EXHIBIT 10.37 MULTIPLE LINE PROGRAM MANAGING GENERAL AGENCY AGREEMENT - VSC2004/72

 

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                                                                   EXHIBIT 10.37

 

 

                              MULTIPLE LINE PROGRAM

                 MANAGING GENERAL AGENCY AGREEMENT - VSC2004/72

 

         This Agreement, entered into on the 1st day of December 1, 2004 (the

"Agreement") by and between VIRGINIA SURETY COMPANY, INC., an Illinois

corporation ("Company") and TOWER RISK MANAGEMENT CORPORATION, a New York

corporation ("Agent").

 

                                    PREAMBLE

 

          WHEREAS, Company desires to appoint Agent as its agent for performing

responsibilities set forth in this Agreement; and

 

         WHEREAS, Agent desires to perform such responsibilities;

 

         NOW, THEREFORE, Company and Agent, in consideration of the mutual

promises herein contained and for other good and valuable consideration, the

receipt and sufficiency whereof is hereby acknowledged, agree as follows:

 

         1. APPOINTMENT.

 

         1.1 APPOINTMENT. Company does hereby nominate, constitute, and appoint

Agent as its agent for: (i) the soliciting, underwriting, quoting, binding,

issuing, and servicing of Company's insurance policies classified in the

schedule attached hereto as Exhibit A (such insurance and any policies,

contracts, binders, endorsements, certificates, agreements, or evidence of

insurance, individually and collectively, will be referred to as "Policy" or

"Policies" hereunder); and (ii) for the servicing of the Reinsurance Agreements

("Reinsurance Agreements"), in accordance with Exhibit C attached hereto,

between Company and its Reinsurers.

 

         1.2 AUTHORITY. Agent is authorized to:

 

              1.2.1 Issue Policies subject to: (i) the scope and limits granted

in Exhibit A attached hereto; (ii) the terms and conditions (including

exclusions) of any Policies issued, underwritten, or serviced pursuant to this

Agreement; (iii) the terms and conditions of the Reinsurance Agreements in

effect at the inception of this Agreement; (iv) applicable state insurance laws,

rules, and regulations; (v) the underwriting policies, rules, and guidelines of

Company as set forth in Exhibit B or as otherwise provided from time to time by

Company; (vi) Company's ultimate right to veto the solicitation, underwriting,

quoting, binding, and issuing of any Policy by Agent; (vii) Company's ultimate

right to cancel any Policy subject to applicable governmental regulatory

requirements for cancellation and non-renewal; (viii) Company's ultimate right

to veto the appointment by Agent of any agent or broker, and the ultimate power

of Company to cancel any such agency pursuant to Section 1.2.7; (ix) Company's

right to approve all advertising with respect to the Policies in which Company's

name is used.

 

 

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               1.2.2 Collect, account, receipt for, and pay premiums on Policies

Agent writes on behalf of Company in accordance with Sections 1.2.3, 4, and 7,

and, as full compensation, to retain commissions out of premiums so collected in

amounts as specified in Exhibit A attached hereto. Agent agrees to pay all costs

and expenses of collection from insureds where premium to be received by the

Agent pursuant to this Agreement are not paid in full by the insured. Agent

agrees that all premiums, including return premiums received by Agent, are

Company's property.

 

              1.2.3 Hold all premiums, including return premiums received by

Agent, in a fiduciary capacity for Company in accordance with Section 4.1.15.

 

              1.2.4 Exercise Agent's authority through authorized employees of

Agent or its affiliates.

 

              1.2.5 Represent other companies.

 

              1.2.6 Exercise exclusive and independent control of Agent's time

and conduct.

 

              1.2.7 To secure or obtain agents and producers to produce

business. Company appointments will follow upon Agent providing evidence that

the agents and producers are lawfully licensed to transact this type of

insurance, are not serving on Company's or Agent's board of directors and

complete the Company's appointment process. The agents and producers must meet

the applicable compliance regulations for licensure.

 

              1.2.8 Terminate agents and producers.

 

              1.2.9 Investigate and settle claims as provided in Section 5 below

and establish reserves for such claims.

 

         1.3 PERFORMANCE. Agent hereby accepts the foregoing appointment and

agrees faithfully to perform the duties thereof in a professional manner as an

agent of Company and to obey promptly such reasonable instructions as it may

receive from time to time from Company in accordance with this Agreement.

 

 

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         1.4 FAILURE OF PERFORMANCE. If Agent breaches this Agreement, Company

may, as one remedy but not as an exclusive remedy, require its own employees or

designated representatives to carry out Agent's duties hereunder. Agent shall

reimburse Company for Company's reasonable expenses, including salaries,

incurred for having Company's employees or representatives perform such duties,

or, at Company's option, shall pay such employees or representatives directly.

Such reimbursement or direct payments shall be made by Agent within five (5)

days after Agent's receipt of invoices of such expenses.

 

         2. TERRITORY.

 

          Agent's authority to solicit, quote, underwrite, bind, issue, or

service Policies extends only to insureds or prospective insureds located in the

states specified in Exhibit A attached hereto, subject to: (i) the applicable

licensing authority of Company, Company having made and received approval of all

necessary regulatory filings and (ii) Agent obtaining licenses wherever required

for activities conducted by Agent pursuant to this Agreement. Agent hereby

agrees to obtain such licenses and Company at its sole discretion may revoke

Agent's authority as regards any particular insured or prospective insured.

 

         3.        REPRESENTATIONS AND WARRANTIES.

 

         3.1 REPRESENTATIONS AND WARRANTIES OF AGENT. On the effective date

hereof, during the term of this Agreement, and for any period described in

Section 10.5, Agent hereby represents and warrants to Company as follows:

 

              3.1.1 LAWS AND LICENSES. Agent has complied and will comply with

all applicable laws, rules, and regulations. Agent shall provide current copies

of Agent's license, which will be maintained in Company's records. Company will

appoint Agent in all applicable states. Prior to processing Company's

appointment, Company will conduct a background report on Agent. If the

background report is satisfactory, the appointment will be processed

accordingly. Agent will obtain and maintain at its own expense all licenses

required for it to perform this Agreement.

 

              3.1.2 NO BREACH. This Agreement is a valid and binding obligation

of Agent. The execution and delivery of this Agreement and the consummation of

the transactions contemplated herein will not breach or conflict with Agent's

by-laws or articles of incorporation, nor with any agreement, covenant, or

understanding (oral or written) to which Agent is bound, and will not adversely

affect the application for issuance or the validity of any license of Agent.

 

 

 

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              3.1.3 STATUS. Agent is a duly organized and validly existing

corporation in the State of New York.

 

              3.1.4 AUTHORIZATION. The execution, delivery, and performance of

this Agreement by Agent has been duly and properly authorized by it.

 

              3.2 REPRESENTATIONS AND WARRANTIES OF COMPANY. On the effective

date hereof, during the term of this Agreement, and for any period described in

Section 10.5, Company hereby represents and warrants to Agent as follows:

 

              3.2.1 LAWS AND LICENSES. Company has complied and will comply with

all applicable laws, rules and regulations and shall, whenever necessary, obtain

and maintain at its own expense all licenses required for it to perform this

Agreement.

 

              3.2.2 NO BREACH. This Agreement is a valid and binding obligation

of Company. The execution and delivery of this Agreement and the consummation of

the transactions contemplated herein will not breach or conflict with Company's

by-laws or articles of incorporation, nor with any agreement, covenant, or

understanding (oral or written) to which Company is bound, and will not

adversely affect the application for issuance or the validity of any license of

Company.

 

              3.2.3 STATUS. Company is a duly organized and validly existing

corporation in the State of Illinois.

 

              3.2.4 AUTHORIZATION. The execution, delivery, and performance of

this Agreement by Company has been duly and properly authorized by it.

 

         4. DUTIES AND RESPONSIBILITIES.

 

         4.1 GENERAL. Subject to Company's supervision and instructions, Agent

agrees to perform the following duties and services in addition to those

otherwise enumerated in this Agreement:

 

              4.1.1 Agent acknowledges that Company intends for each Policy

issued hereunder to be reinsured under the Reinsurance Agreements or any renewal

thereof, which may have different or additional participants provided that

Company has given its approval for any such different or additional

participants. If, as of the effective date of this Agreement first written

above, or any time thereafter, reinsurance as required by the terms of this

Section is not available to Company, it is understood and agreed that Agent will

not bind any Policy on behalf of Company to take effect at or after said date.

Agent shall have no authority to commit Company to participate in insurance or

reinsurance syndicates.

 

 

 

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              4.1.2 Process payment of reinsurance premiums to and collections

from the Reinsurers, with copies to Company, pursuant to the terms and

conditions of the Reinsurance Agreements.

 

              4.1.3 Solicit, underwrite, quote, bind, issue, secure proper

countersignature when required by applicable laws, and service Policies on

behalf of Company.

 

              4.1.4 Cancel Policies issued or underwritten by Agent in

accordance with the terms of the Policies and applicable state regulations.

 

              4.1.5 Issue Policies only on forms approved by Company and filed

with and approved by regulatory authorities wherever such filing and approval is

required, unless such forms are modified with the prior written consent of

Company.

 

              4.1.6 Underwrite and issue Policies in accordance with the premium

rates and underwriting criteria and guidelines as defined in Exhibit B hereto

(or as may be modified from time to time as agreed upon by Company and Agent).

 

              4.1.7 Investigate and settle claims as provided in Section 5 below

and establish reserves for such claims.

 

              4.1.8 Maintain at Agent's expense data processing systems and

equipment, an office or offices and a staff of employees sufficient in number

and qualifications to perform the duties set forth in this Agreement.

 

              4.1.9 Perform Agent's responsibilities under Section 7 of this

Agreement.

 

              4.1.10 Pay to Company a policy-issuing fee of 8% on the first

$10,000,000 of collected gross net written premium, 7% on collected gross net

written premium from $10,000,001 to $20,000,000 and 6% on $20,000,001 to

$30,000,000 of the collected gross net written premiums, as defined in Exhibit A

attached hereto, on all Policies issued under the terms hereof. The Agent shall

also remit to the Company a deposit of 3% of collected gross net written

premiums for all premium taxes, local, county or municipal taxes or fees,

assessments, guaranty funds, second injury funds, pooling assessments, residual

market loads and all other fees, expenses or charges of any kind, (hereinafter

called "Taxes, Fees, and Assessments"), imposed upon Company pursuant to any law

or regulation as a result of the Policies issued under the terms of this

Agreement.. Such deposit shall be reconciled by Agent and Company on an annual

basis to actual assessed Taxes, Fees, and Assessments. Further, the Agent will

collect and remit to the Company taxes, fees and assessments imposed by law or

regulation which are billed directly to insureds (hereinafter "insured paid

assessments") as a result of the Policies issued under the terms of this

Agreement

 

 

 

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              4.1.11 Pay to Company any fines imposed by regulatory authorities,

taxation authorities, and their agents for data collection and advisory

organizations, due to late filing or poor quality of data provided by Agent in

accordance with Section 7.3.2.

 

              4.1.12 Pay to Company any fines imposed by regulatory authorities

upon Company due to the use of unapproved forms or rates by Agent or due to

other market conduct violations caused by Agent's conduct.

 

              4.1.13 Maintain separately for Company and each other insurer with

which Agent does business, complete and current records and accounts, including

underwriting files, which Agent shall retain in accordance with Section 8 and

any applicable laws.

 

              4.1.14 Refund within sixty (60) days of the end of each calendar

month, return commissions on Policy cancellations or premium reduction, in each

case at the same rate at which such commissions were originally retained.

 

               4.1.15 Hold all monies, including premiums, return premiums, and

reinsurance monies received by Agent, in a fiduciary capacity for Company.

Except as otherwise authorized by this Agreement, Agent shall maintain such

monies in a separate and segregated bank account in a bank that is a member of

the Federal Reserve System and is insured by the Federal Deposit Insurance

Corporation. This account shall not be used for any purpose other than payments

to or on behalf of Company. Any investment income produced from this bank

account shall vest and become the property of Agent.

 

              4.1.16 Comply with all regulatory requirements including, but not

limited to, the cancellation, non-renewal, or conditional renewal of policies.

 

              4.1.17 Return upon demand after termination of this Agreement, all

unused Policies, forms, and other property furnished to Agent by Company. Such

items remain the property of Company. Agent shall fully cooperate with and

assist Company in recovering such items from third parties, if any.

 

 

 

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         5. CLAIM SETTLEMENT AUTHORITY

 

         5.1 CLAIMS. Agent shall investigate, negotiate, and settle all Policy

claims or losses on behalf of Company; however, Agent shall obtain the prior

approval of Company before handling and settling any Policy claim or loss which

is in excess of Two Hundred Fifty Thousand Dollars ($250,000) gross incurred

loss. Agent shall determine coverage for claims; however, Agent shall obtain the

prior written approval of Company for the handling of claims in which Company is

named as a defendant or claims in which Agent seeks declaratory relief on behalf

of Company. All claims or losses shall be reported in monthly statements

pursuant to Section 7 below. In addition, Agent shall immediately notify Company

in writing of any claim or loss of the following kind, provide the amount of the

reserve for such claim or loss as established by Agent, the facts and

circumstance of the claim or loss, Agent's analysis of the insured's liability

for the claim or loss, Agent's analysis of damages resulting from the claim or

loss, Agent's analysis of the applicability of coverage for the claim or loss,

and such other information and records concerning such claim or loss as Company

requests upon receiving notice or knowledge of: (i) any Policy claim or loss in

excess of Two Hundred Fifty Thousand Dollars ($250,000) gross incurred loss; or

(ii) any loss regardless of incurred dollar amount involving the following:

fatalities; brain stem/brain damage injuries; spinal cord injuries; heart

attacks; severe, non-accumulative hearing loss; severe, non-accumulative vision

loss; amputation of major body part; paraplegia; quadriplegia; serious burns

(i.e. second or third degree and/or burns over 50% of the body); non-union,

compound, comminuted, serious fractures; injury to the spine or pervasive nerve

damage; class action suits; allegations of criminal conduct by an insured or

allegations of criminal conduct on the insured's premises; bad faith claims or

suits; demands in excess of policy limits; actual or alleged violations of the

Deceptive Trade Practices Act; actual or alleged violations of the applicable

State Insurance Codes; actual or alleged violation of law by Agent; or

litigation naming Company as a defendant. These individually reported claims or

losses should be updated semi-annually and more frequently upon the occurrence

of any material change in any claim or loss or any information previously

reported to Company. Company shall be immediately notified if Agent is closing a

file on a reported claim or loss and of the reason for this file closure.

Failure to promptly notify Company of claims under this Section 5.1 shall be

considered a material breach of this Agreement and subject to all the remedies

provided herewith.

 

 

 

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         5.2 LEGAL COUNSEL AND ALLOCATED CLAIM COSTS. Whenever Agent shall deem

it prudent to engage legal counsel or loss adjusters to protect Company's

interest regarding claims or losses, such services shall be provided only by

qualified attorneys-at-law and/or licensed loss adjusters selected by Agent, who

have substantial experience in the handling of claims litigation of the type

involved. Upon execution of this Agreement, Agent shall submit to Company for

approval a list of the attorneys and loss adjusters it intends to use. Such list

shall be considered approved unless Company objects to any of such firms or

individuals within 14 days after receipt of such list. Any provision hereof to

the contrary notwithstanding, it is agreed that, with respect to any claim or

loss of any amount, Agent shall promptly furnish Company, or its designee, any

additional claim or loss information requested by Company with respect to a

claim or loss pertaining to any Policy covered by this Agreement, and it is

further agreed with respect to any claim or loss of any amount as follows:

 

         A)        Company may assign an attorney of its own choice to be

                  associated in the defense of any claim or loss reported to

                  Company and, in the event an attorney has already been

                  employed by Agent, the service of such attorney which has

                  already been employed by Agent shall be terminated by Agent

                  forthwith and Agent shall waive any conflict of interest that

                  may have been created by such attorney's employment by Agent.

 

         B)        In the event that Company is named as a defendant in any

                  lawsuit, Agent shall, as soon as it has notice or knowledge of

                  such lawsuit, immediately give written notice thereof to

                  Company accompanied by a copy of the complaint and any court

                   papers related to such lawsuit.

 

         5.3 UNALLOCATED COSTS. Company shall reimburse Agent for the salaries,

office expenses or other expenses incurred by or on behalf of Agent (including

overhead) in the handling of Company's claims or losses. Company shall reimburse

Agent for fees to attorneys, and service providers who are employees of, or on

permanent retainers to, Agent. Company hereby agrees to pay for the claims

adjustment services rendered by Agent as well as legal defense services rendered

by the law offices of Steven G. Fauth in accordance with the fee structure set

forth in Exhibit D. Company's obligation to pay for such unallocated costs is

contingent upon recovery of such costs from the reinsurer. Company shall have no

obligation to pay any unallocated costs if such costs are not received from the

reinsurer.

 

 

 

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         5.4 CLAIM FUND. During the course of any calendar month, paid claims,

allocated loss adjustment expenses and unallocated costs shall be deducted from

the collected gross net written premium. If during the course of any calendar

month, paid claims, allocated loss adjustment expenses and unallocated costs

exceed the collected gross net written premium Agent agrees to fund payment of

the claims, allocated loss adjustment expenses and unallocated costs and seek

recovery from Reinsurers in accordance with the terms and conditions of the

Reinsurance Agreements and Section 7.2 of this Agreement.

 

         6. EXPENSES.

 

         6.1 Agent shall pay from its own monies (and not seek reimbursement

from Company for) all commissions to any agents, sub-agents, brokers, and

sub-producers, all inspection fees, expenses of examinations of Agent, and other

governmental expenses in connection therewith, all refunds of unearned

commissions owed to Company on canceled policies, all costs to print and

inventory Policy forms, all costs to service claims as stated in Section 5.3

above, and all costs to collect premiums in regard to Policies issued,

underwritten, or serviced pursuant to this Agreement.

 

         6.2 In the event Company is notified by a regulatory authority of the

need for an independent actuarial, accounting, and/or legal opinion not

originally contemplated by this Agreement, Company shall notify Agent who will

in turn reimburse any expenses incurred by Company.

 

         7. ACCOUNTING AND REPORTING PROCEDURES.

 

         Agent shall:

 

         7.1 Within thirty (30) days after the end of each month, remit to

Company the policy-issuing fee and deposit for taxes, fees, and assessments, in

accordance with Section 4.1.10, on all Policies issued under the terms of this

Agreement and 100% of any insured paid assessments. Agent may not offset

balances due to Company hereunder against balances due Agent under any other

contract with Company;

 

         7.2 On behalf of Company supply accounting, underwriting, and claim

bordereaux and pay the reinsurance premium to and make collections from the

Reinsurance Agreements, with copies to Company, pursuant to their terms and

conditions;

 

 

 

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         7.3 With regard to business placed by Agent with Company hereunder,

furnish to Company, in electronic format:

 

         7.3.1 Within 30 days after the end of each month: (i) a bank statement

and bank reconciliation report for the accounts as described in Section 4.1.15

and Section 5.4; and (ii) a report of: written, earned, and unearned premiums;

losses and loss adjustment expenses paid and outstanding; loss and loss

adjustment expenses incurred; commissions earned by Agent; Reinsurance

Agreements earned and unearned premiums, commissions, and losses (including

losses and loss adjustment expenses paid and outstanding) ceded; all of the

foregoing in the following format: (a) monthly transactions; (b)

inception-to-date statutory amounts, by state, by line of business; (c)

inception-to-date amounts actually transacted, by state, by line of business;

and (d) such other information as may be reasonably requested by Company, which

information Company shall maintain on file and shall make