
payable thereunder based upon the claims or loss experience pursuant to the terms and conditions of
such Reinsured Contract.
Rules
has the meaning set forth in
Section 11.1(a)
.
SAP
means, as to any Person, the statutory accounting principles prescribed or
permitted by the Governmental Authority responsible for the regulation of insurance companies in
the jurisdiction in which such entity is domiciled.
Security Amount
shall have the meaning set forth in the Collateral Trust Agreement.
Subsidiary
or
Subsidiaries
means, when used with respect to any Party, any
corporation, limited liability company, partnership, association, trust or other entity of which
securities or other ownership interests representing more than 50% of the equity or more than 50%
of the ordinary voting power (or, in the case of a partnership, more than 50% of the general
partnership interests) are, as of such date, owned by such Party or one or more Subsidiaries of
such Party or by such Party and one or more Subsidiaries of such Party.
Tax Authority
means, with respect to any Tax, any government or political
subdivision thereof that imposes such Tax, and any agency charged with the collection, assessment,
determination or administration of such Tax for such government or subdivision.
10
Tax
means any and all federal, state, foreign or local income, gross receipts,
premium, capital stock, franchise, profits, withholding, social security, unemployment, disability,
real property, ad valorem/personal property, stamp, excise, occupation, sales, use, transfer, value
added, alternative minimum, estimated or other tax, fee, duty, levy, custom, tariff, impost,
assessment, obligation or charge of the same or of a similar nature to any of the foregoing,
including any interest, penalty or addition thereto.
Tax Return
means any return, report, declaration, claim for refund, certificate,
bill, or other return or statement, including any schedule or attachment thereto, and any amendment
thereof, filed or required to be filed with any Tax Authority in connection with the determination,
assessment or collection of any Tax.
Third Party Reinsurance Agreements
means reinsurance agreements, other than this
Reinsurance Agreement and reinsurance agreements solely between or among CNA Affiliates, whereby
any Reinsured or CNA Insurer has ceded the Business Covered, and which agreements have not been
voided or commuted.
Third Party Reinsurance Allocation Agreement
means the Third Party Reinsurance
Allocation Agreement by and among the Parties, substantially in the form of
Exhibit C
attached hereto.
Third Party Reinsurance Recoverables
means Gross Third Party Reinsurance
Recoverables, less Collection Expenses.
Transaction Documents
means the Master Transaction Agreement and the Ancillary
Agreements (as such term is defined in the Master Transaction Agreement), other than this
Reinsurance Agreement.
Trustee
means the trustee named in the Collateral Trust Agreement and any successor
trustee appointed as such pursuant to the terms of such Collateral Trust Agreement.
Ultimate Net Loss
has the meaning set forth in
Section 2.3
.
Unallocated Loss Adjustment Expenses
means any loss adjustment expenses which are
not Allocated Loss Adjustment Expenses. For purposes of this Reinsurance Agreement, this
definition of Unallocated Loss Adjustment Expenses will apply regardless of how the Reinsured
reserve for Unallocated Loss Adjustment Expenses on its annual and quarterly statutory financial
statements filed with Governmental Authorities.
11
ARTICLE II
REINSURANCE CEDED
2.1
Reinsurance Coverage
.
Effective as of the Inception Date, the Reinsured shall cede to the Reinsurer, and the
Reinsurer shall reinsure 100% of all losses, liabilities and expenses included within the
definition of Ultimate Net Loss paid by the Reinsured (as recorded on the general ledger of the
Reinsured) on or after the Inception Date, subject to the LPT Limit (the
Reinsured
Liabilities
). Notwithstanding any other provision in this Reinsurance Agreement or the
Transaction Documents to the contrary, the Reinsurers aggregate limit of liability for Ultimate
Net Loss shall be no greater than Four Billion Dollars ($4,000,000,000) (the
LPT Limit
).
2.2
Commencement of the Reinsurers Liability
.
The Reinsurers liability under this Reinsurance Agreement shall attach simultaneously with
that of the Reinsured, and all reinsurance with respect to which the Reinsurer shall be liable by
virtue of this Reinsurance Agreement shall be subject in all respects to the same risks, terms,
rates, conditions, interpretations, assessments and waivers and to the same modifications,
alterations and cancellations, as the respective Reinsured Contracts and Business Covered to which
liability under this Reinsurance Agreement attaches, the true intent of this Reinsurance Agreement
being that the Reinsurer shall, in every case to which liability under this Reinsurance Agreement
attaches, follow the fortunes of the Reinsured, and the Reinsurer shall be bound, without
limitation, by all payments and settlements entered into by or on behalf of the Reinsured, subject
to the terms, conditions, provisions and the LPT Limit set forth herein, and the Administrative
Services Agreement.
2.3
Ultimate Net Loss
.
Ultimate Net Loss
means the sum of any amount which is paid, required to be paid or
due to be paid by any Reinsured or CNA Insurer on and after the Inception Date in respect of
Business Covered for: (i) settlement or satisfaction of the A&P Claims relating to the Business
Covered;
plus
(ii) Allocated Loss Adjustment Expenses;
plus
(iii) Declaratory
Judgment Expenses;
plus
(iv) Extracontractual Damages;
minus
(v) Third Party
Reinsurance Recoverables and Other Recoveries (but expressly excluding Pre-Inception Date
Receivables), to the extent actually collected and paid to the Reinsurer;
provided
,
however
, in no
event shall Ultimate Net Loss include any Unallocated Loss Adjustment Expenses.
2.4
Exclusions
.
Notwithstanding any provision of this Reinsurance Agreement to the contrary, the Reinsurer
shall not be liable for any liabilities or obligations of the Reinsured that are not Reinsured
Liabilities, including:
12
(a) Any sum paid or booked as paid prior to the Inception Date in settlement or payment
of any obligation arising from Business Covered, including any such sums for Allocated Loss
Adjustment Expenses, Declaratory Judgment Expenses or Extracontractual Damages which, in
each case, were paid or booked as paid prior to the Inception Date;
(b) Any liability of any Reinsured or CNA Insurer for the intentional and malicious
acts or omissions of their employees, officers or directors (as so determined by final
adjudication by any Order, writ, injunction, directive, judgment or decree of a court of
competent jurisdiction applicable to the Parties), except to the extent that any loss would
otherwise constitute an Extracontractual Damage;
(c) Any liability with respect to any Tax or assessment, whether paid directly by the
Reinsured or billed to the Reinsured by or through a cedent or insured, regardless of
whether the Tax is denominated as an income tax, excise tax, premium tax, surplus lines tax
or any other Tax or assessment;
(d) Any claims under workers compensation policies (except for coverage for (1B)
employers liability claims that involve asbestos or pollution) or under first party
insurance policies;
(e) Any liability arising from Reinsureds role as a managing general agent or pool
manager;
(f) Any liability assumed by any Reinsured under a reinsurance agreement or cover note
entered into on or after the Inception Date, including with any CNA Insurer who was not
an Affiliate of CNA on the date such reinsurance agreement or cover note was entered into,
or any additional liability arising from an amendment to a reinsurance agreement, which
amendment was entered into on or after the Inception Date;
(g) Any additional liability arising from an amendment to a Reinsured Contract by a
Reinsured pursuant to
Section 19.1(b)
; or
(h) Any claim or liability set forth on
Schedule 2.4(h)
attached hereto
(collectively, (a)-(h) constitute the
Excluded Liabilities
).
2.5
Unallocated Loss Adjustment Expenses
.
For the avoidance of doubt, notwithstanding any provision of this Reinsurance Agreement to the
contrary, the Reinsurer shall be responsible for reimbursing the Reinsured for three million five
hundred thousand dollars ($3,500,000), which amount represents the
13
Reinsurers share of the
Unallocated Loss Adjustment Expenses incurred by the Reinsured in connection with the Business
Covered on or after the Inception Date up to the Closing Date, and such payment shall not affect
the LPT Limit or the reinsurance provided hereunder. The amount of the payment referenced in the
foregoing sentence shall be deposited into the Collateral Trust Account in accordance with
Section 2.3
of the Master Transaction Agreement. The Reinsurer shall be liable for
Unallocated Loss Adjustment Expenses that (i) Reinsurer has incurred in connection with its
administration of the Business Covered pursuant to the Administrative Services Agreement, or (ii)
have been expressly approved for payment in writing by Reinsurer or otherwise provided for in this
Reinsurance Agreement, and such payments shall not affect the LPT Limit.
2.6
Notice Regarding LPT Limit
.
In the event that the remaining LPT Limit is, through the Reinsurers payment of Ultimate Net
Loss under this Reinsurance Agreement, reduced to one billion dollars ($1,000,000,000) on a paid
basis, the Reinsurer shall promptly provide written notice to the Reinsured and, to the extent that
the Reinsurer has concluded that the remaining LPT Limit will be exhausted on a paid basis, a good
faith estimate of the date when the LPT Limit is expected to be exhausted.
2.7
Territory
.
The reinsurance provided under this Reinsurance Agreement shall be coextensive with the
territory of the Reinsured Contracts.
2.8
Change of Control
.
For the avoidance of doubt, the reinsurance provided under this Reinsurance Agreement shall
continue unchanged regardless of any Change of Control.
2.9
Redomestication
.
The Reinsurers consent shall be obtained prior to any action by a Reinsured or a CNA Insurer
(including a Change of Control) that results in redomestication of that entity outside the United
States.
2.10
CNA Insurers Bound
.
The Reinsured shall cause the CNA Insurers to abide by and be bound by the terms and
conditions of this Reinsurance Agreement and the Administrative Services Agreement.
14
ARTICLE III
REINSURANCE CONSIDERATION
3.1
Reinsurance Premium
.
On the Closing Date, the Reinsured shall pay to the Reinsurer cash in the aggregate amount of
two billion dollars ($2,000,000,000) (the
Reinsurance Premium
), as adjusted in the
Initial Reconciliation Statement pursuant to
Section 2.3
of the Master Transaction
Agreement, to be deposited directly by the Reinsured on behalf of the Reinsurer into the Collateral
Trust Account.
3.2
Transfer of Pre-Inception Date Receivables
.
In addition to the payment of the Reinsurance Premium, the Reinsured shall transfer the right
to collect the Pre-Inception Date Receivables to the Reinsurer. All Pre-Inception Date Receivables
actually collected by the Reinsurer shall be for the benefit and account of the Reinsurer. The
Parties hereby acknowledge and agree that neither the collection of, or failure to collect,
Pre-Inception Date Receivables shall affect the LPT Limit. The Reinsured shall, if reasonably
requested by the Reinsurer, aid the Reinsurer at the Reinsurers expense in the collection of
Pre-Inception Date Receivables, and the Reinsurer is authorized to undertake such efforts as it
deems reasonably necessary, including on behalf of and in the name of a CNA Insurer, in order to
collect such Pre-Inception Date Receivables.
3.3
Payments
.
(a) Except with respect to payments of Ultimate Net Loss made by Reinsurer to third
parties on behalf of Reinsured, and except as otherwise set forth in Section 2.3 of the
Master Transaction Agreement with respect to the accounting reconciliation, all payments
between the Parties made pursuant to this Reinsurance Agreement shall be made either (i) by
wire transfer of United States dollars in cash to such bank account or accounts as
designated by the recipient or (ii) by direct deposit or direct debit through the Automated
Clearing House (ACH) system.
(b) Except with respect to payments of Ultimate Net Loss made by Reinsurer to third
parties on behalf of Reinsured, and except as otherwise set forth in Section 2.3 of the
Master Transaction Agreement with respect to the accounting reconciliation, all
payments by the Reinsurer to the Reinsured shall be made directly to the Reinsured or
to its liquidator, receiver, or its statutory successor.
15
ARTICLE IV
ADMINISTRATION
4.1
Administration
.
Pursuant to the Administrative Services Agreement, the Reinsured and the CNA Insurers appoint
the Reinsurer and/or its duly appointed Affiliate(s) to perform all administrative services with
respect to the Reinsured Contracts and Third Party Reinsurance Agreements as respects the Business
Covered until the date of termination of this Reinsurance Agreement (or the date of termination of
the Administrative Services Agreement, if earlier) and the Reinsurer agrees to perform such
services on behalf of the Reinsured as provided in the Administrative Services Agreement.
ARTICLE V
RESERVING REQUIREMENTS
5.1
Reserve Assumption Changes
.
On and after the Inception Date, the Reinsurer shall establish and at all times maintain a
reserve liability on the Reinsurers statutory financial statements with respect to the Reserves on
the Business Covered, which shall be determined by the Reinsurer in accordance with SAP, including
applicable actuarial principles. The Reinsured shall determine its Reserves on the Business
Covered in accordance with SAP, including applicable actuarial principles.
ARTICLE VI
DURATION AND TERMINATION
6.1
Duration and Termination
.
Without limiting any provision of the Master Transaction Agreement, this Reinsurance Agreement
shall commence on the Closing Date and continue in force until (i) such time as the Reinsurers
liability with respect to Ultimate Net Loss terminates, which will be the earlier of: (a) the date
the Reinsureds liability with respect to the Business Covered is terminated and all amounts due
the Reinsured under this Reinsurance Agreement with respect to the Business Covered is paid or (b)
the date on which the Reinsurer has paid an amount of
Ultimate Net Loss equal to the LPT Limit or (ii) the date on which this Reinsurance Agreement
is terminated by the mutual written consent of the Parties.
16
6.2
Effect of Termination
.
Notwithstanding the other provisions of this
Article VI
, the terms and conditions of
Articles I
and
X
and the provisions of
Sections 21.1
,
22.1
,
22.7
,
22.12
, and
22.13
shall remain in full force and effect after the
termination of this Reinsurance Agreement.
ARTICLE VII
ACCOUNTING AND SETTLEMENT REPORTS
7.1
Accounting and Settlement Reports
.
Pursuant to and in accordance with the terms of the Administrative Services Agreement, the
Reinsurer will provide to the Reinsured accounting and settlement reports as to the Reinsured
Contracts and Third Party Reinsurance Agreements as respects the Business Covered.
7.2
Tax Reporting
.
Each Party to the transaction provided for in this Reinsurance Agreement has conducted prior
to execution of this Reinsurance Agreement such risk transfer testing analysis as that Party deems
appropriate in its independent judgment in order to report properly the transaction for SAP and
federal income tax purposes. Based on such analysis each Party has independently determined that
the transaction provided for in this Reinsurance Agreement is properly accounted for as reinsurance
for SAP and federal income tax purposes.
ARTICLE VIII
INSOLVENCY
8.1
Insolvency of Reinsured
.
(a) The Reinsurer hereby agrees that in the event of the insolvency of any Reinsured
and the appointment of a conservator, liquidator, receiver or statutory successor of the
Reinsured, all amounts due the Reinsured under this Reinsurance Agreement shall be payable
by the Reinsurer to any conservator, liquidator, receiver or statutory successor of the
Reinsured on the basis of the claims allowed against the Reinsured by any court of competent
jurisdiction or by any conservator, liquidator, receiver or statutory successor of the
Reinsured having authority to allow such claims, without diminution because of that
insolvency, or because the conservator, liquidator,
receiver or statutory successor has failed to pay all or a portion of any claims.
Payments by the Reinsurer as set forth in this Section shall be made directly to the
Reinsured or to
17
its conservator, liquidator, receiver, or statutory successor, except where
the Reinsurance Agreement specifically provides another payee of such reinsurance in the
event of the insolvency of the Reinsured. Under no circumstances shall Reinsurers
liability hereunder be accelerated or enlarged by the insolvency of any Reinsured.
(b) It is agreed and understood,
however
, that in the event of the insolvency of any
Reinsured the liquidator, receiver or statutory successor of such Reinsured shall give
written notice of the pendency of a claim against such Reinsured on a Reinsured Contract
within a reasonable period of time after such claim is filed in the insolvency proceedings
and that during the pendency of such claim 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 which it may deem available to such Reinsured or its liquidator,
receiver or statutory successor. It is further understood that the expense thus incurred by
Reinsurer shall be chargeable, subject to court approval, against such Reinsured as part of
the expense of liquidation to the extent of a proportionate share of the benefit which may
accrue to such Reinsured solely as a result of the defense undertaken by Reinsurer.
ARTICLE IX
COLLATERAL TRUST ACCOUNT
9.1
Establishment of Collateral Trust Account
.
(a) In accordance with the Collateral Trust Agreement to be entered into between the
Parties and the Trustee as of the date hereof, the Reinsurer shall have procured, on or
prior to the date hereof, with and in the name of the Trustee, a segregated trust account
maintained by the Trustee with account number 80460400 (the
Collateral Trust
Account
), to be held for the benefit of each of the Reinsured pursuant to the
provisions of the Collateral Trust Agreement.
(b) On the Closing Date, (i) the Reinsured shall transfer and assign to the Collateral
Trust Account, on behalf of the Reinsurer, assets consisting of cash in the aggregate amount
of the Reinsurance Premium, as adjusted in the Initial Reconciliation Statement pursuant to
Section 2.3
of the Master Transaction Agreement and (ii) the Reinsurer shall
transfer and assign to the Collateral Trust Account assets consisting of cash in the
aggregate amount of two hundred million dollars ($200,000,000).
9.2
Ongoing Funding of Collateral Trust Account
.
In accordance with the requirements of the Collateral Trust Agreement, unless there is a
Collateral Triggering Event or a Reinsurance Credit Event, the Reinsurer shall not be
required to deposit additional assets into the Collateral Trust Account after the Closing
Date. All
18
transfers to and withdrawals from the Collateral Trust Account shall be in accordance
with the terms set forth herein and subject to the requirements set forth in the Collateral Trust
Agreement.
9.3
Collateral Trust Assets
.
(a) Prior to the occurrence of a Reinsurance Credit Event, the assets that may be held
in the Collateral Trust Account shall consist of Eligible Investments. Upon the occurrence
of a Reinsurance Credit Event,
however
, in accordance with the requirements of the
Collateral Trust Agreement and
Section 9.6
herewith, the assets in the Collateral
Trust Account shall consist of Permitted Investments.
(b) The Reinsurer shall, prior to depositing any Eligible Investments or Permitted
Investments, as applicable, into the Collateral Trust Account, and from time to time as
required, execute all assignments and endorsements in blank, or transfer legal title to the
Trustee of all shares, obligations or any other assets requiring assignment in order that
the Trustee, upon direction of the Reinsured, may whenever necessary negotiate any such
assets without consent or signature from the Reinsurer or any other entity.
(c) Pursuant to the terms of the Collateral Trust Agreement, the Collateral Trust
Assets shall be held by the Trustee for the sole purpose of satisfying any obligations of
the Reinsurer to the Reinsured with respect to the Business Covered under this Reinsurance
Agreement.
9.4
Settlements
.
All settlements of account under the Collateral Trust Agreement between the Reinsurer and the
Reinsured shall be made in United States dollars in cash or its equivalent.
9.5
Modification Upon Occurrence of Collateral Triggering Event
.
The Parties acknowledge and agree that, upon the occurrence of a Collateral Triggering Event,
all references to Security Amount in the Collateral Trust Agreement shall be modified in
accordance with its definition to give effect to the Collateral Triggering Event. In addition, as
soon as is practicable, but no later than contemporaneously with the posting of the collateral
under any Collateral Triggering Agreement that results in the Reinsurer posting one billion dollars
or more of collateral either on an individual or aggregate basis, the Reinsurer shall deposit such
additional assets into the Collateral Trust Account so that the aggregate fair market value of the
Eligible Investments in the Collateral Trust Account equals the newly computed Security Amount.
Until such time as (i) the events, changes or conditions that gave rise to the collateral
requirement under one or more of the Collateral Triggering Agreements cease to exist or apply and
(ii) the Reinsurer has withdrawn or reduced the aggregate amount of collateral posted under
Collateral Triggering Agreements ((i) and (ii) together, the
Collateral Reduction Event
),
the Reinsurer shall ensure that the Collateral Trust Account shall hold Eligible
Investments at all times with a fair market value of no less than 100% of the Security Amount (as
19
defined in clause (ii) of
Section 1.1(jj)
of the Collateral Trust Agreement);
provided
,
however
, if a Collateral Reduction Event has occurred, the Security Amount shall be reduced by a
percentage which is proportionate to each percentage reduction of all collateral posted under the
Collateral Triggering Agreements;
provided
,
further
,
however
, in no event shall the Security Amount
be reduced to an amount less than 100% of the Security Amount (as defined in clause (i) of
Section 1.1(jj)
of the Collateral Trust Agreement).
9.6
Modification Upon Occurrence of a Reinsurance Credit Event
.
(a) The Parties acknowledge and agree that, upon the occurrence of a Reinsurance Credit
Event, this Reinsurance Agreement, the Collateral Trust Agreement and the Collateral Trust
Account shall be modified for that period of time for which the Reinsurance Credit Event
continues to apply, to fully conform to the requirements of the laws and regulations
governing credit for reinsurance of the domiciliary state of the Reinsured that that is the
subject of the Reinsurance Credit Event. Furthermore, the Parties acknowledge and agree
that a Reinsurance Credit Event may occur as a result of the financial impairment of the
Reinsurer or it may occur as a result of other causes, some of which may be cured by the
Reinsurer within a reasonable period of time. Consequently, the Parties hereto agree that:
(i) Should either Party become aware of a Reinsurance Credit Event or the
likelihood of the occurrence of a Reinsurance Credit Event, such Party shall provide
prompt written notice to the other either (i) certifying that a Reinsurance Credit
Event has occurred or (ii) describing the circumstances and cause for such notice.
Such notice shall indicate whether the Reinsurance Credit Event resulted or is likely
to result from any financial impairment of the Reinsurer or from other causes. For
purposes of this
Article IX
, a Reinsurance Credit Event resulting from or
likely to result from any financial impairment of the Reinsurer shall be referred to
as a
Reinsurance Credit Event I
and a Reinsurance Credit Event resulting
from or likely to result from causes other than the financial impairment of the
Reinsurer shall be referred to as a
Reinsurance Credit Event II
.
(ii) Upon the occurrence of a Reinsurance Credit Event I, the Parties acknowledge
and agree that certain provisions of the Collateral Trust Agreement shall cease to be
effective, and other provisions shall automatically become effective thereafter, as
described in the Collateral Trust Agreement. In addition, any other provisions
required under applicable law and regulations governing trusts providing full
statutory financial statement credit for reinsurance ceded by property and casualty
insurance companies shall be incorporated into the Collateral Trust Agreement.
(iii) Upon the occurrence of a Reinsurance Credit Event II, then the Reinsurer
shall have a period of ninety (90) calendar days to seek to cure or address
to the satisfaction of the Reinsured the circumstances giving rise to the
Reinsurance
20
Credit Event II. Should the Reinsurer be unable to cure the situation or
address it to the satisfaction of the Reinsured during such period, Reinsurer shall
establish a new trust account for each Reinsured that is the subject of the
Reinsurance Credit Event II, pursuant to a trust agreement substantially in the form
attached hereto as
Exhibit D
(
Reinsurance Credit Event II Trust
Agreement
). Notwithstanding anything to the contrary stated herein, the
Reinsurer shall be required to establish a new trust account solely for the benefit of
CCC and/or CIC, respectively, and only to the extent CCC and/or CIC is the subject of
the Reinsurance Credit Event II.
(iv) The trust account or accounts established pursuant to the Reinsurance Credit
Event II Trust Agreements (
Reinsurance Credit Event II Trust Accounts
) shall
initially be funded by such Permitted Investments from the Collateral Trust Account
that represents the percentage of the remaining value of Collateral Trust Assets
reflecting the portion of the Reinsurance Premium that was contributed by the
applicable Reinsured, less Ultimate Net Loss paid in respect of such Reinsured. In
addition to such assets, the Reinsurer shall deposit into the Reinsurance Credit Event
II Trust Accounts sufficient additional assets so that the aggregate fair market value
of the Reinsurance Credit Event II Trust Accounts equals the applicable Required
Amount. The Reinsurance Credit Event II Trust Accounts shall be funded with Permitted
Investments only.
(v) The Reinsurance Credit Event II Trust Accounts shall remain in place only for
so long, and only to the extent, required to address the event, change or condition
giving rise to the establishment of such trust accounts. The Reinsured agrees that in
the event that the Reinsurance Credit Event ceases to exist or apply, the Reinsured
will provide its approval for the termination of the Reinsurance Credit Event II Trust
Accounts and for the return of all assets to the Reinsurer;
provided
,
however
, the
fair market value of the Permitted Investments transferred from the Collateral Trust
Account to the Reinsurance Credit Event II Trust Account less Ultimate Net Loss paid
on behalf of the Reinsured since such transfer shall be transferred to the Collateral
Trust Account. In addition, to the extent that the obligations of the Reinsurer to
provide security diminish, the Reinsured shall provide its approval for the reduction
of the Reinsurance Credit Event II Trust Account.
9.7
Withdrawal of Collateral Trust Assets by Reinsured Prior to the Occurrence of a Reinsurance
Credit Event
.
(a) The Parties agree that Collateral Trust Assets may be withdrawn by the Reinsured,
and utilized and applied by the Reinsured, or any successor by operation of law of the
Reinsured including, any liquidator or rehabilitator, receiver or conservator of the
Reinsured, without diminution because of insolvency on the part of the Reinsured or the
Reinsurer, only for one or both of the following purposes:
21
(i) to pay or reimburse the Reinsured for the Reinsurers share of claims, losses
or other amounts due and payable to the Reinsured under the terms and conditions of
this Reinsurance Agreement or to pay or reimburse the Reinsured for amounts to which
it is entitled under the terms and conditions of the Administrative Services Agreement
not yet recovered from the Reinsurer or the Collateral Trust Account; and
(ii) to pay to the Reinsurer amounts held in the Collateral Trust Account in
excess of the Security Amount.
(b) Notwithstanding the foregoing, the Reinsured shall only withdraw Collateral Trust
Assets under
Section 9.7(a)(i)
pursuant to the terms of a final order of an
arbitration panel or court of competent jurisdiction with which the Reinsurer has failed to
comply, provided that notice of such withdrawal is provided not less than five (5) Business
Days in advance of the requested withdrawal. If the Reinsurer contests the validity of the
arbitration order by notice to the Reinsured, the Reinsurer may challenge the validity of
the withdrawal order in a court of competent jurisdiction. During the pendency of such
litigation, notice of withdrawal shall not be effective except as ordered by the court in
which the litigation is pending;
(c) The Reinsured shall return to the Collateral Trust Account, within five (5)
Business Days, assets withdrawn in excess of all amounts due under
Sections
9.7(a)(i)
and
(ii)
. Any such excess amount shall at all times be held by the
Reinsured (or any successor by operation of law of the Reinsured, including any liquidator,
rehabilitator, receiver or conservator of Reinsured) in trust for the benefit of the
Reinsurer and be maintained in a segregated account, separate and apart from any assets of
the Reinsured for the sole purpose of funding the payments and reimbursements described in
Section 9.7(a)
.
9.8
Withdrawal of Collateral Trust Assets by Reinsured After the Occurrence of a Reinsurance Credit
Event
.
(a) The Parties agree that the Collateral Trust Assets may only be withdrawn by the
Reinsured, and utilized and applied by the Reinsured, or any successor by operation of law
of the Reinsured including any liquidator or rehabilitator, receiver or conservator of the
Reinsured, without diminution because of insolvency on the part of the Reinsured or the
Reinsurer, for one or more of the following purposes:
(i) to pay or reimburse the Reinsured for the Reinsurers share of premiums
returned to policyholders or ceding companies of the Reinsured Contracts because of
cancellations of such contracts to the extent same constitute Ultimate Net Loss
hereunder;
22
(ii) to reimburse the Reinsured for the Reinsurers share of surrenders and
benefits or losses paid by the Reinsured pursuant to the provisions of the Reinsured
Contracts to the extent same constitute Ultimate Net Loss hereunder;
(iii) to fund an account with the Reinsured in an amount at least equal to the
deduction, for reinsurance ceded, from the Reinsureds liabilities for the Reinsured
Liabilities. The account must include, but not be limited to, amounts for policy
reserves, claims and losses incurred, including losses incurred but not reported,
Allocated Loss Adjustment Expenses, and unearned premium reserves; and
(iv) to pay any other amounts the Reinsured claims are due under this Reinsurance
Agreement.
(b) The Reinsured shall return to the Collateral Trust Account, within five (5)
Business Days, assets withdrawn in excess of all amounts due under
Sections
9.8(a)(i)
,
(ii)
and
(iv)
, or, in the case of
Section
9.8(a)(iii)
, assets that are subsequently determined not to be due. Any such excess
amount shall at all times be held by the Reinsured (or any successor by operation of law of
the Reinsured, including any liquidator, rehabilitator, receiver or conservator of
Reinsured) in trust for the benefit of the Reinsurer and be maintained in a segregated
account, separate and apart from any assets of Reinsured for the sole purpose of funding the
payments and reimbursements described in paragraphs (i), (ii) and (iv) of
Section
9.8(a)
. The Reinsured shall pay interest in cash to the Reinsurer on the amount
withdrawn, equal to the actual amount of interest, dividends, and other income earned on the
assets in such segregated account so long as the fair market value of the assets in such
segregated account and the fair market value of any remaining Collateral Trust Assets
equals, in the aggregate, 102% of the Required Amount, and shall otherwise credit to such
segregated account all such income earned on the assets in such segregated account.
ARTICLE X
DISPUTE RESOLUTION
10.1
Dispute Resolution
.
Notwithstanding anything contained herein to the contrary, any dispute between the Parties
arising out of or relating to this Reinsurance Agreement or the breach, termination or validity
hereof (
Dispute
) will be first addressed in accordance with the procedures specified in
Section 10.2
, and subsequently, if necessary,
Article XI
, which will be the sole
and exclusive procedures for the resolution of any such Disputes.
23
10.2
Negotiation Amongst the Parties
.
(a) The Parties agree that they shall first attempt to resolve Disputes by informal
in-person discussions and negotiations of their respective representatives. If the Parties
are unable to resolve any such Dispute through such in-person discussions and negotiations
within thirty (30) calendar days of the day on which a Party receives from the other Party
or Parties written notice of a Dispute, the Dispute shall be submitted for resolution to a
designated executive officer of each Party, with authority to make a decision. If the
designated executive officers are unable to reach a mutually acceptable resolution within
ten (10) calendar days after expiration of such thirty-day period, on the request of any
Party, the Dispute shall be resolved in accordance with subsection (b) of this
Section
10.2
. All negotiations, discussions, and communications made or conducted pursuant to
the procedures set forth in this
Section 10.2(a)
are confidential and will be
treated as compromise and settlement negotiations for purposes of the Federal Rules of
Evidence and any other applicable rules of evidence.
(b) Upon completion of the dispute resolution process described in subsection (a) of
this
Section 10.2
without resolution of the Dispute, any Party may submit the
Dispute for resolution in accordance with
Article XI
.
ARTICLE XI
ARBITRATION
11.1
Arbitration
.
(a) Except as provided in
Article X
, any Dispute shall be finally determined by
arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration
Association (
AAA
) then in effect (the
Rules
), except as modified herein.
If the amount in controversy is five million dollars ($5,000,000) or less (including all
claims and counterclaims) there shall be one arbitrator who shall be agreed upon by the
Parties within twenty (20) calendar days of receipt by respondent(s) of a copy of the demand
for arbitration. The single arbitrator may not award an amount greater than five million
dollars ($5,000,000) in value under any circumstances. If the amount in controversy is more
than five million dollars ($5,000,000) (including all claims and counterclaims) there shall
be three neutral and impartial arbitrators, one of whom shall be appointed by each of (i)
the Reinsured, on the one hand and (ii) the Reinsurer, on the other hand, within thirty (30)
calendar days of receipt by respondent(s) of the demand for arbitration, and the third
arbitrator, who shall chair the arbitral tribunal, shall be appointed by the Party appointed
arbitrators within fifteen (15) calendar days of the appointment of the second arbitrator.
If any arbitrator is not appointed within the time limit provided herein, such arbitrator
shall be appointed by the AAA in accordance with the listing, striking and ranking procedure
in the Rules, with each Party being given a limited number of strikes, except for cause.
Any arbitrator appointed by the AAA shall
24
be a retired federal or state appellate court judge or a current or retired officer of
an insurance company with no less than fifteen (15) years of experience in the property
casualty insurance industry. The arbitration hearing on the merits shall be commenced
within ninety (90) calendar days of the appointment of the arbitrator(s) or as soon
thereafter as practicable. In rendering an award, the arbitral tribunal shall be required
to follow the laws of the State of New York. The award shall be in writing and shall
briefly state the findings of fact and conclusions of law on which it is based. The
arbitrator(s) shall be permitted to award any relief permitted under New York law, including
damages and any form of temporary or permanent injunctive relief, but shall not be permitted
to award special, indirect, punitive or incidental damages or damages for lost profits or
any other consequential damages or damages based on multiples or similar valuation
techniques. The award shall be final and binding upon the Parties and shall be the sole and
exclusive remedy between the Parties regarding any claims, counterclaims, issues or
accounting presented to the arbitrator(s). Judgment upon the award may be entered in any
court having jurisdiction over any Party or any of its assets. Any costs or fees (including
attorneys fees and expenses) incident to enforcing the award shall be charged against the
Party or Parties resisting such enforcement. Arbitrability of any and all disputes shall be
decided by the arbitrator(s). In the event of any inconsistency between the Rules and the
provisions of this
Article XI
, the provisions of this
Article XI
shall
control.
(b) Arbitration hereunder shall be conducted in Chicago, Illinois or New York, New
York, as determined by the Party against whom the arbitration is demanded.
ARTICLE XII
EXTRACONTRACTUAL DAMAGES
12.1
Extracontractual Damages
.
(a) To the maximum extent permitted by Applicable Law, this Reinsurance Agreement shall
cover Extracontractual Damages.
Extracontractual Damages
as used in this
Reinsurance Agreement means all liabilities arising from the Business Covered for which any
Reinsured and CNA Insurer is liable arising from actual or alleged misconduct, negligence,
fraud or bad faith of any Reinsured, any CNA Insurer or any of their Affiliates, or their
agents, brokers or Representatives (other than the Reinsurer acting on behalf of the
Reinsured pursuant to the Administrative Services Agreement, which liability shall be
indemnified pursuant to such agreement) in their handling of claims or losses, or in any of
their dealings with their insureds or any other Person. Such liabilities shall include
punitive, exemplary, compensatory, and consequential damages. Extracontractual Damages
shall also include any and all amounts otherwise included in the definition of Ultimate Net
Loss that any Reinsured pays or is obligated to pay to ceding companies under Business
Covered that are agreements of assumed reinsurance, whether under the terms of such
reinsurance
25
contracts or as a result of agreements between the Reinsured and cedents as to the
settlement of specific claims.
(b) For the avoidance of doubt, notwithstanding anything to the contrary in this
Reinsurance Agreement, any liability of the Reinsured or the CNA Insurers for the
intentional and malicious acts or omissions of their employees, officers or directors (as so
determined by final adjudication by any Order, writ, injunction, directive, judgment or
decree of a court of competent jurisdiction applicable to the Parties) shall be paid by the
Reinsured or the CNA Insurers and any such payment shall not affect the LPT Limit.
(c) For the avoidance of doubt, notwithstanding anything to the contrary in this
Reinsurance Agreement, any liability of the Reinsurer for the intentional and malicious acts
or omissions of their employees, officers or directors (as so determined by final
adjudication by any Order, writ, injunction, directive, judgment or decree of a court of
competent jurisdiction applicable to the Parties) shall be paid by the Reinsurer;
provided
,
however
, any such payment shall not affect the LPT Limit.
ARTICLE XIII
SALVAGE AND SUBROGATION
13.1
Salvage and Subrogation
.
The Reinsurer shall be subrogated to all rights of any Reinsured or CNA Insurer against any
Person or other entity who may be legally responsible in damages constituting Ultimate Net Loss for
which the Reinsurer shall actually pay, or become liable to pay, on or after the Inception Date
(but only to the extent of the amount of payment by, or the amount of liability of, the Reinsurer).
The Reinsured and the CNA Insurers hereby assign, transfer and convey to the Reinsurer any and all
rights of the Reinsured and the CNA Insurers to salvage and subrogation on the Business Covered
which was paid prior to the Inception Date. The rights of the Reinsurer and the obligations of the
Reinsured under this
Section 13.1
shall terminate at such time as the Reinsurer shall have
paid to the Reinsured under this Reinsurance Agreement an amount of Ultimate Net Loss equal to the
LPT Limit.
13.2
Expenses
.
In determining the amount of salvage or subrogation, there shall first be deducted from any
amount recovered the out-of-pocket expenses incurred in effecting the recovery (including, without
limitation, all court, arbitration, mediation or other dispute resolution costs, attorneys fees
and expenses but excluding overhead, salaries and expenses of officers and employees of the
Reinsured and similar internal costs), except to the extent otherwise paid or reimbursed by the
Reinsurer hereunder.
26
ARTICLE XIV
THIRD PARTY REINSURANCE AGREEMENTS
14.1
Third Party Reinsurance Agreements
.
(a) The Third Party Reinsurance Agreements shall be administered in accordance with the
Administrative Services Agreement. Any Third Party Reinsurance Recoverables will be
allocated in accordance with the terms and conditions of the Third Party Reinsurance
Allocation Agreement. Third Party Reinsurance Recoverables relating to A&P Claims paid by
Reinsurer shall be paid to Reinsurer. The Parties acknowledge and agree that amounts
recoverable under the Third Party Reinsurance Agreements are available both to the Reinsurer
for the Business Covered and to the Reinsured for all other claims in accordance with the
terms of the Third Party Reinsurance Allocation Agreement.
(b) The Reinsured shall not, without the Reinsurers prior approval (which approval
shall not be unreasonably or arbitrarily withheld, conditioned or delayed), terminate or
materially modify any existing Third Party Reinsurance Agreement providing protection to the
Business Covered.
14.2
Collection Responsibility
.
The Reinsured and the CNA Insurers shall, if reasonably requested by the Reinsurer, cooperate
with the Reinsurer, at the Reinsurers expense, in collection of all amounts due in respect of the
Reinsured Liabilities under the Third Party Reinsurance Agreements. The collection of such
reinsurance shall be the responsibility of the Reinsurer as provided in the Administrative Services
Agreement. To the extent such collections are not in fact made, the amounts uncollected shall not
serve to reinstate remaining Ultimate Net Loss as provided in
Section 2.3
. The Reinsured
shall not have any responsibility to the Reinsurer for any uncollectible amounts under Third Party
Reinsurance Agreements.
ARTICLE XV
REINSURANCE CREDIT
15.1
Reinsurance Credit
.
(a) Reinsurer shall, at its own expense, be required to take all steps (including the
posting of letters of credit or other acceptable security) necessary to comply with all
Applicable Laws in United States jurisdictions so as to permit all Reinsureds to obtain full
credit on their statutory financial statements (including those financial statements or
portions thereof required in connection with maintaining each Reinsureds status as an
27
accredited reinsurer or eligible surplus lines insurer) for the reinsurance provided by
this Reinsurance Agreement in all applicable United States jurisdictions throughout the
entire term of this Reinsurance Agreement to the extent credit is not otherwise available
under such Applicable Law. Any event that results in any Reinsured being unable to obtain
full statutory financial statement credit for the reinsurance provided under this
Reinsurance Agreement in any applicable United States jurisdiction at any point in time
during the term of this Reinsurance Agreement shall be referenced herein as a
Reinsurance Credit Event
. Reinsurer shall promptly notify Reinsured of any event
or change or condition that will reasonably likely result in a Reinsurance Credit Event.
(b) It is understood and agreed that any term or condition required by such Applicable
Law in a United States jurisdiction to be included in this Reinsurance Agreement for all
Reinsureds to receive financial statement credit for the reinsurance provided by this
Reinsurance Agreement shall be deemed to be incorporated in this Reinsurance Agreement by
reference. Furthermore, the Parties agree to amend this Reinsurance Agreement or enter into
other agreements or execute additional documents as needed to comply with the credit for
reinsurance laws and regulations and/or the requirements of the applicable Governmental
Authorities in all United States jurisdictions in which Reinsured requires financial credit
for the reinsurance provided by this Reinsurance Agreement. To the extent that any other
agreements or additional documents are deemed by Reinsurer to increase or accelerate its
liabilities hereunder or otherwise adversely impact the economics of this Reinsurance
Agreement as respects the Reinsurer, the Reinsurer shall be afforded the opportunity to
investigate alternatives for accomplishing the financial statement credit objectives set
forth herein;
provided
,
however
, any such investigation of alternatives shall not cause the
Reinsured to incur a Schedule F penalty or otherwise fail to receive financial statement
credit in a timely manner.
(c) Notwithstanding anything else contained herein, under no circumstances shall
Reinsurer be required at any time to fund any trust(s) and/or account(s) in excess of the
amount equal to the LPT Limit less Ultimate Net Loss paid.
ARTICLE XVI
REGULATORY MATTERS
16.1
Regulatory Matters
.
(a) If the Reinsured or the Reinsurer receives notice of, or otherwise becomes aware of
any inquiry, investigation, examination, audit or proceeding by Governmental Authorities
(other than Tax Authorities) relating to the Reinsured Contracts, the Business Covered or
the reinsurance provided hereunder, the Reinsured or the Reinsurer, as applicable, shall
promptly notify the other Party thereof, whereupon the Parties shall
28
cooperate to resolve such matter in accordance with the terms of the Administrative
Services Agreement.
(b) If the Reinsured or the Reinsurer receives notice of, or otherwise becomes aware of
any enforcement action by any Governmental Authority (other than a Tax Authority) arising
out of any inquiry, investigation, examination, audit or proceeding by such Governmental
Authority, the Reinsured or the Reinsurer, as applicable, shall promptly notify the other
Party thereof, and the Parties shall cooperate to resolve such matter.
(c) The Reinsured and the Reinsurer agree that this Reinsurance Agreement shall not be
cancelled or rescinded without the prior consent of the domiciliary state insurance
commissioners of CCC and CIC to the extent such prior consent is required.
ARTICLE XVII
CONFIDENTIALITY
17.1
Confidentiality
.
(a) The Parties (each, the
Receiving Party
) hereby covenant and agree, each
on behalf of itself and on behalf of its Affiliates, that from and after the date hereof,
the Receiving Party and its Affiliates will not disclose, give, sell, use or otherwise
divulge any Confidential Information (defined below) of the other Party (the
Disclosing
Party
) or permit their respective Representatives to do the same, except that each
Receiving Party may disclose such Confidential Information or portions thereof (i) if
legally compelled to do so or as required in connection with an examination by an insurance
regulatory authority, (ii) to the extent necessary for the performance of such Receiving
Partys obligations under this Reinsurance Agreement or the Transaction Documents, (iii) the
enforcement of the rights of such Receiving Party and its Affiliates under this Reinsurance
Agreement or the Transaction Documents, (iv) to those of such Receiving Partys Affiliates,
and to their respective Representatives in each case who need to know such information for
the foregoing purposes, (v) as required under any Applicable Law, (vi) as required to a Tax
Authority to support a position taken on any Tax Return or (vii) as required by the rules of
any stock exchange on which the stock of a Receiving Partys Affiliate is traded. If the
Receiving Party or its Affiliates, or any of their respective Representatives become legally
compelled to disclose any Confidential Information (other than as required in connection
with an examination by an insurance regulatory authority or as required to a Tax Authority
to support a position taken on any Tax Return), the Receiving Party shall provide Disclosing
Party with prompt written notice of such requirement so that the Disclosing Party may seek a
protective order or other remedy or waive compliance with this
Section 17.1
. In the
event that such protective order or other remedy is not obtained, or the Disclosing Party
waives compliance with this
Section 17.1
, the Receiving Party or its Affiliates, as
applicable,
29
shall furnish only that portion of Confidential Information which is legally required
to be provided and exercise its commercially reasonable efforts to obtain assurances that
appropriate confidential treatment will be accorded to the Confidential Information.
(b) The Receiving Party, on behalf of itself and on behalf of its Affiliates and their
respective Representatives acknowledges that a breach of its obligations under this
Section 17.1
may result in irreparable injury to the Disclosing Party. In the event
of the breach by Receiving Party or any of its Affiliates or their respective
Representatives of any of the terms and conditions of this
Section 17.1
to be
performed, the Disclosing Party shall be entitled to the remedies provided in
Section
10.1
.
(c) For the purposes of this Reinsurance Agreement,
Confidential Information
means all confidential information (irrespective of the form of such information) of any
kind, including any analyses, compilations, data, studies, notes, translations, memoranda or
other documents, concerning the Disclosing Party or any of its Affiliates obtained directly
or indirectly from the Disclosing Party or any of its Affiliates, or Representatives in
connection with the transactions contemplated by this Reinsurance Agreement and the
Transaction Documents, including any information regarding the A&P Business, except
information (i) which at the time of the disclosure or thereafter is ascertainable or
available to the public (other than as a result of a disclosure directly or indirectly by
the Receiving Party or any of its Affiliates, or Representatives), (ii) is or becomes
available to the Receiving Party on a non-confidential basis from a source other than the
Disclosing Party or any of its Affiliates, or Representatives,
provided
that, to the
knowledge of such Receiving Party, such source was not prohibited from disclosing such
information to the Receiving Party by a legal, contractual or fiduciary obligation owed to
another Person, (iii) the Receiving Party can establish is already in its possession or the
possession of any of its Affiliates, or Representatives (other than information furnished by
or on behalf of the Disclosing Party) or (iv) which is independently developed by the
Receiving Party or its Affiliates without the use or benefit of any information that would
otherwise be Confidential Information.
ARTICLE XVIII
ERRORS AND OMISSIONS
18.1
Errors and Omissions
.
Inadvertent delays, errors or omissions made in connection with this Reinsurance Agreement or
any transaction hereunder shall not relieve either Party from any liability which would have
attached had such delay, error or omission not occurred,
provided
that such error or omission is
rectified as soon as possible after discovery, and
provided
,
further
, that the Party making such
error or omission or responsible for such delay shall be responsible for any additional liability
which attaches as a result. If (a) the failure of either Party to comply with any provision of
this Reinsurance Agreement is unintentional or the result of a misunderstanding or
30
oversight and (b) such failure to comply is promptly rectified, both Parties shall be restored
as closely as possible to the positions they would have occupied if no error or oversight had
occurred.
ARTICLE XIX
MATERIAL CHANGES
19.1
Material Changes to Reinsured Contracts and Third Party Reinsurance Agreements
.
(a) Neither Party shall voluntarily make or agree to any material changes in the terms
and conditions of any Reinsured Contract or Third Party Reinsurance Agreement without the
prior approval of such changes by the other Party, which shall not be unreasonably withheld
or delayed.
(b) In the event any material changes are made by the Reinsured to any Reinsured
Contracts without the prior approval of the Reinsurer and such changes result in any
additional Ultimate Net Loss, the Reinsured shall not be reinsured for the amount of any
additional Ultimate Net Loss resulting from such amendment to a Reinsured Contract in
accordance with the terms of
Section 2.4(g)
. In the event any material changes are
made by the Reinsured to any Third Party Reinsurance Agreements without the prior approval
of the Reinsurer, and such changes result in a reduction in the amount of Third Party
Reinsurance Recoverables that would have been recoverable had such changes not been made,
the LPT Limit shall be reduced by the amount of Third Party Reinsurance Recoverables that
would have been recoverable had such amendment to a Third Party Reinsurance Agreement not
been made.
(c) In the event any material changes are made by the Reinsurer to any Reinsured
Contracts without the prior approval of the Reinsured and such changes result in any
additional Ultimate Net Loss, the Reinsurer shall be responsible for paying the entire
amount of additional Ultimate Net Loss arising from such Reinsured Contract,
provided
,
however
, the additional amount of Ultimate Net Loss paid by the Reinsurer attributable to
such amendment shall not reduce the LPT Limit. In the event any material changes are made
by the Reinsurer to any Third Party Reinsurance Agreements without the prior approval of the
Reinsured, and such changes result in a reduction in the amount of Third Party Reinsurance
Recoverables that would have been recoverable had such changes not been made, the remaining
LPT Limit shall be increased by the entire amount of such reduction in Third Party
Reinsurance Recoverables attributable to such amendment to the Third Party Reinsurance
Agreement.
31
ARTICLE XX
RIGHT TO ASSOCIATE
20.1
Right to Associate
.
The Reinsurer shall defend, at its own expense pursuant to the terms hereof and the
Administrative Services Agreement, and in the name of the applicable Reinsured when necessary, any
litigation, arbitration or other legal proceeding brought on any Reinsured Contract or Third Party
Reinsurance Agreement with respect to the Business Covered. The Reinsurer, when so requested,
shall afford the applicable Reinsured an opportunity to be associated with the Reinsurer, at the
expense of the Reinsured, in the defense or control of any claim, suit or proceeding involving the
Business Covered and the Parties shall cooperate in every respect in the defense of such claim,
suit or proceeding.
ARTICLE XXI
MULTIPLE PARTIES
21.1
Multiple Parties
.
(a) The retention of the Reinsured and the liability of the Reinsurer and all other
benefits accruing to the Reinsured as provided in this Reinsurance Agreement or any
amendments hereto, shall apply to the Reinsured as a group and not separately to each
Reinsured. Nevertheless, the Reinsurer and each Reinsured agree to honor the terms set
forth herein as if this Reinsurance Agreement were a separate agreement between the
Reinsurer and each Reinsured;
however
, this shall not operate so as to increase either the
Reinsurers or the Reinsureds liability under this Reinsurance Agreement. In the event
that the Reinsurer asserts that any one Reinsured has by any act or omission entitled the
Reinsurer to avoid this Reinsurance Agreement and/or discharged the Reinsurer from any
liability hereunder, the alleged act or omission shall not entitle the Reinsurer to seek to
avoid this Reinsurance Agreement and/or discharge the Reinsurer from any liability hereunder
against any other Reinsured. The Reinsurer agrees that so far as any other Reinsured is
concerned, the Reinsurance Agreement shall continue in full force and effect as if the act
or omission had not occurred. Nothing in this
Section 21.1(a)
shall be interpreted
or construed in any manner to alter the LPT Limit, which is a single aggregate limit for all
Reinsureds combined.
(b) Loss notices, reports and premium payments made to the Reinsurer are to be in
sufficient detail to identify what portion of any premium or loss relates to each Reinsured,
and shall be accordance with the terms set forth in the Third Party Reinsurance Allocation
Agreement and the Administrative Services Agreement.
32
(c) As among the Reinsured, CCC shall be designated as an agent of the Reinsured with
the full authority to act on behalf of the Reinsured under this Reinsurance Agreement.
ARTICLE XXII
MISCELLANEOUS PROVISIONS
22.1
Notices
.
Any notice, request, demand, waiver, consent, approval or other communication required or
permitted to be given by any Party hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission, sent by registered or certified mail, postage prepaid, or sent by a
standard overnight courier of national reputation with written confirmation of delivery. Any such
notice shall be deemed given when so delivered personally, or if sent by facsimile transmission, on
the date received (
provided
that any notice received after 5:00 p.m. (addressees local time) shall
be deemed given at 9:00 a.m. (addressees local time) on the next Business Day), or if mailed, on
the date shown on the receipt therefor, or if sent by overnight courier, on the date shown on the
written confirmation of delivery. Such notices shall be given to the following address:
If to the Reinsured:
CNA Financial Corporation
333 S. Wabash Avenue
Chicago, IL 60604
Attention: Jonathan D. Kantor
Executive Vice President,
General Counsel and Secretary
Fax: 312-817-0511
With a copy to:
CNA Financial Corporation
333 S. Wabash Avenue
Chicago, IL 60604
Attention: Michael P. Warnick
Senior Vice President and Deputy General Counsel
Fax: 312-755-2479
33
If to the Reinsurer:
National Indemnity Company
100 First Stamford Place
Stamford, CT 06902
Attention: General Counsel
Fax: 203-363-5221
With a copy to:
National Indemnity Company
3024 Harney Street
Omaha, NE 68131
Attention: Treasurer
Fax: 402-916-3030
Any Party may change its notice provisions on fifteen (15) calendar days advance notice in
writing to the other Parties.
22.2
Entire Agreement
.
This Reinsurance Agreement (including the exhibits and schedules hereto), the Transaction
Documents and any other documents delivered pursuant hereto or thereto, constitute the entire
agreement among the Parties and their respective Affiliates with respect to the subject matter
hereof and supersede all prior negotiations, discussions, writings, agreements and understandings,
oral and written, among the Parties with respect to the subject matter hereof and thereof.
22.3
Waiver and Amendment
.
This Reinsurance Agreement may be amended, superseded, canceled, renewed or extended, and the
terms hereof may be waived, only by an instrument in writing signed by the Parties hereto, or, in
the case of a waiver, by the Party waiving compliance. No delay on the part of any Party in
exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise thereof or the exercise
of any other such right, power or privilege. No waiver of any breach of this Reinsurance Agreement
shall be held to constitute a waiver of any other or subsequent breach.
22.4
Successors and Assigns
.
The rights and obligations of the Parties under this Reinsurance Agreement shall not be
subject to assignment without the prior written consent of the other Parties, and any attempted
assignment without the prior written consent of the other Parties shall be invalid
ab
34
initio
. The terms of this Reinsurance Agreement shall be binding upon, inure to the benefit
of and be enforceable by and against the successors and permitted assigns of the Parties.
22.5
Headings
.
The headings of this Reinsurance Agreement are for convenience of reference only and shall not
define or limit any of the terms or provisions hereof.
22.6
Construction; Interpretation
.
The Reinsured and the Reinsurer have participated jointly in the negotiation and drafting of
this Reinsurance Agreement. In the event of an ambiguity or question of intent or interpretation
arises, this Reinsurance Agreement shall be construed as if drafted jointly by the Parties and no
presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the
authorship of any of the provisions of this Reinsurance Agreement. When a reference is made to an
Article, Section, Schedule or Exhibit, such reference shall be to an Article, Section, Schedule or
Exhibit of or to this Reinsurance Agreement unless otherwise indicated. Whenever the words
include, includes or including are used in this Reinsurance Agreement, they shall be deemed
to be followed by the words without limitation. The word Reinsurance Agreement, means this
Reinsurance Agreement as amended or supplemented, together with all Exhibits and Schedules attached
hereto or incorporated by reference, and the words hereof, herein, hereto, hereunder and
other words of similar import shall refer to this Reinsurance Agreement in its entirety and not to
any particular Article, Section or provision of this Reinsurance Agreement. The references to $
shall be to United States dollars. Reference to any Applicable Law means such Applicable Law as
amended, modified, codified, replaced or reenacted, and all rules and regulations promulgated
thereunder. References to a Person are also to its successors and permitted assigns.
22.7
Governing Law and Jurisdiction
.
This Reinsurance Agreement shall be governed by and construed in accordance with the laws of
the State of New York without regard to such states principles of conflict of laws that could
compel the application of the laws of another jurisdiction. SUBJECT TO
ARTICLE X
, ANY
SUIT, ACTION OR PROCEEDING TO COMPEL ARBITRATION OR FOR TEMPORARY INJUNCTIVE RELIEF IN AID OF
ARBITRATION OR TO PRESERVE THE STATUS QUO PENDING THE APPOINTMENT OF THE ARBITRATOR(S) SHALL BE
BROUGHT BY THE PARTIES SOLELY IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, PROVIDED THAT IF SAID COURT DETERMINES THAT IT DOES NOT HAVE SUBJECT MATTER JURISDICTION THEN
SAID ACTIONS MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE OF NEW YORK FOR NEW YORK COUNTY; AND
EACH REINSURED AND THE REINSURER EACH HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF
SUCH COURTS FOR SUCH PURPOSE AND ANY APPELLATE COURTS THEREOF, EXCEPT THAT ANY FINAL ARBITRAL AWARD
RENDERED IN
35
ACCORDANCE WITH
ARTICLE XI
MAY BE ENTERED AND ENFORCED IN ANY COURT HAVING
JURISDICTION OVER ANY PARTY OR ANY OF ITS ASSETS.
22.8
No Third Party Beneficiaries
.
Nothing in this Reinsurance Agreement is intended or shall be construed to give any Person,
other than the Parties, any legal or equitable right, remedy or claim under or in respect of this
Reinsurance Agreement or any provision contained herein.
22.9
Counterparts
.
This Reinsurance Agreement may be executed by the Parties in separate counterparts, each of
which when so executed and delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument binding upon all of the Parties notwithstanding the fact
that all Parties are not signatory to the original or the same counterpart. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together signed by all of
the Parties. Each counterpart may be delivered by facsimile transmission, which transmission shall
be deemed delivery of an originally executed document.
22.10
Severability
.
Any term or provision of this Reinsurance Agreement which is invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms and provisions of
this Reinsurance Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Reinsurance Agreement in any other jurisdiction, so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any manner materially
adverse to any Party. If any provision of this Reinsurance Agreement is so broad as to be
unenforceable, that provision shall be interpreted to be only so broad as is enforceable. In the
event of such invalidity or unenforceability of any term or provision of this Reinsurance
Agreement, the Parties shall use their commercially reasonable efforts to reform such terms or
provisions to carry out the commercial intent of the Parties as reflected herein, while curing the
circumstance giving rise to the invalidity or unenforceability of such term or provision.
22.11
Specific Performance
.
Each of the Parties acknowledges and agrees that the other Party would be irreparably damaged
in the event that any of the provisions of this Reinsurance Agreement were not performed or
complied with in accordance with their specific terms or were otherwise breached, violated or
unfulfilled. Accordingly, each of the Parties agrees that the other Party shall be entitled to an
injunction or injunctions to prevent noncompliance with, or breaches or violations of, the
provisions of this Reinsurance Agreement by the other Party and to enforce specifically this
Reinsurance Agreement and the terms and provisions hereof in any action
36
instituted in accordance with
Section 22.7
, in addition to any other remedy to which
such Party may be entitled, at law or in equity. In the event that any action is brought in equity
to enforce the provisions of this Reinsurance Agreement, no Party will allege, and each Party
hereby waives the defense or counterclaim, that there is an adequate remedy at law. The Parties
further agree that (i) by seeking the remedies provided for in this
Section 22.11
, a Party
shall not in any respect waive its right to seek any other form of relief that may be available to
a Party under this Reinsurance Agreement, including monetary damages in the event that this
Reinsurance Agreement has been terminated or in the event that the remedies provided for in this
Section 22.11
are not available or otherwise are not granted and (ii) nothing contained in
this
Section 22.11
shall require any Party to institute any action for (or limit any
Partys right to institute any action for) specific performance under this
Section 22.11
before exercising any termination right under
Article VI
nor shall the commencement of any
action pursuant to this
Section 22.11
or anything contained in this
Section 22.11
restrict or limit any Partys right to terminate this Reinsurance Agreement in accordance with the
terms of
Article VI
or pursue any other remedies under this Reinsurance Agreement that may
be available then or thereafter.
22.12
Waiver of Jury Trial
.
EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS REINSURANCE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS
REINSURANCE AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF THE OTHER PARTIES HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTIES
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES
THAT IT HAS BEEN INDUCED TO ENTER INTO THIS REINSURANCE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
BY THIS REINSURANCE AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS
SECTION 22.12
.
22.13
Incontestability
.
In consideration of the mutual covenants and agreements contained herein, each Party does
hereby agree that this Reinsurance Agreement, and each and every provision hereof, is and shall be
enforceable by and between them according to its terms, and each Party does hereby agree that it
shall not contest in any respect the validity or enforceability hereof.
22.14
Set-Off
.
Any debts or credits, matured or unmatured, liquidated or unliquidated, regardless of when
they arose or were incurred, in favor of or against either of the Reinsured or the Reinsurer with
respect to this Reinsurance Agreement are deemed mutual debts or credits, as the case may be, and
shall be set off, and only the net balance shall be allowed or paid.
37
22.15
Currency
.
All financial data required to be provided pursuant to the terms of this Reinsurance Agreement
shall be expressed in United States dollars. All payments and all settlements of account between
the Parties shall be in United States currency unless otherwise agreed by the Parties.
(The remainder of this page has been intentionally left blank.)
38
IN WITNESS WHEREOF
, the Parties hereby execute this Reinsurance Agreement as of the day and
year first set forth above.
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CONTINENTAL CASUALTY COMPANY
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By:
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/s/ Lawrence J. Boysen
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Name:
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Lawrence J. Boysen
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Title:
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Senior Vice President and Corporate Controller
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THE CONTINENTAL INSURANCE COMPANY
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By:
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/s/ Lawrence J. Boysen
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Name:
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Lawrence J. Boysen
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Title:
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Senior Vice President and Corporate Controller
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CONTINENTAL REINSURANCE CORPORATION INTERNATIONAL, LTD.
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By:
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/s/ Lawrence J. Boysen
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Name:
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Lawrence J. Boysen
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Title:
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Chairman of the Board and President
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CNA INSURANCE COMPANY LIMITED
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By:
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/s/ Lawrence J. Boysen
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Name:
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Lawrence J. Boysen
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Title:
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Authorized Representative
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NATIONAL INDEMNITY COMPANY
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By:
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/s/ Brian Snover
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Name:
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Brian Snover
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Title:
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Vice President
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[Signature Page to Loss Portfolio Transfer Reinsurance Agreement]
Exhibit A
Form of Administrative Services Agreement
SEE ATTACHED.
A-1
See executed Administrative Services Agreement filed as Exhibit 10.1 to this Form 8-K.
A-2
Exhibit B
Form of Collateral Trust Agreement
SEE ATTACHED.
B-1
See executed Collateral Trust Agreement filed as Exhibit 10.2 to this Form 8-K.
B-2
CONFIDENTIAL
Exhibit C
Form of Third Party Reinsurance Allocation Agreement
SEE ATTACHED.
THIRD PARTY REINSURANCE ALLOCATION AGREEMENT
THIS THIRD PARTY REINSURANCE ALLOCATION AGREEMENT
, dated as of [
], 2010 (this
TPR
Allocation Agreement
), is made and entered into by and among
Continental Casualty Company
, an
Illinois property and casualty insurance company (
CCC
),
The Continental Insurance
Company
, a Pennsylvania property and casualty insurance company (
CIC
),
Continental
Reinsurance Corporation International, Ltd.
, a Bermuda long-term insurance company
(
CRCI
), and
CNA Insurance Company Limited
, a United Kingdom property and casualty
insurance company (
CICL
, and each of CCC, CIC, CRCI and CICL is individually and all of
CCC, CIC, CRCI and CICL are collectively hereinafter referred to as the
Reinsured
), and
National Indemnity Company
, a Nebraska property and casualty insurance company (hereinafter
referred to as the
Reinsurer
). All capitalized terms used in this TPR Allocation
Agreement and not otherwise defined herein shall have the respective meanings assigned to them in
the LPT Reinsurance Agreement (as defined below).
WITNESSETH
:
WHEREAS
, in accordance with that certain Master Transaction Agreement (the
Master
Transaction Agreement
), dated June [
], 2010, by and among the Reinsured, the Reinsurer and
Berkshire Hathaway Inc., a Delaware corporation and the ultimate parent company of the Reinsurer,
the Reinsured and the Reinsurer entered into that certain Loss Portfolio Transfer Reinsurance
Agreement, dated [
], 2010 (the
LPT Reinsurance Agreement
);
WHEREAS
, concurrently with the execution of the LPT Reinsurance Agreement and in accordance
with the Master Transaction Agreement, the Reinsured and the Reinsurer entered into that certain
Administrative Services Agreement (the
Administrative Services Agreement
), pursuant to
which the Reinsurer has agreed to provide claims handling and other administrative services with
respect to the Reinsured Contracts and the Third Party Reinsurance Agreements;
WHEREAS
, certain Third Party Reinsurance Agreements that will be administered by the Reinsurer
pursuant to the Administrative Services Agreement may result in recoveries that are allocable to
the A&P Claims reinsured by the Reinsurer under the LPT Reinsurance Agreement and/or that are
allocable to Non-A&P Claims that are not ceded to the Reinsurer; and
WHEREAS
, the Reinsured and the Reinsurer desire to set forth how the rights, obligations and
proceeds with respect to the Third Party Reinsurance Agreements are to be allocated among the
Reinsured and the Reinsurer.
4
NOW, THEREFORE
, in consideration of the foregoing, the representations, warranties, covenants
and agreements set forth herein, and other good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, and intending to be legally bound hereby, the Reinsured
and the Reinsurer (individually, a
Party
and collectively, the
Parties
) hereby
agree as follows:
ARTICLE I
DEFINITIONS
1.1
Definitions.
The following terms shall have the respective meanings set forth below throughout this TPR
Allocation Agreement:
A&P Recoverables
means all Recoverables that arise out of or relate to A&P Claims and
which are attributable to reinsurance billings issued on or after the Inception Date, but prior to
the expiration or termination of the LPT Reinsurance Agreement.
Administrative Services Agreement
has the meaning set forth in the Recitals.
CCC
has the meaning set forth in the Preamble.
CIC
has the meaning set forth in the Preamble.
CICL
has the meaning set forth in the Preamble.
CRCI
has the meaning set forth in the Preamble.
Collection Expenses
means the reasonable out-of-pocket expenses incurred by any Party in
connection with the negotiation and collection of Recoverables or Commutation Payments.
Commutation Payments
means Gross Commutation Payments, less Collection Expenses.
Gross Commutation Payments
means any amounts either (a) payable to the Reinsured or the
Reinsurer (acting on behalf of the Reinsured) by a reinsurer counterparty under a Third Party
Reinsurance Agreement, or (b) payable by the Reinsured or the Reinsurer (acting on behalf of
5
the Reinsured) to a reinsurer counterparty under a Third Party Reinsurance Agreement in connection
with the recapture, commutation, termination or reduction of any reinsurance under a Third Party
Reinsurance Agreement, or pursuant to a scheme of arrangement or any similar domestic or foreign
proceeding in connection with the initiation or commencement of a liquidation, insolvency,
rehabilitation, conservation, supervision or similar proceeding by or against the reinsurer of a
Third Party Reinsurance Agreement, that is consummated on or after the Inception Date, but prior to
the expiration or termination of the LPT Reinsurance Agreement.
Gross Recoverables
means any amounts actually collected by the Reinsured or the Reinsurer
(acting on behalf of the Reinsured) pursuant to the Third Party Reinsurance Agreements.
LPT Reinsurance Agreement
has the meaning set forth in the Recitals.
Master Transaction Agreement
has the meaning set forth in the Recitals.
Non-A&P Claims
has the meaning set forth in the Definitions section of the LPT
Reinsurance Agreement.
Non-A&P Recoverables
means all Recoverables that arise out of or relate to Non-A&P Claims
and which are attributable to reinsurance billings issued on or after the Inception Date, but prior
to the expiration or termination of the LPT Reinsurance Agreement.
Party
or
Parties
has the meaning set forth in the Recitals.
Pre-Inception Date Receivables
has the meaning set forth in the Definitions section of
the LPT Reinsurance Agreement.
Recoverables
means Gross Recoverables, less Collection Expenses.
Reinsured
shall have the meaning specified in the Preamble. The term Reinsured as used
herein shall include any predecessor or successor of such companies, including by reason of merger,
consolidation or otherwise.
Reinsurer
shall have the meaning specified in the Preamble. The term Reinsurer as used
herein shall include any predecessor or successor of such companies, including by reason of merger,
consolidation or otherwise.
6
Third Party Reinsurance Payables
means those amounts payable by the Reinsured or the
Reinsurer (acting on behalf of the Reinsured) under the terms and conditions of any Third Party
Reinsurance Agreement.
TPR Allocation Agreement
has the meaning set forth in the Preamble.
Transaction Documents
means the Master Transaction Agreement and the Ancillary
Agreements, other than this TPR Allocation Agreement.
ARTICLE II
ALLOCATION OF RECOVERABLES AND PAYABLES
2.1
Pre-Inception Date Receivables.
Pursuant to the LPT Reinsurance Agreement, the Reinsured shall transfer the right to collect
the Pre-Inception Date Receivables to the Reinsurer. All Pre-Inception Date Receivables actually
collected by the Reinsurer shall be for the benefit and account of the Reinsurer. The Parties
hereby acknowledge and agree that neither the collection of, or failure to collect, Pre-Inception
Date Receivables shall affect the LPT Limit. The Reinsured shall, if reasonably requested by the
Reinsurer, aid the Reinsurer in the collection of Pre-Inception Date Receivables, and the Reinsurer
is authorized to undertake such efforts as it deems reasonably necessary, including on behalf of
and in the name of a CNA Insurer, in order to collect such Pre-Inception Date Receivables. Costs
reasonably incurred by the Reinsured in aiding the Reinsurers collection efforts, excluding any
overhead or similar internal costs of the Reinsured, shall be paid by the Reinsurer.
2.2
Post-Inception Date Recoverables.
(a) On or after the Inception Date, A&P Recoverables under currently effective Third
Party Reinsurance Agreements shall be administered and collected by the Reinsurer in
accordance with the Administrative Services Agreement, and Non-A&P Recoverables under
currently effective Third Party Reinsurance Agreements shall continue to be administered and
collected by the Reinsured. Each Party will be responsible for any Collection Expenses
associated with A&P Recoverables or Non-A&P Recoverables, as applicable.
(b) A resolution or settlement of an A&P Recoverable by way of cash payment or set-off
shall remain the property of the Reinsurer, and a resolution or settlement of a Non-A&P
Recoverable by way of cash payment or set-off shall remain
7
the property of the Reinsured;
provided
,
however
, that any recoveries or set-offs
arising out of an account with Reinsured Contracts that includes both A&P Claims and Non-A&P
Claims shall be allocated among the Parties in accordance with Section 4.2 of the
Administrative Services Agreement. In no event will the Reinsurer set-off Non-A&P
Recoverables, or will the Reinsured set-off A&P Recoverables, without the prior consent of
the other Party.
2.3
Third Party Reinsurance Reinstatements.
(a) In the event that a Third Party Reinsurance Agreement contains an automatic
reinstatement provision,
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(i)
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the Third Party Reinsurance Payables shall be
for the account of (A) the Reinsurer, if the reinsured losses
attributable to A&P Claims paid on or after the Inception Date
triggered the automatic reinstatement or (B) the Reinsured, if the
reinsured losses attributable to Non-A&P Claims paid on or after the
Inception Date triggered the automatic reinstatement, and
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(ii)
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the coverage under such reinstated Third Party
Reinsurance Agreement shall only be available to (A) the Reinsurer, if
the reinsured losses attributable to A&P Claims paid on or after the
Inception Date triggered the automatic reinstatement or (B) the
Reinsured, if the reinsured losses attributable to Non-A&P Claims paid
on or after the Inception Date triggered the automatic reinstatement,
provided
,
however
, that if the other Party desires to share in the
coverage of such reinstated Third Party Reinsurance Agreement, the A&P
Recoverables and Non-A&P Recoverables shall be collected in accordance
with
Section 2.2
.
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(b) In the event that a Third Party Reinsurance Agreement contains an elective
reinstatement provision,
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(i)
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the Third Party Reinsurance Payables shall be
for the account of the Party that elected the reinstatement,
provided
,
however
, that if the other Party desires to share in the coverage of
such reinstated Third Party Reinsurance Agreement, the Parties shall
negotiate an equitable allocation of the Third Party Reinsurance
Payables among the Parties, and
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(ii)
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the coverage under such reinstated Third Party
Reinsurance Agreement shall only be available to the Party that elected
the reinstatement,
provided
,
however
, that if the other Party desires
to share in the coverage of such reinstated Third Party Reinsurance
Agreement, the A&P Recoverables and Non-A&P Recoverables shall be
collected in accordance with
Section 2.2
.
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2.4
Maximum Recoverables Under Third Party Reinsurance Contracts.
(a) Either Party shall be able to present claims for Recoverables under Third Party
Reinsurance Agreements;
provided
,
however
, Recoverables which exhaust or substantially
impair, on or after the Inception Date, the maximum remaining recoverable amount under an
individual Third Party Reinsurance Agreement (due to an aggregate limit of liability or
similar feature designed to limit total Recoverables from an individual Third Party
Reinsurance Agreement), will be divided between the Reinsurer and the Reinsured based on an
allocation methodology agreed upon by the Parties. For purposes of this
Section
2.4
, the maximum remaining recoverable amount under an individual Third Party
Reinsurance Agreement will be substantially impaired to the extent that either Party paid a
loss that entitles such Party to present a claim for Recoverables in an amount equal to
fifty percent (50%) or more of the maximum remaining recoverable amount under such Third
Party Reinsurance Agreement. To accommodate the negotiation of an appropriate allocation
methodology, a Party shall be obligated to provide written notice to the other Party once it
reasonably expects to pay a loss that would substantially impair the maximum remaining
recoverable amount under such Third Party Reinsurance Agreement.
(b) In the event there is a dispute among the Parties with respect to the allocation
methodology to be agreed upon by the Parties as set forth in
Section 2.4(a)
, such
dispute will be addressed in accordance with
Section 5.1
;
provided
,
however
, that if
such dispute is submitted for resolution in accordance with Article XI of the Master
Transaction Agreement, the designated arbitrator or arbitral tribunal shall, in resolving
such dispute, make its decision based on what is fair and equitable to the Parties and
giving particular attention to the known claim exposures of the Parties at such time.
2.5
Commutation of Third Party Reinsurance Agreement.
During the period beginning on the Inception Date and ending upon the expiration or
termination of the LPT Reinsurance Agreement, if the Parties mutually agree to (i) recapture,
commute, terminate or reduce any reinsurance under a Third Party Reinsurance Agreement, or (ii)
approve of a scheme of arrangement or any similar domestic or foreign proceeding in connection with
the initiation or commencement of a liquidation, insolvency, rehabilitation, conservation,
supervision or similar proceeding by or against the reinsurer of a Third Party Reinsurance
Agreement, then the Parties shall agree upon an allocation of the applicable Commutation
9
Payment as part of such recapture, commutation, termination or reduction of reinsurance or
scheme of arrangement or any similar domestic or foreign proceeding. For the avoidance of doubt,
(x) there will be no future adjustment to the agreed upon Commutation Payment regardless of any
reinsured loss development or other future development with respect to the losses under such Third
Party Reinsurance Agreement, and (y) each individual Third Party Reinsurance Agreement that is
subject to recapture, commutation, termination or reduction of reinsurance or scheme of arrangement
or any similar domestic or foreign proceeding, shall each have a separately negotiated Commutation
Payment allocated among the Parties. In agreeing upon such allocation, the Parties shall take into
consideration all relevant factors, including the credit quality of the reinsurer of such Third
Party Reinsurance Agreement and, the net present value of future Recoverables under such Third
Party Reinsurance Agreement net of other costs and premium adjustments, and the remaining future
Recoverables under such Third Party Reinsurance Agreement.
ARTICLE III
COVENANTS OF THE PARTIES
3.1
Cooperation.
The Parties hereto shall cooperate in a commercially reasonable manner in order to accomplish
the objectives of this TPR Allocation Agreement, including making available to each other their
respective officers and employees for interviews and meetings with Governmental Authorities and
furnishing any additional assistance, information and documentation as may be reasonably requested
by the other Party from time to time.
ARTICLE IV
TERM AND TERMINATION
4.1
Termination of Agreement.
This TPR Allocation Agreement shall automatically terminate upon the expiration or termination
of the LPT Reinsurance Agreement.
4.2
Effect of Termination.
The termination of this TPR Allocation Agreement shall not affect any rights or obligations of
any of the Parties applicable to the period prior to the effective date of termination.
10
Article III
,
Article V
and
Article VI
shall survive the termination of
this TPR Allocation Agreement. Notwithstanding anything in this TPR Allocation Agreement or the
Transaction Documents to the contrary, all Gross Recoverables attributable to Asbestos Claims and
Pollution Claims paid following the termination of this TPR Allocation Agreement and the LPT
Reinsurance Agreement shall be for the account of, and be administered by, the Reinsured.
ARTICLE V
DISPUTE RESOLUTION
5.1
Dispute Resolution
.
Notwithstanding anything contained herein to the contrary, any dispute between the Parties
arising out of or relating to this TPR Allocation Agreement or the breach, termination or validity
thereof will be addressed in accordance with Article X and Article XI of the Master Transaction
Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1
Notices
.
Any notice, request, demand, waiver, consent, approval or other communication required or
permitted to be given by any Party hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission, sent by registered or certified mail, postage prepaid, or sent by a
standard overnight courier of national reputation with written confirmation of delivery. Any such
notice shall be deemed given when so delivered personally, or if sent by facsimile transmission, on
the date received (
provided
that any notice received after 5:00 p.m. (addressees local time) shall
be deemed given at 9:00 a.m. (addressees local time) on the next Business Day), or if mailed, on
the date shown on the receipt therefor, or if sent by overnight courier, on the date shown on the
written confirmation of delivery. Such notices shall be given to the following address:
If to the Reinsured:
CNA Financial Corporation
333 S. Wabash Avenue
Chicago, IL 60604
Attention: Jonathan D. Kantor
Executive Vice President,
General Counsel and Secretary
Fax: (312) 817-0511
11
With a copy to:
CNA Financial Corporation
333 S. Wabash Avenue
Chicago, IL 60604
Attention: Michael P. Warnick
Senior Vice President and Deputy General Counsel
Fax: (312) 755-2479
If to the Reinsurer:
National Indemnity Company
100 First Stamford Place
Stamford, CT 06902
Attention: General Counsel
Fax: (203) 363-5221
With a copy to:
National Indemnity Company
3024 Harney Street
Omaha, NE 68131
Attention: Treasurer
Fax: (402) 916-3030
Any Party may change its notice provisions on fifteen (15) calendar days advance notice in writing
to the other Parties.
6.2
Entire Agreement
.
This TPR Allocation Agreement, the Transaction Documents and any other documents delivered
pursuant hereto or thereto, constitute the entire agreement among the Parties and their respective
Affiliates with respect to the subject matter hereof and supersede all prior negotiations,
discussions, writings, agreements and understandings, oral and written, among the Parties with
respect to the subject matter hereof and thereof.
6.3
Waiver and Amendment
.
This TPR Allocation Agreement may be amended, superseded, canceled, renewed or extended, and
the terms hereof may be waived, only by an instrument in writing signed by the Parties hereto, or,
in the case of a waiver, by the Party waiving compliance. No delay on the part of any Party in
exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise thereof or the exercise
of any other such right, power or privilege. No waiver of any breach of
12
this TPR Allocation Agreement shall be held to constitute a waiver of any other or subsequent
breach.
6.4
Successors and Assigns
.
The rights and obligations of the Parties under this TPR Allocation Agreement shall not be
subject to assignment without the prior written consent of the other Parties, and any attempted
assignment without the prior written consent of the other Parties shall be invalid
ab initio
. The
terms of this TPR Allocation Agreement shall be binding upon, inure to the benefit of and be
enforceable by and against the successors and permitted assigns of the Parties.
6.5
Headings
.
The headings of this TPR Allocation Agreement are for convenience of reference only and shall
not define or limit any of the terms or provisions hereof.
6.6
Construction; Interpretation
.
The Reinsured and the Reinsurer have participated jointly in the negotiation and drafting of
this TPR Allocation Agreement. In the event of an ambiguity or question of intent or
interpretation arises, this TPR Allocation Agreement shall be construed as if drafted jointly by
the Parties and no presumption or burden of proof shall arise favoring or disfavoring either Party
by virtue of the authorship of any of the provisions of this TPR Allocation Agreement. When a
reference is made to an Article, Section, Schedule or Exhibit such reference shall be to an
Article, Section, Schedule or Exhibit of or to this TPR Allocation Agreement unless otherwise
indicated. Whenever the words include, includes or including are used in this TPR Allocation
Agreement, they shall be deemed to be followed by the words without limitation. The word
Agreement, means this TPR Allocation Agreement as amended or supplemented, together with all
Exhibits and Schedules attached hereto or incorporated by reference, and the words hereof,
herein, hereto, hereunder and other words of similar import shall refer to this TPR
Allocation Agreement in its entirety and not to any particular Article, Section or provision of
this TPR Allocation Agreement. The references to $ shall be to United States dollars. Reference
to any Applicable Law means such Applicable Law as amended, modified, codified, replaced or
reenacted, and all rules and regulations promulgated thereunder. References to a Person are also
to its successors and permitted assigns.
6.7
Governing Law and Jurisdiction
.
This TPR Allocation Agreement shall be governed by and construed in accordance with the laws
of the State of New York without regard to such states principles of conflict of laws that could
compel the application of the laws of another jurisdiction. SUBJECT TO
ARTICLE V
, ANY
SUIT, ACTION OR PROCEEDING TO COMPEL ARBITRATION OR FOR TEMPORARY INJUNCTIVE RELIEF IN AID OF
ARBITRATION OR TO PRESERVE THE STATUS QUO PENDING THE APPOINTMENT OF THE ARBITRATOR(S) SHALL
13
BE BROUGHT BY THE PARTIES SOLELY IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK, PROVIDED THAT IF SAID COURT DETERMINES THAT IT DOES NOT HAVE SUBJECT MATTER
JURISDICTION THEN SAID ACTIONS MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE OF NEW YORK FOR NEW
YORK COUNTY; AND EACH REINSURED AND THE REINSURER EACH HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE AND ANY APPELLATE COURTS THEREOF, EXCEPT THAT ANY
FINAL ARBITRAL AWARD RENDERED IN ACCORDANCE WITH
ARTICLE V
MAY BE ENTERED AND ENFORCED IN
ANY COURT HAVING JURISDICTION OVER ANY PARTY OR ANY OF ITS ASSETS.
6.8
No Third Party Beneficiaries
.
Nothing in this TPR Allocation Agreement is intended or shall be construed to give any Person,
other than the Parties, any legal or equitable right, remedy or claim under or in respect of this
TPR Allocation Agreement or any provision contained herein.
6.9
Counterparts
.
This TPR Allocation Agreement may be executed by the Parties in separate counterparts, each of
which when so executed and delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument binding upon all of the Parties notwithstanding the fact
that all Parties are not signatory to the original or the same counterpart. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together signed by all of
the Parties. Each counterpart may be delivered by facsimile transmission, which transmission shall
be deemed delivery of an originally executed document.
6.10
Severability
.
Any term or provision of this TPR Allocation Agreement which is invalid or unenforceable in
any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms and provisions of
this TPR Allocation Agreement or affecting the validity or enforceability of any of the terms or
provisions of this TPR Allocation Agreement in any other jurisdiction, so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any manner materially
adverse to any Party. If any provision of this TPR Allocation Agreement is so broad as to be
unenforceable, that provision shall be interpreted to be only so broad as is enforceable. In the
event of such invalidity or unenforceability of any term or provision of this TPR Allocation
Agreement, the Parties shall use their commercially reasonable efforts to reform such terms or
provisions to carry out the commercial intent of the Parties as reflected herein, while curing the
circumstance giving rise to the invalidity or unenforceability of such term or provision.
14
6.11
Specific Performance
.
Each of the Parties acknowledges and agrees that the other Party would be irreparably damaged
in the event that any of the provisions of this TPR Allocation Agreement were not performed or
complied with in accordance with their specific terms or were otherwise breached, violated or
unfulfilled. Accordingly, each of the Parties agrees that the other Party shall be entitled to an
injunction or injunctions to prevent noncompliance with, or breaches or violations of, the
provisions of this TPR Allocation Agreement by the other Party and to enforce specifically this TPR
Allocation Agreement and the terms and provisions hereof in any action instituted in accordance
with
Section 6.7
, in addition to any other remedy to which such Party may be entitled, at
law or in equity. In the event that any action is brought in equity to enforce the provisions of
this TPR Allocation Agreement, no Party will allege, and each Party hereby waives the defense or
counterclaim, that there is an adequate remedy at law. The Parties further agree that (i) by
seeking the remedies provided for in this
Section 6.11
, a Party shall not in any respect
waive its right to seek any other form of relief that may be available to a Party under this TPR
Allocation Agreement, including monetary damages in the event that this TPR Allocation Agreement
has been terminated or in the event that the remedies provided for in this
Section 6.11
are
not available or otherwise are not granted and (ii) nothing contained in this
Section 6.11
shall require any Party to institute any action for (or limit any Partys right to institute any
action for) specific performance under this
Section 6.11
before exercising any termination
right under
Article IV
nor shall the commencement of any action pursuant to this
Section 6.11
or anything contained in this
Section 6.11
restrict or limit any
Partys right to terminate this TPR Allocation Agreement in accordance with the terms of
Article IV
or pursue any other remedies under this TPR Allocation Agreement that may be
available then or thereafter.
6.12
Waiver of Jury Trial
.
EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS TPR ALLOCATION AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY
THIS TPR ALLOCATION AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF THE OTHER PARTIES HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PARTIES WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS TPR ALLOCATION AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED BY THIS TPR ALLOCATION AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 6.12
.
6.13
Incontestability
.
In consideration of the mutual covenants and agreements contained herein, each Party does
hereby agree that this TPR Allocation Agreement, and each and every provision
15
hereof, is and shall be enforceable by and between them according to its terms, and each Party
does hereby agree that it shall not contest in any respect the validity or enforceability hereof.
6.14
Set-Off
.
Any debts or credits, matured or unmatured, liquidated or unliquidated, regardless of when
they arose or were incurred, in favor of or against either of the Reinsured or the Reinsurer with
respect to this TPR Allocation Agreement are deemed mutual debts or credits, as the case may be,
and shall be set off, and only the net balance shall be allowed or paid.
6.15
Currency.
All financial data required to be provided pursuant to the terms of this TPR Allocation
Agreement shall be expressed in United States dollars. All payments and all settlements of account
between the Parties shall be in United States currency unless otherwise agreed by the Parties.
(
The remainder of this page has been intentionally left blank
.)
16
IN WITNESS WHEREOF
, the Parties hereby execute this TPR Allocation Agreement as of the day and year
first set forth above.
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CONTINENTAL CASUALTY COMPANY
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By:
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Name:
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Title:
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THE CONTINENTAL INSURANCE COMPANY
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By:
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Name:
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Title:
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CONTINENTAL REINSURANCE CORPORATION
INTERNATIONAL, LTD.
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By:
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Name:
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Title:
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CNA INSURANCE COMPANY LIMITED
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By:
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Name:
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Title:
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NATIONAL INDEMNITY COMPANY
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By:
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Name:
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Title:
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C-1
CONFIDENTIAL
Exhibit D
Form of Reinsurance Credit Event II Trust Agreement
SEE ATTACHED.
TRUST AGREEMENT
by and among
[CNA BENEFICIARY]
(hereinafter referred as the Beneficiary),
NATIONAL INDEMNITY COMPANY
(hereinafter referred to as the Grantor)
and
[TRUSTEE]
(hereinafter referred to as the Trustee)
[
], 2010
Table of Contents
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Page
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ARTICLE I
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DEFINED TERMS
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D-1
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Section 1.1
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Definitions
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D-1
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Section 1.2
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Interpretation
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D-3
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ARTICLE II
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CREATION OF TRUST ACCOUNT
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D-3
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Section 2.1
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Obligations of the Beneficiary and the Grantor
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D-3
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Section 2.2
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Purpose of the Trust
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D-4
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Section 2.3
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Grantor Trust for United States Federal Income Tax Purposes
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D-4
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Section 2.4
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Designation of Agents
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D-4
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Section 2.5
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Title to Assets
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D-4
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ARTICLE III
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MAINTENANCE OF THE TRUST
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D-4
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Section 3.1
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Substitution of Trust Account Assets
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D-4
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Section 3.2
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Valuation of Assets
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D-5
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Section 3.3
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Quarterly Certification
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D-5
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ARTICLE IV
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RELEASE AND ADJUSTMENT OF TRUST ACCOUNT ASSETS
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D-6
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Section 4.1
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Adjustment of Trust Account Assets
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D-6
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Section 4.2
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Release of Trust Account Assets to the Beneficiary
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D-6
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Section 4.3
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Release of Trust Account Assets to the Grantor
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D-7
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ARTICLE V
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DUTIES OF THE TRUSTEE
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D-7
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Section 5.1
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Acceptance of Assets by the Trustee
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D-7
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Section 5.2
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Collection of Interest and Dividends; Voting Rights
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D-7
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Section 5.3
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Obligations of the Trustee
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D-8
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Section 5.4
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Responsibilities of the Trustee
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D-8
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Section 5.5
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Books and Records
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D-8
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Section 5.6
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Activity Reports
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D-8
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Section 5.7
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Resignation or Removal of the Trustee; Appointment of Successor Trustee
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D-9
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Section 5.8
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Release of Information
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D-9
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Section 5.9
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Indemnification of the Trustee
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D-10
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Section 5.10
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Charges of the Trustee
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D-10
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Section 5.11
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Limitations of the Trustee
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D-10
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D-i
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ARTICLE VI
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TERMINATION
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D-10
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Section 6.1
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Termination
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D-10
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Section 6.2
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Disposition of Assets Upon Termination
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D-10
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ARTICLE VII
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GENERAL PROVISIONS
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D-11
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Section 7.1
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Notices
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D-11
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Section 7.2
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Construction and Effect
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D-12
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Section 7.3
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Waiver and Amendment
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D-12
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Section 7.4
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Successors and Assigns
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D-12
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Section 7.5
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Headings
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D-12
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Section 7.6
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Governing Law and Jurisdiction
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D-12
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Section 7.7
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No Third Party Beneficiaries
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D-13
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Section 7.8
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Counterparts
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D-13
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Section 7.9
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Severability
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D-13
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Section 7.10
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Specific Performance
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D-13
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Section 7.11
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Waiver of Jury Trial
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D-14
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Section 7.12
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Incontestability
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D-14
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Section 7.13
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Set-Off
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D-14
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Section 7.14
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Currency
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D-14
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ARTICLE VIII
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DISPUTE RESOLUTION
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D-15
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Section 8.1
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Dispute Resolution
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D-15
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Section 8.2
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Negotiation Amongst the Parties
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D-15
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Section 8.3
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Arbitration
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D-15
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ARTICLE IX
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EFFECTIVE DATE AND EXECUTION
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D-16
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D-ii
TRUST AGREEMENT
THIS TRUST AGREEMENT
(this
Trust Agreement
) is made and entered into as of [
],
2010, by and among [
] (the
Beneficiary
),
National Indemnity Company,
a Nebraska property and
casualty insurance company (the
Grantor
) and [
], a banking association organized under the laws
of [
] (hereinafter referred to as
Trustee
).
WHEREAS
, in accordance with
Section 9.6(a)
of that certain Loss Portfolio Transfer
Reinsurance Agreement, dated [
], by and among the Beneficiary, [
] and the Grantor (the
LPT
Reinsurance Agreement
), the Grantor and the Beneficiary have agreed to enter into this Trust
Agreement upon the occurrence of a Reinsurance Credit Event, if the Grantor has not been able to
cure or address to the satisfaction of the Beneficiary and [
] the circumstances giving rise to the
Reinsurance Credit Event within [90] calendar days.
NOW THEREFORE
, the Grantor, the Beneficiary and the Trustee, in consideration of the mutual
covenants contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and upon the terms and conditions hereinafter set
forth, agree as follows:
ARTICLE I
DEFINED TERMS
Section 1.1
Definitions
. The following terms, when used in this Trust Agreement, shall
have the meanings set forth in this
Section 1.1
. The terms defined below shall be deemed
to refer to the singular or plural, as the context requires.
AAA
shall have the meaning ascribed to such term in
Section 8.3(a)
.
Assets
shall have the meaning ascribed to such term in
Section 2.1(b)
.
Beneficiary
shall have the meaning ascribed to such term in the Preamble.
Business Covered
shall have the meaning ascribed to such term in the LPT Reinsurance
Agreement.
Business Day
shall mean any day other than a Saturday, Sunday or a day on which commercial
banks in Illinois or New York are required or authorized by law to be closed.
Code
shall mean the Internal Revenue Code of 1986, as amended from time to time.
Dispute
shall have the meaning ascribed to such term in
Section 8.1
.
Governmental Authority
shall mean any government, political subdivision, court, board,
commission, regulatory or administrative agency or other instrumentality thereof, whether federal,
state, provincial, local or foreign and including any regulatory authority which may be partly or
wholly autonomous.
Grantor
shall have the meaning ascribed to such term in the Preamble.
Insurance Commissioner
shall mean the Governmental Authority responsible for the regulation
of insurance companies in the jurisdiction in which the Beneficiary is domiciled.
LPT Limit
shall have the meaning ascribed to such term in the LPT Reinsurance Agreement.
Permitted Investments
shall mean cash and any investments of the types permitted under the
laws and regulations of the Beneficiarys domiciliary state for trusts providing full statutory
financial statement credit for reinsurance ceded by property and casualty insurance companies,
provided
,
however
, that no Permitted Investments may be issued by an institution that is the
parent, subsidiary or affiliate of the Grantor. All Permitted Investments deposited in the Trust
Account shall be free of all liens, charges or encumbrances at the time so deposited.
Quarterly Certification
shall have the meaning ascribed to such term in
Section
3.3
.
Reinsurance Credit Event
shall mean any event, other than the financial impairment of the
Grantor, that results in the Beneficiary being unable to obtain full statutory financial statement
credit for the reinsurance provided by the LPT Reinsurance Agreement in any applicable jurisdiction
at any point in time during the term of the LPT Reinsurance Agreement.
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Required Amount
shall mean an amount equal to the
lesser
of (A) the aggregate gross
Reserves of the Beneficiary (including reserves for losses incurred but not reported) calculated in
accordance with SAP with respect to the Business Covered and (B) the LPT Limit less the Ultimate
Net Loss paid by the Grantor.
Reserves
shall mean, as required by SAP or applicable law of the jurisdiction of domicile of
any entity, reserves, funds or provisions for losses, claims, unearned premiums, benefits, costs
and expenses (including allocated loss adjustment expenses) in respect of the Business Covered.
Rules
shall have the meaning ascribed to such term in
Section 8.3(a)
.
SAP
shall mean, as to any entity, the statutory accounting principles prescribed or
permitted by the Governmental Authority responsible for the regulation of insurance companies in
the jurisdiction in which such entity is domiciled.
Third Party Appraiser
shall mean an independent appraisal firm which is mutually acceptable
to the Grantor and the Beneficiaries, or, if Grantor and Beneficiaries cannot agree on such an
appraisal firm, an independent appraisal firm selected by the parties respective accountants.
Trust
shall mean the trust formed hereunder.
Trust Account
shall have the meaning ascribed to such term in
Section 2.1(a)
.
Trust Agreement
shall have the meaning ascribed to such term in the Preamble.
Trustee
shall have the meaning ascribed to such term in the Preamble.
Ultimate Net Loss
shall have the meaning ascribed to such term in the LPT Reinsurance
Agreement.
Section 1.2
Interpretation
. When a reference is made in this Trust Agreement to a Section
or Article, such reference shall be to a section or article of this Trust Agreement unless
otherwise clearly indicated to the contrary. The Article and Section headings contained in this
Trust Agreement are solely for the purpose of reference, are not part of the agreement of the
parties and shall not affect in any way the meaning or interpretation of this Trust Agreement.
Whenever the words include, includes or including are used in this Trust Agreement, they
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shall be deemed to be followed by the words without limitation. The words hereof, herein and
herewith and words of similar import shall, unless otherwise stated, be construed to refer to
this Trust Agreement as a whole and not to any particular provision of this Trust Agreement. The
meaning assigned to each term used in this Trust Agreement shall be equally applicable to both the
singular and the plural forms of such term and to both the masculine as well as the feminine and
neuter genders of such term. Any agreement, instrument or statute defined or referred to herein or
in any agreement or instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented, including (in the case of
agreements or instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes. Where a word or phrase is defined herein, each of its other
grammatical forms shall have a corresponding meaning. References to a person are also to its
successors and permitted assigns.
ARTICLE II
CREATION OF TRUST ACCOUNT
Section 2.1
Obligations of the Beneficiary and the Grantor
. (a) Prior to the execution of
this Trust Agreement, the Grantor shall have procured with the Trustee, in the name of the Trustee,
to be held for the sole benefit of the Beneficiary pursuant to the provisions of this Trust
Agreement, a segregated trust account maintained by the Trustee with account number [ACCOUNT
NUMBER] (which shall be hereinafter referred to, including all successor accounts thereto, as the
Trust Account
).
(b) The Grantor shall transfer and assign to the Trustee, for deposit to the Trust Account,
such assets as it may from time to time desire (all such assets actually received in the Trust
Account are herein referred to individually as an
Asset
and collectively as the
Assets
). The
Assets shall consist only of Permitted Investments.
(c) The Grantor shall ensure that the Trust Account shall hold Permitted Investments at all
times with a fair market value of no less than 100% of the Required Amount, as determined in
accordance with
Section 5.6
of this Trust Agreement.
Section 2.2
Purpose of the Trust
. The Assets in the Trust Account shall be held by the
Trustee for the sole benefit of the Beneficiary. The Grantor grants to the Trustee all trust
powers necessary and reasonable in the performance of its duties hereunder except as otherwise
expressly provided herein.
Section 2.3
Grantor Trust for United States Federal Income Tax Purposes
. The Trust Account
shall be treated as a grantor trust (pursuant to sections 671 through 677 of the Code) for United
States federal income tax purposes. The Grantor shall constitute the grantor (within the meaning
of sections 671 and 677 of the Code) and, thus, any and all income derived from the Assets held in
the Trust shall constitute income or gain of the Grantor as the owner of such Assets.
Section 2.4
Designation of Agents
. Except as otherwise expressly provided in this Trust
Agreement, any statement, certificate, notice, request, consent, approval, or other
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instrument to be delivered or furnished by the Grantor or the Beneficiary shall be sufficiently
executed if executed in the name of the Grantor or the Beneficiary by such officer or officers of
Grantor or Beneficiary or by such other agent or agents of the Grantor or the Beneficiary as may be
designated in a resolution of the Board of Directors of the Grantor or the Beneficiary or Committee
thereof or a letter of advice issued by the President, Secretary or Treasurer of the Grantor or the
Beneficiary, as applicable. Written notice of such designation by the Grantor or the Beneficiary
shall be filed with the Trustee. The Trustee shall be protected in acting upon any written
statement or other instrument made by such officers or agents of the Grantor or the Beneficiary
with respect to the authority conferred on it.
Section 2.5
Title to Assets
. Title to any Assets transferred by the Grantor to the Trustee
for deposit to the Trust Account will be recorded in the name of the Trustee. The out-of-pocket
costs of transfers of title between the Grantor and the Trustee shall be shared equally by the
Grantor and the Beneficiary, and the Grantor shall use reasonable efforts to limit such costs. The
Beneficiary shall not have legal title to any part of the Assets, but shall have an undivided
beneficial interest in all Assets.
ARTICLE III
MAINTENANCE OF THE TRUST
Section 3.1
Substitution of Trust Account Assets
. (a) Upon receipt of the prior written
consent of the Beneficiary, the Grantor may, from time to time, substitute or exchange Assets
contained in the Trust Account,
provided
,
however
, (i) the Assets so substituted or exchanged must
be Permitted Investments, (ii) after giving effect to such substitution, the fair market value of
the newly deposited Assets are at least equal to the fair market value of the substituted Assets
and (iii) the replacement Assets to be deposited in the Trust Account in such substitution or
exchange are deposited therein on the day of withdrawal of the substituted or exchanged Assets.
Upon any substitution or exchange as provided for herein, the Grantor shall certify to the Trustee
and Beneficiary that such substitution or exchange meets the requirements of this
Section
3.1
. The Trustee shall give the Beneficiary prompt written notice of any substitution made
pursuant hereto.
(b) The Grantor shall, prior to depositing any Assets into the Trust Account, and from time to
time as required, execute all assignments and endorsements in blank, or transfer legal title to the
Trustee of all shares, obligations or any other assets requiring assignment in order that the
Trustee, upon direction of the Beneficiary, may whenever necessary negotiate any such assets
without consent or signature from the Grantor or any other entity.
Section 3.2
Valuation of Assets
. The Grantor shall determine the fair market value of any
Assets in the Trust Account. In making this determination, the Grantor shall use prices published
by a nationally recognized pricing service for Assets for which such prices are available, and for
Assets for which such prices are not available, the Grantor shall use methodologies consistent with
those which it uses for determining the fair market value of assets held in its own general account
(other than the Assets) in the ordinary course of business.
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Section 3.3
Quarterly Certification
. Within fourteen (14) calendar days following the end
of each calendar quarter, the Grantor shall provide the Beneficiary a written certification (the
Quarterly Certification
) stating the Required Amount as of the calendar quarter end and the
aggregate fair market value of the Permitted Investments held in the Trust Account as of the
calendar quarter end (both on an asset-by-asset basis and a cumulative basis). Such certification
shall separately state the effect on the fair market value of the Assets of withdrawals by the
Grantor from the Trust Account effected during such calendar quarter. As soon as is practicable,
but in no event more than ten (10) Business Days following its receipt of the Quarterly
Certification, the Beneficiary shall either (i) countersign such certification and forward it to
the Trustee or (ii) notify the Grantor that it objects to the Grantors calculation of the Required
Amount or the Grantors valuation of any Asset. If the parties are able to resolve such dispute
within ten (10) Business Days of the Beneficiarys transmittal to the Grantor of its notice of
objection, they shall promptly forward to the Trustee a jointly signed certification of the
Required Amount. If the parties are unable to resolve such dispute within ten (10) Business Days
of the Beneficiarys transmittal to the Grantor of its notice of objection, and the dispute relates
to the valuation of an Asset, the value of such Asset shall be determined by a Third Party
Appraiser and the parties shall be bound by such valuation. All other disputes shall be resolved
in accordance with
Section 8.1
of this Trust Agreement. Upon resolution of such dispute,
the parties shall forward to the Trustee a copy of the corrected Quarterly Certification setting
forth the Required Amount as resolved through such Third Party Appraiser or arbitration. The
Grantor shall, to the extent reasonably necessary or required in order to verify Grantors
certification, permit the Beneficiary to audit its records in order to determine its compliance
with this
Section 3.3
. The Grantor shall cooperate fully with such audit. Access to the
Grantor and its employees by the Beneficiary in connection with such audit shall be at reasonable
times during regular business hours upon reasonable prior written notice (including by e-mail) in a
manner which does not unreasonably interfere with the business or operations of the Grantor.
ARTICLE IV
RELEASE AND ADJUSTMENT OF TRUST ACCOUNT ASSETS
Section 4.1
Adjustment of Trust Account Assets
. (a) The Required Amount as of the end of
each calendar quarter shall be certified to the Trustee by the Grantor in the manner set forth in
Section 3.3
hereof.
(b) If the aggregate fair market value of the Permitted Investments maintained in the Trust
Account as of any calendar quarter end is less than the Required Amount as of such calendar quarter
end, then within five (5) Business Days of its receipt of the certification set forth in
Section 3.3
, the Grantor shall deposit into the Trust Account such additional Assets with
an aggregate fair market value as are necessary to ensure that the aggregate fair market value of
the Permitted Investments held in the Trust Account is no less than 100% of the Required Amount as
of the immediately prior calendar quarter end.
Section 4.2
Release of Trust Account Assets to the Beneficiary
. (a) Notwithstanding
anything in this Trust Agreement to the contrary, the Beneficiary shall have the right to withdraw
Assets from the Trust Account at any time, without notice to the Grantor,
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subject only to written notice to the Trustee from the Beneficiary given in accordance with Section
7.1 of this Trust Agreement. Other than such notice, no other statement or document need be
presented by the Beneficiary to withdraw such Assets except that the Beneficiary shall acknowledge
to the Trustee receipt of such withdrawn Assets. Upon such written notice of demand of the
Beneficiary, the Trustee shall immediately take any and all steps necessary to transfer absolutely
and unequivocally all right, title and interest in the Assets to the Beneficiary and, to the extent
applicable, deliver physical custody of such Assets to the Beneficiary. Upon such transfer,
Trustee shall promptly forward a copy of such notice to the Grantor. The Trustee shall not be
subject to any liability for any payment made by it to the Beneficiary pursuant to such written
demand by the Beneficiary.
(b) The Grantor and the Beneficiary agree that the Assets from the Trust Account may only be
withdrawn by the Beneficiary, and utilized and applied by the Beneficiary, or any successor by
operation of law of the Beneficiary including any liquidator or rehabilitator, receiver or
conservator of the Beneficiary, without diminution because of insolvency on the part of the
Beneficiary or the Grantor, for one or more of the following purposes:
(i) to pay or reimburse the Beneficiary for the Grantors share of premiums
returned to policyholders or ceding companies of the Reinsured Contracts because of
cancellations of such contracts to the extent same constitute Ultimate Net Loss;
(ii) to reimburse the Beneficiary for the Grantors share of surrenders and
benefits or losses paid by the Beneficiary pursuant to the provisions of the
Reinsured Contracts to the extent same constitute Ultimate Net Loss;
(iii) to fund an account with the Beneficiary in an amount at least equal to
the deduction, for reinsurance ceded, from the Beneficiarys liabilities for the
Reinsured Liabilities. The account must include, but not be limited to, amounts for
policy reserves, claims and losses incurred, including losses incurred but not
reported, allocated loss adjustment expenses, and unearned premium reserves; and
(iv) to pay any other amounts the Beneficiary claims are due under the LPT
Reinsurance Agreement.
Section 4.3
Release of Trust Account Assets to the Grantor
. Subject to receipt of the
Beneficiarys prior written instructions, the Trustee may, from time to time, release to the
Grantor Assets with an aggregate fair market value equal to the excess over 102% of the Required
Amount as of the prior calendar quarter end. In connection with any such release of Assets, the
Trustee shall take any and all necessary steps to transfer absolutely and unequivocally all right,
title and interest in such released Assets to the Grantor or its designee. The Trustee
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shall not be subject to any liability for any payment made by it to the Grantor pursuant to such
written instructions received by it from the Beneficiary.
ARTICLE V
DUTIES OF THE TRUSTEE
Section 5.1
Acceptance of Assets by the Trustee
. (a) The Trustee shall not accept any
Assets (other than cash) for deposit into the Trust Account unless the Trustee determines that it
is or will be the registered owner of and holder of legal title to the Assets or that such Assets
are in such form that the Trustee may, if applicable to such asset class, negotiate any such
Assets, without consent or signature from the Grantor or any other person or entity. Any Assets
received by the Trustee which, if applicable to such asset class, are not in such proper negotiable
form or for which title has not been transferred to the Trustee shall not be accepted by the
Trustee and shall be returned to the Grantor as unacceptable.
(b) The Trustee and its lawfully appointed successors is and are authorized and shall have the
power to receive such Assets as the Grantor (or the Beneficiary on behalf of the Grantor) from time
to time may transfer or remit to the Trust Account and to hold and dispose of the same for the uses
and purposes and in the manner and according to the provisions herein set forth. All such Assets
at all times shall be maintained as a trust account, separate and distinct from all other assets on
the books and records of the Trustee, and shall be continuously kept in a safe place within the
United States.
Section 5.2
Collection of Interest and Dividends; Voting Rights
. The Trustee is hereby
authorized, without prior notice to the Grantor or the Beneficiary, to demand payment of and
collect all interest or dividends on the Assets comprising the Trust Account if any. All payments
of interest, dividends and other income in respect to Assets in the Trust Account shall be
deposited promptly upon receipt by the Trustee into the Trust Account. Subject to the other
provisions of this Trust Agreement, the Grantor shall have the full and unqualified right to direct
the Trustee to vote, and to execute consents, bond powers, stock powers, mortgage and title
instruments and other instruments of transfer, pledge and release with respect to any Assets
comprising the Trust Account.
Section 5.3
Obligations of the Trustee
. The Trustee agrees to hold and disburse the
various Assets of the Trust Account in accordance with the provisions expressed herein.
Section 5.4
Responsibilities of the Trustee
. (a) The Trustee, in the administration of
the Trust Account, is to be bound solely by the express provisions herein, and such further written
and signed directions as the appropriate party or parties may, under the conditions herein
provided, deliver to the Trustee. The Trustee shall be under no obligation to enforce the
Grantors obligations under this Trust Agreement, except as otherwise expressly provided or
directed pursuant hereto. The Trustee shall be restricted to holding title to, operating and
collecting the Assets comprising the Trust Account and the payment and distribution thereof for the
purposes set forth in this Trust Agreement and to the conservation and protection of such
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Assets and the administration thereof in accordance with the provisions of this Trust Agreement,
and the Trustee shall be liable only for its own negligence, willful misconduct, lack of good faith
or breach of fiduciary duty and for the breach of the Trustees obligations under this Trust
Agreement. The Trustee further agrees to forward upon request of the Beneficiary, the Grantor or
any Insurance Commissioner a certified list and valuation of all Assets held under this Trust
Agreement.
(b) Subject to the other provisions of this Trust Agreement, including the requirements that
only Permitted Investments may be held in the Trust Account and provisions relating to the
substitution of Assets, (i) the Grantor shall have the irrevocable authority and sole power to
direct the Trustee, in the Grantors sole discretion, with respect to all aspects of the management
or investment of the Assets contained in the Trust Account, including, but not limited to,
directing the Trustee to enter into one or more investment management, advisory, custodial,
depository or other agreements of form and substance specified by the Grantor, with any other
person, including any affiliate of the Grantor, selected by the Grantor and (ii) the Trustee and
the Beneficiary each acknowledges that it has no authority with respect to such management or
investment activities, the Trustee agrees it will not exercise any discretion or take any action
with respect to the matters in clause (i) above and will take any actions related thereto as
directed by the Grantor in accordance therewith.
Section 5.5
Books and Records
. The Trustee shall keep full and complete records of the
administration of the Trust Account. The Grantor, the Beneficiary and/or the Insurance
Commissioner may examine such records, upon reasonable notice to the Trustee, at any time during
business hours through any person or persons duly authorized in writing by Grantor, the Beneficiary
and/or the Insurance Commissioner.
Section 5.6
Activity Reports
. The Trustee agrees to provide an activity report to the
Beneficiary and the Grantor upon creation of the Trust Account and within five (5) days following
receipt of the report from the Grantor, which report shall, in reasonable detail, show (i) all
deposits, withdrawals and substitutions during such quarter; (ii) a listing of securities and other
assets held and cash balances in the Trust Account as of the last day of such quarter and (iii) the
fair market value (determined in accordance with
Section 2.1(b)
on such day) of each Asset
held in the Trust Account (other than cash) and the amount of cash held in the Trust Account as of
the last day of such quarter. The Trustee agrees to provide written notification to the Grantor
and the Beneficiary within five (5) days of any deposits to or withdrawals from the Trust Account.
Section 5.7
Resignation or Removal of the Trustee; Appointment of Successor Trustee
. (a)
The Trustee may at any time resign as Trustee and terminate its capacity hereunder by delivery of
written notice of resignation, effective not less than ninety (90) days after receipt by both the
Beneficiary and the Grantor. The Trustee may be removed by the Grantor by (i) delivery to the
Trustee and the Beneficiary of a written notice of removal, effective not less than ninety (90)
days after receipt by the Trustee and the Beneficiary of the notice and (ii) receipt of
Beneficiarys consent to such action, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, no such resignation by the Trustee or removal by the Grantor shall
be effective until a successor to the Trustee shall have been duly appointed by the Grantor and
approved by the Beneficiary and all the securities and other Assets in the Trust Account have
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been duly transferred to such successor. The Grantor, upon receipt of such notice of resignation,
shall undertake to obtain the agreement of a qualified, successor depository, agreeable to the
Beneficiary, to act as a successor Trustee in accordance with all agreements of the Trustee herein
and upon duly qualifying to act as such pursuant to
Section 5.7(b)
. The Beneficiary agrees
not to withhold unreasonably approval of such Trustee. Upon the Trustees delivery of the Assets
to the qualified, successor depository, along with a closing statement showing all activities from
the last quarterly report, the Trustee shall be discharged of further responsibilities hereunder,
subject to any remaining obligations under
Section 5.4
and
5.7(b)
.
(b) Any successor Trustee appointed hereunder shall execute an instrument accepting such
appointment hereunder and shall deliver the same to the Grantor and to the then acting Trustee.
Thereupon such successor Trustee shall, without any further act, become vested with all the
estates, properties, rights, powers, trusts and duties of its predecessor in the Trust with like
effect as if originally named herein; but the predecessor Trustee shall nevertheless, when
requested in writing by the successor Trustee, execute an instrument or instruments conveying and
transferring to the Trustee upon the Trust herein all the estates, properties, rights, powers and
trusts of such predecessor Trustee, and shall duly assign, transfer and deliver to the Trustee all
property and money held by such predecessor hereunder. The predecessor Trustee shall be entitled
to reimbursement in accordance with
Section 5.10
for all expenses it incurs in connection
with the settlement of its accounts and the transfer and delivery of the Trust Assets to its
successor. The predecessor Trustee shall continue to be indemnified by reason of such entity being
or having been a Trustee in accordance with
Section 5.9
hereof.
Section 5.8
Release of Information
. The Trustee shall promptly respond to any and all
reasonable requests for information concerning the Trust Account or the Assets held therein by
either of the parties to this Trust Agreement. Furthermore, the Trustee shall fully and completely
respond to any direct inquiries of the Insurance Commissioner, or any of its representatives,
concerning the Trust Account or the Assets held hereunder, including, detailed inventories of
securities or funds, and the Trustee shall permit the Insurance Commissioner, or its
representatives, to examine and audit all securities or funds held hereunder. The Trustee shall
promptly provide notice to the Beneficiary and the Grantor concerning all such inquiries, and shall
provide seven (7) days prior notice to the Beneficiary and the Grantor of all such examinations and
audits.
Section 5.9
Indemnification of the Trustee
. Subject to
Section 5.4
, whenever an
action by the Trustee is authorized by written signed direction pursuant to the provisions of this
Trust Agreement and such action is taken strictly in accordance with such written and signed
direction by the appropriate party or parties, the party or parties authorizing such action hereby
agree to indemnify the Trustee against all losses, damages, costs and expenses, including
reasonable attorneys fee, resulting from any action so taken by the Trustee.
Section 5.10
Charges of the Trustee
. The Grantor agrees to pay all reasonable costs or
fees charged by the Trustee for acting as the Trustee pursuant to this Trust Agreement, as agreed
between the Grantor and the Trustee, including fees incurred by the Trustee for legal services
deemed reasonably necessary by the Trustee as a result of the Trustees so acting;
provided
,
however
, that no such costs, fees or expenses shall be paid out of the Assets held in or credited
to the Trust Account.
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Section 5.11
Limitations of the Trustee
. The Trustee shall in no way be responsible for
determining the amount of Assets required to be deposited, or monitoring whether or not the Assets
held within the Trust Account are Permitted Investments. The Trustee shall be under no liability
for any release of Assets made by it to the Grantor in accordance with this
Article V
.
ARTICLE VI
TERMINATION
Section 6.1
Termination
. This Trust Agreement may not be terminated by
the Grantor unless the Grantor has obtained and the Trustee has received, a written consent
signed by the General Counsel of the Beneficiary to terminate this Trust Agreement. The
Beneficiary shall provide its consent to the termination of this Trust Agreement if the
Grantor seeks to terminate this Trust Agreement as a result of the exhaustion of the LPT
Limit.
Section 6.2
Disposition of Assets Upon Termination
. Upon a termination pursuant to this
Article VI
, the Trustee shall distribute all Assets held and deposited under this Trust
Agreement, subject to the written approval of the Beneficiary, to the Grantor and shall take any
and all steps necessary to transfer absolutely and unequivocally all right, title and interest in
such Assets and to deliver physical custody, if applicable, in such Assets to the Grantor or as
otherwise directed by the Grantor.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1
Notices
. Any notice, request, demand, waiver, consent, approval or other
communication required or permitted to be given by any party under this Trust Agreement shall be in
writing and shall be delivered personally, sent by facsimile transmission, sent by registered or
certified mail, postage prepaid, or sent by a standard overnight courier of national reputation
with written confirmation of delivery. Any such notice shall be deemed given when so delivered
personally, or if sent by facsimile transmission, on the date received (
provided
that any notice
received after 5:00 p.m. (addressees local time) shall be deemed given at 9:00 a.m. (addressees
local time) on the next Business Day), or if mailed, on the date shown on the receipt therefor, or
if sent by overnight courier, on the date shown on the written confirmation of delivery. Such
notices shall be given to the following addresses:
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If to the Trustee:
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[
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[
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[
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Attention: [
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With a copy to:
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[
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[
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[
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Attention: [
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If to the Grantor:
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National Indemnity Company
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100 First Stamford Place
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Stamford, CT 06902
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Attention: General Counsel
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Fax: 203-363-5221
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With a copy to:
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National Indemnity Company
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3024 Harney Street
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Omaha, NE 68131
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Attention: Treasurer
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Fax: 402-916-3030
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If to the Beneficiary:
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CNA Financial Corporation
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333 S. Wabash Avenue
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Chicago, IL 60604
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Attention: Jonathan D. Kantor
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Executive Vice President,
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General Counsel and Secretary
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Fax: 312-817-0511
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With a copy to:
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CNA Financial Corporation
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333 S. Wabash Avenue
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Chicago, IL 60604
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Attention: Michael P. Warnick
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Senior Vice President and
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Deputy General Counsel
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Fax: 312-755-2479
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Each party to this Trust Agreement may change its notice provisions on fifteen (15) calendar days
advance notice in writing to the other parties to this Trust Agreement.
Section 7.2
Construction and Effect
. This Trust Agreement and the enforceability hereof
shall not be subject to the satisfaction of any conditions or qualifications not expressly included
herein.
Section 7.3
Waiver and Amendment
. This Trust Agreement and the Trust created hereunder
shall be irrevocable, subject solely to the termination provisions set forth herein. The Grantor
shall have no right or power in any capacity to revoke, terminate or alter or amend any terms of
this Trust Agreement, in whole or in part, without the prior written consent of the Beneficiary and
the Grantor. Notwithstanding the foregoing, this Trust Agreement may be altered, amended or
terminated at any time by written agreement executed by each party hereto and, in the case of
Grantors and the Beneficiarys written agreement, delivered to the Trustee.
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The Beneficiarys failure at any time to exercise any of the rights or powers conferred upon it
herein shall constitute neither a waiver of its right to exercise, nor stop it from exercising, any
rights at any subsequent time, nor shall such failure reduce in any degree any liability or
obligation for which the Grantor is bound hereunder.
Section 7.4
Successors and Assigns
. The rights and obligations of a party under this Trust
Agreement shall not be subject to assignment without the prior written consent of the other parties
hereto, and any attempted assignment without the prior written consent of the other parties hereto
shall be invalid
ab initio
. The terms of this Trust Agreement shall be binding upon, inure to the
benefit of and be enforceable by and against the successors and permitted assigns of the parties
hereto.
Section 7.5
Headings
. The headings of this Trust Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions hereof.
Section 7.6
Governing Law and Jurisdiction
. This Trust Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to such states
principles of conflict of laws that could compel the application of the laws of another
jurisdiction. SUBJECT TO
ARTICLE VIII
, ANY SUIT, ACTION OR PROCEEDING TO COMPEL
ARBITRATION OR FOR TEMPORARY INJUNCTIVE RELIEF IN AID OF ARBITRATION OR TO PRESERVE THE STATUS QUO
PENDING THE APPOINTMENT OF THE ARBITRATOR(S) SHALL BE BROUGHT BY THE PARTIES HERETO SOLELY IN THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, PROVIDED THAT IF SAID COURT
DETERMINES THAT IT DOES NOT HAVE SUBJECT MATTER JURISDICTION THEN SAID ACTIONS MAY BE BROUGHT IN
THE SUPREME COURT OF THE STATE OF NEW YORK FOR NEW YORK COUNTY; AND THE BENEFICIARY, THE GRANTOR
AND THE TRUSTEE EACH HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR
SUCH PURPOSE AND ANY APPELLATE COURTS THEREOF, EXCEPT THAT ANY FINAL ARBITRAL AWARD RENDERED IN
ACCORDANCE WITH ARTICLE VIII MAY BE ENTERED AND ENFORCED IN ANY COURT HAVING JURISDICTION OVER ANY
PARTY HERETO OR ANY OF ITS ASSETS.
Section 7.7
No Third Party Beneficiaries
. Nothing in this Trust Agreement is intended or
shall be construed to give any person, other than the parties hereto, any legal or equitable right,
remedy or claim under or in respect of this Trust Agreement or any provision contained herein.
Section 7.8
Counterparts
. This Trust Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an original, but all
such counterparts shall together constitute one and the same instrument binding upon all of the
parties hereto notwithstanding the fact that all parties hereto are not signatory to the original
or the same counterpart. Each counterpart may consist of a number of copies hereof each signed by
less than all, but together signed by all of the parties hereto. Each counterpart may be delivered
by facsimile transmission, which transmission shall be deemed delivery of an originally executed
document.
D-13
Section 7.9
Severability
. Any term or provision of this Trust Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Trust Agreement or affecting the validity or enforceability of any of
the terms or provisions of this Trust Agreement in any other jurisdiction, so long as the economic
or legal substance of the transactions contemplated hereby is not affected in any manner materially
adverse to any party hereto. If any provision of this Trust Agreement is so broad as to be
unenforceable, that provision shall be interpreted to be only so broad as is enforceable. In the
event of such invalidity or unenforceability of any term or provision of this Trust Agreement, the
parties hereto shall use their commercially reasonable efforts to reform such terms or provisions
to carry out the commercial intent of the parties hereto as reflected herein, while curing the
circumstance giving rise to the invalidity or unenforceability of such term or provision.
Section 7.10
Specific Performance
. Each of the parties hereto acknowledges and agrees that
the other parties hereto would be irreparably damaged in the event that any of the provisions of
this Trust Agreement were not performed or complied with in accordance with their specific terms or
were otherwise breached, violated or unfulfilled. Accordingly, each of the parties hereto agrees
that the other parties hereto shall be entitled to an injunction or injunctions to prevent
noncompliance with, or breaches or violations of, the provisions of this Trust Agreement by the
other parties hereto and to enforce specifically this Trust Agreement and the terms and provisions
hereof in any action instituted in accordance with
Section 7.6
, in addition to any other
remedy to which such party may be entitled, at law or in equity. In the event that any action is
brought in equity to enforce the provisions of this Trust Agreement, no party hereto will allege,
and each party hereto hereby waives the defense or counterclaim, that there is an adequate remedy
at law. The parties hereto further agree that (i) by seeking the remedies provided for in this
Section 7.10
, a party hereto shall not in any respect waive its right to seek any other
form of relief that may be available to a party under this Trust Agreement, including monetary
damages in the event that this Trust Agreement has been terminated or in the event that the
remedies provided for in this
Section 7.10
are not available or otherwise are not granted
and (ii) nothing contained in this
Section 7.10
shall require any party hereto to institute
any action for (or limit any partys right to institute any action for) specific performance under
this
Section 7.10
before exercising any termination right under
Article VI
, nor
shall the commencement of any action pursuant to this
Section 7.10
or anything contained in
this
Section 7.10
restrict or limit any partys right to terminate this Trust Agreement in
accordance with the terms of
Article VI
, or pursue any other remedies under this Trust
Agreement that may be available then or thereafter.
Section 7.11
Waiver of Jury Trial
. EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS TRUST AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED BY THIS TRUST AGREEMENT. EACH OF THE PARTIES HERETO HEREBY (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTIES HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTIES WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT HAS
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BEEN INDUCED TO ENTER INTO THIS TRUST AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS TRUST
AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 7.11
.
Section 7.12
Incontestability
. In consideration of the mutual covenants and agreements
contained herein, each party hereto does hereby agree that this Trust Agreement, and each and every
provision hereof, is and shall be enforceable by and between them according to its terms, and each
party hereto does hereby agree that it shall not contest in any respect the validity or
enforceability hereof.
Section 7.13
Set-Off
. Any debts or credits, matured or unmatured, liquidated or
unliquidated, regardless of when they arose or were incurred, in favor of or against any of the
Beneficiaries or the Grantor with respect to this Trust Agreement are deemed mutual debts or
credits, as the case may be, and shall be set off, and only the net balance shall be allowed or
paid.
Section 7.14
Currency
. All financial data required to be provided pursuant to the terms of
this Trust Agreement shall be expressed in United States dollars. All payments and all settlements
of account between the parties hereto shall be in United States currency unless otherwise agreed by
the parties hereto.
ARTICLE VIII
DISPUTE RESOLUTION
Section 8.1
Dispute Resolution
. Notwithstanding anything contained herein to the contrary,
any dispute between the Beneficiary and the Grantor arising out of or relating to this Trust
Agreement or the breach, termination or validity hereof (
Dispute
) will be first addressed
in accordance with the procedures specified in
Section 8.2
, and subsequently, if necessary,
Section 8.3
, which will be the sole and exclusive procedures for the resolution of any such
Disputes.
Section 8.2
Negotiation Amongst the Parties
. (a) The Beneficiary and the Grantor agree
that they shall first attempt to resolve Disputes by informal in-person discussions and
negotiations of their respective representatives. If a Beneficiary and the Grantor are unable to
resolve any such Dispute through such in-person discussions and negotiations within thirty (30)
calendar days of the day on which either the Beneficiary and the Grantor receives from the other
party or parties written notice of a Dispute, the Dispute shall be submitted for resolution to a
designated executive officer of each of the Beneficiary and the Grantor with authority to make a
decision. If the designated executive officers are unable to reach a mutually acceptable
resolution within ten (10) calendar days after expiration of such thirty-day period, on the request
of either the Beneficiary or the Grantor, the Dispute shall be resolved in accordance with
subsection (b). All negotiations, discussions, and communications made or conducted pursuant to
the procedures set forth in this
Section 8.2(a)
are confidential and will be treated as
compromise and settlement negotiations for purposes of the Federal Rules of Evidence and any other
applicable rules of evidence.
D-15
(b) Upon completion of the dispute resolution process described in subsection (a) of this
Section 8.2
without resolution of the Dispute, either the Beneficiary or the Grantor may
submit the Dispute for resolution in accordance with
Section 8.3
.
Section 8.3
Arbitration
. (a) Except as provided in
Sections 8.1
and
8.2
,
any Dispute shall be finally determined by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (
AAA
) then in effect (the
Rules
),
except as modified herein. If the amount in controversy is five million dollars ($5,000,000) or
less (including all claims and counterclaims) there shall be one arbitrator who shall be agreed
upon by the Beneficiary and the Grantor within twenty (20) calendar days of receipt by
respondent(s) of a copy of the demand for arbitration. The single arbitrator may not award an
amount greater than five million dollars ($5,000,000) in value under any circumstances. If the
amount in controversy is more than five million dollars ($5,000,000) (including all claims and
counterclaims) there shall be three neutral and impartial arbitrators, one of whom shall be
appointed by each of (i) the Beneficiary, on the one hand and (ii) the Grantor, on the other hand,
within thirty (30) calendar days of receipt by respondent(s) of the demand for arbitration, and the
third arbitrator, who shall chair the arbitral tribunal, shall be appointed by the party appointed
arbitrators within fifteen (15) calendar days of the appointment of the second arbitrator. If any
arbitrator is not appointed within the time limit provided herein, such arbitrator shall be
appointed by the AAA in accordance with the listing, striking and ranking procedure in the Rules,
with each of the Beneficiary and the Grantor being given a limited number of strikes, except for
cause. Any arbitrator appointed by the AAA shall be a retired federal or state appellate court
judge or a current or retired officer of an insurance company with no less than fifteen (15) years
of experience in the property casualty insurance industry. The arbitration hearing on the merits
shall be commenced within ninety (90) calendar days of the appointment of the arbitrator(s) or as
soon thereafter as practicable. In rendering an award, the arbitral tribunal shall be required to
follow the laws of the State of New York. The award shall be in writing and shall briefly state
the findings of fact and conclusions of law on which it is based. The arbitrator(s) shall be
permitted to award any relief permitted under New York law, including damages and any form of
temporary or permanent injunctive relief, but shall not be permitted to award special, indirect,
punitive or incidental damages or damages for lost profits or any other consequential damages or
damages based on multiples or similar valuation techniques. The award shall be final and binding
upon the Beneficiary and the Grantor and shall be the sole and exclusive remedy between the
Beneficiary and the Grantor regarding any claims, counterclaims, issues or accounting presented to
the arbitrator(s). Judgment upon the award may be entered in any court having jurisdiction over
the Beneficiary and the Grantor or any of their respective assets. Any costs or fees (including
attorneys fees and expenses) incident to enforcing the award shall be charged against the
Beneficiary and the Grantor resisting such enforcement. Arbitrability of any and all disputes
shall be decided by the arbitrator(s). In the event of any inconsistency between the Rules and the
provisions of this
Article VIII
, the provisions of this
Article VIII
shall control.
(b) Arbitration hereunder shall be conducted in Chicago, Illinois or New York, New York, as
determined by the party against whom the arbitration is demanded.
D-16
ARTICLE IX
EFFECTIVE DATE AND EXECUTION
IN WITNESS OF THE ABOVE, this Trust Agreement is executed in triplicate by the parties duly
authorized officers on the dates indicated below with an effective date of:
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[CNA BENEFICIARY], as Beneficiary
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Attest:
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NATIONAL INDEMNITY COMPANY, as Grantor
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[TRUSTEE], as Trustee
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D-17
EXHIBIT 10.5
EXECUTION VERSION
THIS PARENTAL GUARANTEE AGREEMENT
, dated as of August 31, 2010 (this
Parental Guarantee
Agreement
), is made by
Berkshire Hathaway Inc.
, a Delaware corporation (
Berkshire
)
in favor of
Continental Casualty Company
, an Illinois property and casualty insurance company
(
CCC
),
The Continental Insurance Company
, a Pennsylvania property and casualty insurance
company (
CIC
),
Continental Reinsurance Corporation International, Ltd.
, a Bermuda
long-term insurance company (
CRCI
), and
CNA Insurance Company Limited
, a United Kingdom
property and casualty insurance company (
CICL
, and each of CCC, CIC, CRCI and CICL is
individually hereinafter referred to as a
CNA Party
and all of CCC, CIC, CRCI and CICL
are collectively hereinafter referred to as the
CNA Parties
), with respect to certain
obligations of National Indemnity Company, a Nebraska property and casualty insurance company
(
NICO
).
WITNESSETH:
WHEREAS
, the CNA Parties, NICO and Berkshire have entered into that certain Master Transaction
Agreement, dated as of July 14, 2010 (as amended, restated, supplemented or otherwise modified, the
Master Transaction Agreement
);
WHEREAS
, as contemplated by the Master Transaction Agreement, NICO and the CNA Parties have
entered into the Loss Portfolio Transfer Reinsurance Agreement, dated as of August 31, 2010 (as
amended, restated, supplemented and/or modified from time to time) (the
LPT Reinsurance
Agreement
), which provides that the CNA Parties will cede to NICO, and NICO will reinsure, all
liabilities related to asbestos and pollution claims under the Business Covered (as defined in the
LPT Reinsurance Agreement);
WHEREAS
, as contemplated by the LPT Reinsurance Agreement, NICO, the CNA Parties and Wells
Fargo Bank, National Association, as trustee (the
Trustee
), have entered into the Trust
Agreement, dated as of August 31, 2010 (as amended, restated, supplemented and/or modified from
time to time) (the
Trust Agreement
), which provides that NICO is obligated to establish
the Trust Account (as defined below) for the purpose of satisfying its obligations under the LPT
Reinsurance Agreement; and
WHEREAS
, NICO is a wholly-owned subsidiary of Berkshire and Berkshire shall derive direct or
indirect benefit from the transactions contemplated by the Master Transaction Agreement, the LPT
Reinsurance Agreement and the Transaction Documents;
WHEREAS
, to induce the CNA Parties to enter into the transactions contemplated by the Master
Transaction Agreement, the LPT Reinsurance Agreement and the Transaction Documents, Berkshire has
executed and delivered this Parental Guarantee Agreement; and
WHEREAS
, the parties hereto desire that the Agent, as representative for the CNA Parties, have
a security interest and continuing lien on Berkshires right, title and interest in the Collateral
(as defined below).
NOW, THEREFORE
, in consideration of the foregoing, the covenants and agreements set forth
herein, and other good and valuable consideration, the adequacy and receipt of which are hereby
acknowledged, and intending to be legally bound hereby, Berkshire and the CNA Parties (each
individually, a
Party
and collectively, the
Parties
) hereby agree as follows:
ARTICLE I
DEFINITIONS; CONSTRUCTION
Section 1.1
Definitions
. Capitalized terms used and not otherwise defined herein shall
have the meanings ascribed to such terms in the LPT Reinsurance Agreement. The following terms
shall have the following meanings when used in this Parental Guarantee Agreement:
Acceleration Event
means the occurrence or continuance of both of the following
events, acts, occurrences or conditions, whether either such event, act, occurrence or condition is
voluntary or involuntary or results from the operation of law or pursuant to or as a result of
compliance by any Person with any judgment, decree, order, rule or regulation of any court or
administrative or governmental body: any (i) Insolvency Event of NICO
and
(ii) Insolvency
Event of Berkshire, whether such Insolvency Event occurs prior to, concurrently with or subsequent
to the Insolvency Event of NICO referred to in (i).
Agent
means CCC, in its capacity as agent for the benefit of the CNA Parties,
together with its successors and assigns.
Berkshire
has the meaning set forth in the Preamble.
CCC
has the meaning set forth in the Preamble.
CIC
has the meaning set forth in the Preamble.
CICL
has the meaning set forth in the Preamble.
CNA Party
or
CNA Parties
has the meaning set forth in the Preamble.
CRCI
has the meaning set forth in the Preamble.
Collateral
has the meaning set forth in
Section 3.1
.
Collateral Obligations
has the meaning set forth in
Section 2.1(a)
.
2
Event of Default
means the occurrence or continuance of all of the following: (i)
any NICO Event of Default, (ii) the failure of Berkshire to perform or pay under the Parental
Guarantee
and
(iii) any of the following events, acts, occurrences or conditions, whether
such event, act, occurrence or condition is voluntary or involuntary or results from the operation
of law or pursuant to or as a result of compliance by any Person with any judgment, decree, order,
rule or regulation of any court or administrative or governmental body:
(a) any Insolvency Event of NICO;
(b) a final arbitration award, court order, decision or judgment with no appeal or
stay pending (1) has been issued against NICO in favor of a CNA Party under the LPT
Reinsurance Agreement or the Trust Agreement and remains unpaid or unperformed by NICO or
(2) has been issued against a CNA Party with respect to an A&P Claim in respect of Business
Covered that NICO has acknowledged in writing its obligation to pay and such claim remains
unpaid by NICO; or
(c) NICO has acknowledged in writing its obligation to pay or perform an obligation
guaranteed under the Parental Guarantee, and such obligation remains due and unpaid or
unperformed by NICO.
Guaranteed Obligations
has the meaning set forth in
Section 2.1(a)
.
Insolvency Event
means the occurrence or continuance of any of the following events,
acts, occurrences or conditions, whether such event, act, occurrence or condition is voluntary or
involuntary or results from the operation of law or pursuant to or as a result of compliance by any
Person with any judgment, decree, order, rule or regulation of any court or administrative or
governmental body: (i) a Person shall commence a voluntary case concerning itself under any
insolvency laws or otherwise commence any other proceeding under any bankruptcy, rehabilitation,
liquidation, conservation, dissolution, reorganization, arrangement, adjustment of debt, relief of
debtors, insolvency or similar law of any jurisdiction whether now or hereafter in effect relating
to such Person (any of the foregoing, an
Insolvency Proceeding
); (ii) an involuntary
Insolvency Proceeding is commenced against a Person and such Insolvency Proceeding is not
controverted within ten (10) calendar days, or is not dismissed within thirty (30) calendar days,
after commencement of the case; (iii) a receiver or liquidator is appointed for, or takes charge
of, all or substantially all of the property of a Person; (iv) any order for relief or other order
approving any such case or proceeding is entered; (v) a Person is adjudicated insolvent or
bankrupt; (vi) a Person suffers any appointment of any custodian or the like for it or any
substantial part of its property, which appointment continues undischarged or unstayed for a period
of thirty (30) calendar days; (vii) a Person makes a general assignment for the benefit of
creditors; (viii) a Person shall fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; (ix) a Person shall call a meeting of its
creditors with a view of arranging a composition or adjustment of its debts; (x) a Person shall by
any act or failure to act consent to, approve of or acquiesce in any of the foregoing; or (xi) any
corporate action is taken by such Person for the purpose of effecting any of the foregoing items
(i)-(x).
Interest
has the meaning set forth in
Section 2.1(b)
.
3
LPT Reinsurance Agreement
has the meaning set forth in the Recitals.
Master Transaction Agreement
has the meaning set forth in the Recitals.
NICO
has the meaning set forth in the Preamble.
NICO Event of Default
means the occurrence or continuance of any of the following
events, acts, occurrences or conditions, whether such event, act, occurrence or condition is
voluntary or involuntary or results from the operation of law or pursuant to or as a result of
compliance by any Person with any judgment, decree, order, rule or regulation of any court or
administrative or governmental body:
(a) NICOs failure to pay all Ultimate Net Loss due and owing by NICO, pursuant to and
in accordance with the applicable provisions of the LPT Reinsurance Agreement, subject
always to the LPT Limit;
(b) NICOs failure to transfer and assign assets into the Trust Account when required,
including upon the occurrence of a Collateral Triggering Event or a Reinsurance Credit
Event, pursuant to and in accordance with the applicable provisions of the LPT Reinsurance
Agreement and the Trust Agreement;
(c) NICOs failure to establish, fund and maintain additional trust accounts and/or
other collateral when required upon the occurrence of a Reinsurance Credit Event, pursuant
to and in accordance with the applicable provisions of the LPT Reinsurance Agreement and
the Trust Agreement.
Parental Guarantee
has the meaning set forth in
Section 2.1(a)
.
Parental Guarantee Agreement
has the meaning set forth in the Preamble.
Party
or
Parties
has the meaning set forth in the Recitals.
Person
means and includes any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or political subdivision or
agency, department or instrumentality thereof.
Proceeds
means proceeds as such term is defined in the UCC.
Secured Obligations
means (i) all of NICOs payment and performance obligations
(whether absolute or contingent, matured or unmatured) arising under or in connection with the LPT
Reinsurance Agreement and the Trust Agreement, (ii) all of Berkshires payment and performance
obligations (whether absolute or contingent, matured or unmatured) arising under the Parental
Guarantee with respect to NICOs obligations under the LPT Reinsurance Agreement and the Trust
Agreement and (iii) reimbursement for all expenses incurred to enforce and exercise any and all
remedies under (A) the LPT Reinsurance Agreement and the Trust Agreement or (B) this Parental
Guarantee Agreement (solely with respect to Berkshires payment and performance obligations
(whether absolute or contingent, matured or unmatured) arising under the Parental Guarantee with
respect to NICOs obligations under the
4
LPT Reinsurance Agreement and the Trust Agreement), including, without limitation, all
reasonable attorneys fees and legal expenses and including, without limitation, any of the
foregoing amounts payable after the commencement of any Insolvency Proceeding, whether or not any
such amounts are allowed in any such proceeding.
Securities Intermediary
means Wells Fargo Bank, National Association, acting as
securities intermediary with respect to the Trust Account.
Security Entitlement
means security entitlement as defined in the UCC.
Trigger Events
has the meaning set forth in
Section 2.1(b)
.
Trust Account
means the trust account established by the Securities Intermediary
with account number 80460400 in the name of the Trustee, together with any replacements thereof or
substitutions therefor.
Trust Agreement
has the meaning set forth in the Recitals.
Trustee
has the meaning set forth in the Recitals.
UCC
means the Uniform Commercial Code as in effect from time to time in the State of
New York.
ARTICLE II
PARENTAL GUARANTEE
Section 2.1
Parental Guarantee
.
(a) Berkshire hereby unconditionally and irrevocably guarantees (the
Parental
Guarantee
) NICOs full and prompt payment and, in the case of the obligations set forth in
(ii) and (iii) below (the
Collateral Obligations
), performance when due of NICOs
obligations for: (i) the payment of all Ultimate Net Loss due and owing by NICO, pursuant to and
in accordance with the applicable provisions of the LPT Reinsurance Agreement, subject always to
the LPT Limit; (ii) the transfer and assignment of assets into the Trust Account when required,
including upon the occurrence of a Collateral Triggering Event or a Reinsurance Credit Event,
pursuant to and in accordance with the applicable provisions of the LPT Reinsurance Agreement and
the Trust Agreement; (iii) the establishment, funding and maintenance of additional trust accounts
and/or other collateral when required upon the occurrence of a Reinsurance Credit Event, pursuant
to and in accordance with the applicable provisions of the LPT Reinsurance Agreement and the Trust
Agreement; and (iv) the payment of any amounts due and payable to the CNA Parties pursuant to
Section 14.2(c) of the Administrative Services Agreement if the Administrative Services Agreement
is terminated in accordance with Section 14.2(a)(iii) thereof (such obligations, collectively, the
Guaranteed Obligations
).
5
(b) If NICO, after any of the events listed under (i), (ii) or (iii) below (the
Trigger
Events
) has occurred, has not timely paid (or, in the case of Collateral Obligations,
performed) a Guaranteed Obligation within thirty (30) days after the due date of such Guaranteed
Obligation, the CNA Party may proceed directly and at once, upon written notice to NICO and
Berkshire, against Berkshire to obtain payment (or, in the case of Collateral Obligations,
performance) of the full amount or any portion of the Guaranteed Obligation that is then due and
payable and has not been paid (or, in the case of Collateral Obligations, performed) by NICO,
together with interest on any such payments at the Applicable Interest Rate accrued from the
applicable due date until the date of such payment (
Interest
). Following the occurrence
of a Trigger Event of the type described under (i) below, the CNA Party shall be entitled to so
proceed directly against Berkshire without first proceeding against or joining NICO or any other
Person. Following the occurrence of a Trigger Event of the type described under (ii) or (iii)
below, the CNA Party shall be entitled to so proceed directly against Berkshire with regard to the
Guaranteed Obligation that is the subject of such Trigger Event without first proceeding against or
joining NICO or any other Person. The Trigger Events are as follows:
(i) any dissolution, liquidation, conservation, rehabilitation, bankruptcy, statutory
reorganization, receivership, compulsory composition or similar statutory or delinquency
proceeding involving NICO;
(ii) a final arbitration award, court order, decision or judgment with no appeal or
stay pending (A) has been issued against NICO in favor of a CNA Party under the LPT
Reinsurance Agreement, the Trust Agreement or the Administrative Services Agreement and
remains unpaid (or, in the case of Collateral Obligations, unperformed) by NICO, or (B) has
been issued against a CNA Party with respect to an A&P Claim in respect of Business Covered
that NICO has acknowledged in writing its obligation to pay and such claim remains unpaid by
NICO; or
(iii) NICO has acknowledged in writing its obligation to pay (or, in the case of
Collateral Obligations, perform) a Guaranteed Obligation and such Guaranteed Obligation
remains due and unpaid (or, in the case of Collateral Obligations, unperformed) by NICO.
(c) The Parental Guarantee is a guarantee of payment (or, in the case of Collateral
Obligations, performance) and not of collection merely, and upon the occurrence of a Trigger Event
and any failure of NICO to pay (or, in the case of Collateral Obligations, perform) a Guaranteed
Obligation as set forth above any CNA Party, may, at its option, proceed directly and at once, with
written notice, against Berkshire to collect and recover the full amount of NICOs liability to pay
(or, in the case of Collateral Obligations, perform) such Guaranteed Obligation (or any portion
thereof) then due and owing, together with any applicable Interest, and otherwise enforce the
Collateral Obligations. The Parental Guarantee is a continuing guaranty and the obligations of
Berkshire hereunder are and shall be absolute under any and all circumstances, irrespective of, and
Berkshire hereby waives, any defense it may have relating to: (i) any lack of validity, regularity
or enforceability of this Parental Guarantee Agreement, the
6
LPT Reinsurance Agreement, the Trust Agreement or the Administrative Services Agreement, (ii)
any change in time or place of payment of or other term of the Guaranteed Obligation, or any other
amendment or waiver of or consent to departure from this Parental Guarantee Agreement, the LPT
Reinsurance Agreement, the Trust Agreement or the Administrative Services Agreement, (iii) except
with respect to whether a Trigger Event has occurred, any change, restructuring or termination of
the corporate structure or existence of NICO, or any dissolution, liquidation, conservation,
rehabilitation, bankruptcy, statutory reorganization, receivership, compulsory composition, or
similar statutory or delinquency proceeding affecting NICO or any of its assets or any resulting
release or discharge of any obligation of NICO under the LPT Reinsurance Agreement, the Trust
Agreement or the Administrative Services Agreement or (iv) in the case of a Trigger Event of the
type described in
Section 2.1(b)(ii)
or
Section 2.1(b)(iii)
, any defense, set-off
or other circumstance which might otherwise constitute a defense available to Berkshire or NICO.
Notwithstanding anything contained herein to the contrary, nothing in this Parental Guarantee
Agreement shall preclude Berkshire from asserting a valid claim or valid defense to the effect that
the Guaranteed Obligation has been paid, discharged or satisfied in full in accordance with the
terms of the LPT Reinsurance Agreement, the Trust Agreement or the Administrative Services
Agreement, as applicable. Except as otherwise expressly set forth in this Parental Guarantee
Agreement, Berkshire hereby expressly waives promptness, diligence, demand, notice of dishonor,
non-payment, non-performance or other default with respect to the Guaranteed Obligations, or any
requirements that any right or power be exhausted or any action taken against NICO. To the extent
that Berkshire shall have made any payments under this Parental Guarantee Agreement, any rights to
subrogation which Berkshire may have as a result of any such payment shall be deferred, postponed
and subordinated to the prior indefeasible payment in full of the Guaranteed Obligations. If all
or any part payment applied to the Guaranteed Obligation is or must be recovered, rescinded or
returned to NICO, Berkshire or any other Person because of a dissolution, liquidation,
conservation, rehabilitation, bankruptcy, statutory reorganization, receivership, compulsory
composition, or similar proceeding affecting any Party, such Guaranteed Obligation shall be deemed
to have continued in existence and this Parental Guarantee Agreement shall continue in effect as to
such Guaranteed Obligation, all as though such payment had not been made.
(d) Berkshire shall pay on demand all fees and out-of-pocket expenses (including reasonable
attorneys fees and expenses) incurred by the CNA Parties in any way relating to the successful
enforcement of the rights of the CNA Parties hereunder. The CNA Parties shall pay on demand all
fees and out-of-pocket expenses (including reasonable attorneys fees and expenses) incurred by
Berkshire in any way relating to its defense of an unsuccessful action by the CNA Parties
hereunder. Notwithstanding anything to the contrary in this
Section 2.1(d)
, the CNA
Parties shall not be entitled to be reimbursed hereunder for the costs or out-of-pocket expenses
incurred in connection with any notice or demand required under
Section 2.1(b)
to the
extent that such demand is not disputed or objected to by Berkshire.
(e) For the avoidance of doubt, but subject to
Section 2.1(d)
, the payment (or, in the
case of Collateral Obligations, performance) of a Guaranteed Obligation by Berkshire
pursuant to this Parental Guarantee Agreement shall be deemed to satisfy NICOs obligation to
perform or pay such Guaranteed Obligation for any purpose, including under the LPT
7
Reinsurance Agreement, the Trust Agreement or the Administrative Services Agreement, as applicable.
None of the CNA Parties shall be entitled to obtain payment (or, in the case of Collateral
Obligations, performance) of a Guaranteed Obligation from NICO under the LPT Reinsurance Agreement,
the Trust Agreement or the Administrative Services Agreement or withdraw funds from the Trust
Account or any replacement or successor thereof or substitution therefor to satisfy a Guaranteed
Obligation to the extent that such Guaranteed Obligation has theretofore been paid or performed in
full by Berkshire under this Parental Guarantee Agreement. In furtherance of the foregoing, the
CNA Parties hereby agree that any amounts paid by Berkshire under this Parental Guarantee Agreement
shall be in satisfaction of any amounts due and payable (but unpaid) by NICO under the LPT
Reinsurance Agreement, the Trust Agreement or the Administrative Services Agreement, as applicable.
ARTICLE III
TRUST ACCOUNT; GRANT OF SECURITY INTEREST
Section 3.1
Grant of Security Interest
. As security for the prompt and complete payment,
reimbursement and performance when due in full of all the Secured Obligations, Berkshire hereby
grants to the Agent for the benefit of the CNA Parties, a security interest in and continuing lien
on all of Berkshires right, title and interest in, to and under the following, in each case,
whether now owned or existing or hereafter acquired or arising, and wherever located (all of which
being hereinafter collectively called the
Collateral
):
(a) the Trust Account;
(b) all Security Entitlements carried in the Trust Account; and
(c) all Proceeds of any or all of the foregoing.
Section 3.2
Registration of Securities, Etc
. All securities and other financial assets
credited to the Trust Account that are in registered form or that are payable to or to the order of
Berkshire shall be (i) registered in the name of, or payable to or to the order of, the Trustee or
(ii) endorsed to or to the order of the Trustee or in blank; and in no case will any financial
asset credited to the Trust Account be registered in the name of, or payable to or to the order of,
Berkshire or endorsed to or to the order of Berkshire, except to the extent the foregoing have been
specially endorsed to or to the order of the Trustee or in blank.
Section 3.3
Successor Trust Account
. Except as otherwise set forth in
Section 3.4
,
in the event a successor trust account is established, (i) such account shall be established with
either the Securities Intermediary or another securities intermediary (as defined in the UCC)
reasonably acceptable to Berkshire and the Agent, (ii) the Parties shall amend this Parental
Guarantee Agreement to include such successor trust account and securities intermediary with whom
such successor trust account is established, and such securities intermediary shall enter into this
Parental Guarantee Agreement, as amended (solely for the purposes of
Articles III-VII
), or
a form of agreement reasonably acceptable to Berkshire and the
8
Agent prior to or contemporaneously with the establishment of the successor trust account and (iii)
financing statements shall be amended to identify the successor trust account, all in a manner
reasonably satisfactory to the Agent.
Section 3.4
Reinsurance Credit Event Trust Accounts
. Concurrently with the modification of
the Trust Account and/or the creation of new trust accounts as a result of a Reinsurance Credit
Event, Berkshire and the Securities Intermediary will enter into agreements substantially in the
form of this Parental Guarantee Agreement with each of the respective CNA Parties, granting to such
CNA Party a security interest in and continuing lien on all of Berkshires right, title and
interest in, to and under the following, in each case, whether now owned or existing or hereafter
acquired or arising, and wherever located: (i) the modified Trust Account or the new trust account
created as a result of the Reinsurance Credit Event for which such CNA Party is the sole
beneficiary; (ii) all Security Entitlements carried in such trust account and (iii) all Proceeds of
any or all of the foregoing.
ARTICLE IV
DUTIES OF THE SECURITIES INTERMEDIARY
Section 4.1
No Other Entitlement Orders
. Without the prior written consent of the Agent,
Berkshire shall not enter into any agreement under which it (i) grants a security interest or lien
on any or all of the Collateral and/or (ii) agrees to cause the Securities Intermediary to comply
with entitlement orders (as defined in the UCC) originated by any Person other than the Agent or
the entitlement holder with respect to any property credited to the Trust Account. Berkshire shall
promptly notify the Agent if any Person requests Berkshire to enter into any such agreement as
described in this
Section 4.1
or otherwise asserts or seeks to assert a lien, encumbrance
or adverse claim against any portion or all of the property credited to the Trust Account (and in
that connection, Berkshire represents and warrants to the Agent that it has not heretofore received
any such request or assertion with respect to the Trust Account) and that it will promptly notify
the Agent of the occurrence of any such events.
Section 4.2
Removal of the Securities Intermediary by the Agent
.
(a) If Berkshire and/or its Affiliates, either individually or in the aggregate, shall
acquire more than ten percent (10%) of the outstanding voting stock of the Securities
Intermediary, the Securities Intermediary may be removed by the Agent by delivery to the
Securities Intermediary and Berkshire of a written notice of removal, effective upon
receipt by the Securities Intermediary and Berkshire of such notice. Notwithstanding the
foregoing, no such removal by the Agent shall be effective until (i) another securities
intermediary (as defined in the UCC) reasonably acceptable to Berkshire and the Agent
shall have been duly appointed by the Agent, (ii) such securities intermediary has entered
into an agreement substantially in the form of this Parental Guarantee Agreement or a form
reasonably acceptable to Berkshire and the Agent prior to or contemporaneously with the
appointment of the new securities intermediary and (iii)
9
financing statements shall be amended to identify such securities intermediary, all in a
manner reasonably satisfactory to the Agent.
(b) If the Securities Intermediary is removed by the Agent pursuant to
Section
4.2(a)
, the CNA Parties shall pay any amounts charged by the new securities
intermediary for its services as contemplated by this Parental Guarantee Agreement that are
greater than the total amount of fees charged by the Securities Intermediary under this
Parental Guarantee Agreement.
ARTICLE V
REMEDIES; RIGHTS UPON DEFAULT, ETC.
Section 5.1
Rights and Remedies Generally
. If an Event of Default has occurred and is
continuing, then and in every such case, the Agent may exercise, in addition to all other rights
and remedies granted to them in this Parental Guarantee Agreement and in any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a
secured party under the UCC or any other applicable law.
Section 5.2
Acceleration
. Upon the occurrence and continuance of an Acceleration Event,
the Secured Obligations shall be automatically due and payable with all additional interest from
time to time accrued thereon, without further action by the Agent or any other person. For the
avoidance of doubt, for purposes of this
Section 5.2
, the amount of Secured Obligations
with respect to the Trust Account shall be the Security Amount or the Required Amount applicable to
the Trust Account in effect at the time of the Acceleration Event.
ARTICLE VI
BERKSHIRE WARRANTIES; POWER OF ATTORNEY
Section 6.1
Berkshire Warranties
. Berkshires exact legal name (as indicated in the public
record of Berkshires jurisdiction of organization) is as set forth on the signature block to this
Parental Guarantee Agreement. Berkshires jurisdiction of organization is the State of Delaware and
the organizational identification number assigned by the State of Delaware to Berkshire is 2908471.
The location of Berkshires chief executive office is the address provided in
Section 7.12
as the address for notice to Berkshire. Berkshire will not, except upon 30 days prior written
notice to the Agent and delivery to the Agent of all additional financing statements and other
documents reasonably requested by the Agent to maintain the validity, perfection and priority of
the security interest provided for herein, (i) change its jurisdiction of organization or (ii)
change its name. If Berkshire changes the address of its chief executive office, it shall promptly
provide written notice to the Agent of such new address.
Section 6.2
The Agents Appointment as Attorney-in-Fact
. Berkshire hereby irrevocably
constitutes and appoints the Agent and any officers or agents thereof, with full power of
substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in
the place and stead of Berkshire and in the name of Berkshire or in their own names,
10
from time to time in the Agents discretion, for the purpose of carrying out the terms of this
Parental Guarantee Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the purposes of this
Parental Guarantee Agreement. Notwithstanding the foregoing, the Agent agrees that the power of
attorney provided for in this
Section 6.2
shall only become effective upon the occurrence
and continuance of an Event of Default.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1
Entire Agreement
.
This Parental Guarantee Agreement, the LPT Reinsurance Agreement and the Transaction Documents
and any other documents delivered pursuant hereto or thereto, constitute the entire agreement among
the Parties and their respective Affiliates with respect to the subject matter hereof and supersede
all prior negotiations, discussions, writings, agreements and understandings, oral and written,
among the Parties with respect to the subject matter hereof and thereof.
Section 7.2
Waiver and Amendment
.
This Parental Guarantee Agreement may be amended, superseded, canceled, renewed or extended,
and the terms hereof may be waived, only by an instrument in writing signed by the Parties hereto,
or, in the case of a waiver, by the Party waiving compliance. No delay on the part of any Party in
exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise thereof or the exercise
of any other such right, power or privilege. No waiver of any breach of this Parental Guarantee
Agreement shall be held to constitute a waiver of any other or subsequent breach.
Section 7.3
Successors and Assigns
.
The rights and obligations of the Parties under this Parental Guarantee Agreement shall not be
subject to assignment without the prior written consent of the other Parties, and any attempted
assignment without the prior written consent of the other Parties shall be invalid
ab initio
. The
terms of this Parental Guarantee Agreement shall be binding upon, inure to the benefit of and be
enforceable by and against the successors and permitted assigns of the Parties.
Section 7.4
Construction; Interpretation
.
The Parties have participated jointly in the negotiation and drafting of this Parental
Guarantee Agreement. In the event of an ambiguity or question of intent or interpretation arises,
this Parental Guarantee Agreement shall be construed as if drafted jointly by the Parties and no
presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the
authorship of any of the provisions of this Parental Guarantee Agreement. When a reference is
made to a Section such reference shall be to a Section of this Parental
11
Guarantee Agreement unless otherwise indicated. Whenever the words include, includes or
including are used in this Parental Guarantee Agreement, they shall be deemed to be followed by
the words without limitation. The term Parental Guarantee Agreement, means this Parental
Guarantee Agreement as amended or supplemented, and the words hereof, herein, hereto,
hereunder and other words of similar import shall refer to this Parental Guarantee Agreement in
its entirety and not to any particular Section or provision of this Parental Guarantee Agreement.
Reference to any Applicable Law means such Applicable Law as amended, modified, codified, replaced
or reenacted, and all rules and regulations promulgated thereunder. References to a Person are
also to its successors and permitted assigns.
Section 7.5
Governing Law and Jurisdiction
.
This Parental Guarantee Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts entered into therein, without reference to
principles of choice of law or conflicts of laws (other than Section 5-1401 of the New York General
Obligations Law). Any action, suit or proceeding arising out of or relating to this Parental
Guarantee Agreement shall be brought by the Parties solely in the United States District Court for
the Southern District of New York, provided that if said court determines that it does not have
subject matter jurisdiction then said action, suit or proceeding may be brought in the supreme
court of the State of New York for New York County; and the Parties each hereby irrevocably submit
to the exclusive jurisdiction of such courts for such purpose and any appellate courts thereof.
Each Party hereto agrees that service of any process, summons, notice or document by U.S.
registered mail addressed to such party shall be effective service of process for any action, suit
or proceeding brought against such party in such court. Each Party hereto irrevocably and
unconditionally waives any objection to the laying of venue of any such action, suit or proceeding
brought in any such court and any claim that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum. Each Party hereto agrees that final judgment
in any such action, suit or proceeding brought in any such court shall be conclusive and binding
upon such Party and may be enforced in any other courts to whose jurisdiction such Party may be
subject, by suit upon such judgment.
Section 7.6
No Third Party Beneficiaries
.
Nothing in this Parental Guarantee Agreement is intended or shall be construed to give any
Person, other than the Parties hereto, any legal or equitable right, remedy or claim under or in
respect of this Parental Guarantee Agreement or any provision contained herein.
Section 7.7
Counterparts
.
This Parental Guarantee Agreement may be executed by the Parties in separate counterparts,
each of which when so executed and delivered shall be an original, but all such counterparts shall
together constitute one and the same instrument binding upon all of the Parties notwithstanding the
fact that all Parties are not signatory to the original or the same counterpart. Each counterpart
may consist of a number of copies hereof each signed by less than all, but together signed by all
of the Parties. Each counterpart may be delivered by facsimile transmission, which transmission
shall be deemed delivery of an originally executed document.
12
Section 7.8
Severability
.
Any term or provision of this Parental Guarantee Agreement which is invalid or unenforceable
in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without rendering invalid or unenforceable the remaining terms and provisions
of this Parental Guarantee Agreement or affecting the validity or enforceability of any of the
terms or provisions of this Parental Guarantee Agreement in any other jurisdiction, so long as the
economic or legal substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any Party. If any provision of this Parental Guarantee Agreement is so broad
as to be unenforceable, that provision shall be interpreted to be only so broad as is enforceable.
In the event of such invalidity or unenforceability of any term or provision of this Parental
Guarantee Agreement, the Parties shall use their commercially reasonable efforts to reform such
terms or provisions to carry out the commercial intent of the Parties as reflected herein, while
curing the circumstance giving rise to the invalidity or unenforceability of such term or
provision.
Section 7.9
Specific Performance
.
Each of the Parties acknowledges and agrees that the other Party would be irreparably damaged
in the event that any of the provisions of this Parental Guarantee Agreement were not performed or
complied with in accordance with their specific terms or were otherwise breached, violated or
unfulfilled. Accordingly, each of the Parties agrees that the other Party shall be entitled to an
injunction or injunctions to prevent noncompliance with, or breaches or violations of, the
provisions of this Parental Guarantee Agreement by the other Party and to enforce specifically this
Parental Guarantee Agreement and the terms and provisions hereof in any action instituted in
accordance with
Section 7.5
, in addition to any other remedy to which such Party may be
entitled, at law or in equity. In the event that any action is brought in equity to enforce the
provisions of this Parental Guarantee Agreement, no Party will allege, and each Party hereby waives
the defense or counterclaim, that there is an adequate remedy at law. The Parties further agree
that (i) by seeking the remedies provided for in this
Section 7.9
, a Party shall not in any
respect waive its right to seek any other form of relief that may be available to a Party under
this Parental Guarantee Agreement, including monetary damages in the event that this Parental
Guarantee Agreement has been terminated or in the event that the remedies provided for in this
Section 7.9
are not available or otherwise are not granted and (ii) nothing contained in
this
Section 7.9
shall require any Party to institute any action for (or limit any Partys
right to institute any action for) specific performance under this
Section 7.9
before
exercising any other remedies under this Parental Guarantee Agreement that may be available then or
thereafter nor shall the commencement of any action pursuant to this
Section 7.9
or
anything contained in this
Section 7.9
restrict or limit any Partys right to pursue any
other remedies under this Parental Guarantee Agreement that may be available then or thereafter.
Section 7.10
Waiver of Jury Trial
.
EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS PARENTAL GUARANTEE AGREEMENT OR
13
THE TRANSACTIONS CONTEMPLATED BY THIS PARENTAL GUARANTEE AGREEMENT. EACH OF THE PARTIES HEREBY (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTIES HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTIES WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS PARENTAL
GUARANTEE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS PARENTAL GUARANTEE AGREEMENT, AS
APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION
7.10
.
Section 7.11
Incontestability
.
In consideration of the mutual covenants and agreements contained herein, each Party does
hereby agree that this Parental Guarantee Agreement, and each and every provision hereof, is and
shall be enforceable by and between them according to its terms, and each Party does hereby agree
that it shall not contest in any respect the validity or enforceability hereof.
Section 7.12
Notice
.
Any notice, request, demand, waiver, consent, approval or other communication required or
permitted to be given by any Party hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission, sent by registered or certified mail, postage prepaid, or sent by a
standard overnight courier of national reputation with written confirmation of delivery. Any such
notice shall be deemed given when so delivered personally, or if sent by facsimile transmission, on
the date received (
provided
that any notice received after 5:00 p.m. (addressees local time) shall
be deemed given at 9:00 a.m. (addressees local time) on the next Business Day), or if mailed, on
the date shown on the receipt therefor, or if sent by overnight courier, on the date shown on the
written confirmation of delivery. Such notices shall be given to the following address:
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To CNA Parties:
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CNA Financial Corporation
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333 S. Wabash Avenue
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Chicago, IL 60604
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Attention: Jonathan D. Kantor
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Executive Vice President,
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General Counsel and Secretary
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Fax: (312) 817-0511
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With a copy to:
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CNA Financial Corporation
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333 S. Wabash Avenue
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Chicago, IL 60604
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Attention: Michael P. Warnick
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Senior Vice President and Deputy General Counsel
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Fax: (312) 755-2479
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To Berkshire:
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Berkshire Hathaway Inc.
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3555 Farnam Street
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Suite 1440
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Omaha, NE 68131
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Attention: Chief Financial Officer
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Fax: (402) 346-3375
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To NICO:
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National Indemnity Company
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100 First Stamford Place
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Stamford, Connecticut 06902
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Attention: General Counsel
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Fax: (203) 363-5221
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With a copy to:
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National Indemnity Company
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3024 Harney Street
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Omaha, NE 68131
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Attention: Treasurer
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Fax: (402) 916-3030
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Any of the CNA Parties, Berkshire or NICO may change its notice provisions hereunder on fifteen
(15) calendar days advance notice in writing to each of such other Persons.
(The remainder of this page has been intentionally left blank.)
15
IN WITNESS WHEREOF
, the Parties hereby execute this Parental Guarantee Agreement as of the day
and year first set forth above.
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BERKSHIRE HATHAWAY INC.
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By:
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/s/ Marc D. Hamburg
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Name:
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Marc D. Hamburg
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Title:
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Senior Vice President
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CONTINENTAL CASUALTY COMPANY, as Agent for the
CNA Parties (as defined herein)
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By:
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/s/ Lawrence J. Boysen
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Name:
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Lawrence J. Boysen
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Title:
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Senior Vice President and
Corporate Controller
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THE CONTINENTAL INSURANCE COMPANY
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By:
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/s/ Lawrence J. Boysen
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Name:
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Lawrence J. Boysen
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Title:
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Senior Vice President and Corporate
Controller
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CONTINENTAL REINSURANCE CORPORATION
INTERNATIONAL, LTD.
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By:
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/s/ Lawrence J. Boysen
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Name:
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Lawrence J. Boysen
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Title:
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Chairman of the Board and
President
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[Signature Page to Parental Guarantee Agreement]
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CNA INSURANCE COMPANY LIMITED
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By:
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/s/ Lawrence J. Boysen
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Name:
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Lawrence J. Boysen
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Title:
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Authorized Representative
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CONTINENTAL CASUALTY COMPANY
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By:
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/s/ Lawrence J. Boysen
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Name:
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Lawrence J. Boysen
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Title:
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Senior Vice President and
Corporate Controller
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[Signature Page to Parental Guarantee Agreement]