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EXHIBIT 10.49 TO CURRENT REPORT ON FORM 8-K DATED
AS OF JUNE 30, 2003
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ASSUMPTION AND INDEMNITY REINSURANCE AGREEMENT
THIS ASSUMPTION AND INDEMNITY REINSURANCE AGREEMENT (this
"Agreement"), dated as of June 30, 2003, is made by and among
HEALTH NET LIFE
INSURANCE COMPANY, a California domiciled life and disability
insurance company
(the "Company"), and SAFEHEALTH LIFE INSURANCE COMPANY, a
California domiciled
-------
life and disability insurance company (the "Reinsurer"). The
Company and the
---------
Reinsurer are referred to herein collectively as the
"Parties".
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WHEREAS, the Company desires to transfer and assign to the
Reinsurer all of
the Company's right, title and interest in and to the Novated
Vision Policies;
WHEREAS, the Reinsurer desires to assume all of the Company's
duties and
obligations in connection with, relating to, or arising at any
time out of such
Novated Vision Policies upon the terms and conditions set forth
herein;
WHEREAS, the Company desires to cede, on an indemnity
reinsurance basis, to
the Reinsurer, the Company's Policy Liabilities in connection
with, relating to
and arising out of the Non-Novated Vision Policies, upon the
terms and
conditions set forth herein;
WHEREAS, the Reinsurer desires to reinsure on an indemnity
reinsurance
basis the Company's Policy Liabilities arising under or in
connection with the
Non-Novated Vision Policies, upon the terms and conditions set
forth herein; and
WHEREAS, in connection with the foregoing, the Health Net, Inc.
and
SafeGuard Health Enterprises, Inc. have entered into the
Purchase and Sale
Agreement dated as of June 30, 2003 (the "Purchase and Sale
Agreement") which
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calls for the execution and delivery of this Agreement as of the
Closing of the
transactions contemplated thereunder;
NOW, THEREFORE, in consideration of the mutual covenants and
promises, and
upon the terms and conditions hereinafter set forth, the Parties
hereto agree as
follows.
ARTICLE I
DEFINITIONS
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Capitalized terms used in this Agreement and not otherwise
defined
shall have the meanings given such terms in the Purchase and
Sale Agreement.
For purposes of this Agreement, the following terms shall have
the meanings
specified below.
"Claims" shall have the meaning set forth in Section 7.03.
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"Dispute" shall have the meaning set forth in Section 11.02.
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"Disputed Claim" shall have the meaning set forth in Section
7.03.
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<PAGE>
"Disputed Complaint" shall have the meaning set forth in Section
7.05.
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"Effective Time" means 11:59 p.m. Pacific Time, on the Closing
Date.
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"Extra-Contractual Liabilities" means any and all liabilities
and
------------------------------
obligations of any nature, kind or description (i) for
consequential,
extra-contractual, tort, bad faith, exemplary, punitive, special
or similar
damages and (ii) for statutory or regulatory damages, fines,
penalties,
forfeitures, and similar charges of a penal or disciplinary
nature.
"GAAP" means generally accepted accounting principles
consistently applied
----
throughout the specified period and in a comparable period in
the immediately
preceding year.
"JAMS" shall have the meaning set forth in Section 11.03.
----
"Member Materials" shall have the meaning set forth in Section
3.01.
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"Members" means the individuals (including their covered spouses
and
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covered dependents) entitled to Vision Services pursuant to
Vision Policies.
"Non-Novated Vision Policies" shall have the meaning set forth
in Section
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2.04.
"Novated Vision Policies" means those Vision Policies
transferred to the
-------------------------
Reinsurer by novation as of the Novation Date and under which
Vision Policies
the Reinsurer shall have become the successor to the Company
under the Vision
Policies as described in Section 2.03.
"Novation Date" shall have the meaning set forth in Section 3.02
hereof.
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"Obligations" shall have the meaning set forth in Section 2.01
hereof.
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"Policy Liabilities" means the Company's gross liabilities and
obligations
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arising under or in connection with the Vision Policies to the
extent the same
are unpaid or unperformed on or after the Effective Time, before
deduction for
all other applicable cessions, if any, under the Company's
reinsurance programs.
In addition, the term "Policy Liabilities" shall include:
(a) all Extra-Contractual Liabilities that arise from any act,
error or
omission after the Effective Time, whether or not intentional,
in bad
faith or otherwise, by the Reinsurer or any of its affiliates,
or any
of their respective officers, employees, agents or
representatives
relating to the Vision Policies, and any attorneys' fees
incurred by
the Reinsurer or the Company related to such
Extra-Contractual
Liabilities;
(b) all liabilities and obligations for premium taxes arising on
account
of any premiums with respect to the Vision Policies allocable
to
coverage after the Effective Time;
(c) all liabilities and obligations for returns or refunds of
premiums
(irrespective of when due) under the Vision Policies;
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(d) any assessment required by any insurance guaranty,
insolvency,
comprehensive health association or other similar fund
maintained by
any jurisdiction relating to the Vision Policies assessed or
imposed
on the basis of premium for coverage after the Effective
Time;
(e) all liabilities and obligations for commission payments and
other
compensation, if any, due and payable with respect to the
Vision
Policies to or for the benefit of agents and brokers to the
extent
that such amount accrues after the Effective Time;
(f) all liabilities and obligations for payment of any
compensation to
providers relating to Vision Services provided to Members under
the
Vision Policies regardless of the "date of service"; and
(g) any obligation arising as a result of the Reinsurer 's
failure to
perform its obligations pursuant to Section 7.07.
"SAP" means statutory accounting practices prescribed or
permitted by
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applicable insurance regulatory authorities consistently applied
throughout the
specified period and in the comparable period in the immediately
preceding year.
"Services" shall have the meaning set forth in Section 7.02.
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"Vision Policies" means all policies or other agreements
(including all
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supplements, endorsements, riders and ancillary agreements in
connection
therewith) with individuals, employers or other group sponsors
resident or with
their principal place of business in California that obligate
the Company to
provide, arrange for the provision of, or indemnify for the cost
of vision care
services and vision supplies as specified therein, which
policies or other
agreements (i) are in effect as of the Effective Time or (ii)
become effective
after the Effective Time, including through (A) the
reinstatement of lapsed
policies pursuant to provisions therein or of applicable Law, or
(B) the
issuance or renewal thereof by the Company after the Effective
Time to honor
quotes outstanding as of the Effective Time, or to satisfy
renewal rights of
individuals, employers or other group sponsors under contractual
provisions or
applicable Law, or (C) modifications agreed to by the Reinsurer
on behalf of the
Company pursuant to the authority granted to the Reinsurer under
Section 7.01 of
this Agreement, provided, however, Vision Policies shall not
include any policy
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or other agreements (including all supplements, endorsements,
riders and
ancillary agreements in connection therewith) with individuals,
employers or
other group sponsors that obligate the Company to provide,
arrange for the
provision of, or indemnify for the cost of vision care services
and vision
supplies pursuant to any Government Sponsored Contracts, or any
policy or other
agreements (including all supplements, endorsements, riders and
ancillary
agreements in connection therewith) with individuals, employers
or other group
sponsors that obligate the Company to provide, arrange for the
provision of, or
indemnify for the cost of vision care services and vision
supplies to employees
of the Company or any Affiliate of the Company.
"Vision Services" shall have the meaning set forth in Section
7.07.
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ARTICLE II
BUSINESS TRANSFERRED AND REINSURED
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Section 2.01. Assignment of Vision Policies. As of the
Effective
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Time (i) except as is otherwise provided in Section 5.01 below,
the Company
hereby transfers and assigns to the Reinsurer all of the
Company's right, title
and interest in the Vision Policies identified in Schedule 2.01
attached hereto
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and made a part hereof and delegates to the Reinsurer all of the
Company's
duties and obligations of performance and payment under the
Vision Policies
arising after the Effective Time, and (ii) the Reinsurer hereby
accepts, assumes
and agrees to perform all of the Company's duties and
obligations, whether
direct, indirect, contingent, unliquidated, unmatured or
otherwise arising after
the Effective Time (collectively, "Obligations"), in connection
with, relating
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to, or arising out of the Vision Policies.
Section 2.02. Novation. As soon as practicable after the
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Effective Time, the Reinsurer shall use all commercially
reasonable efforts to
effect the assumption by novation by the Reinsurer of the Vision
Policies (each
such Vision Policy being referred to herein as a "Novated Vision
Policy" and
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Novated Vision Policies shall include any such subsequently
novated Vision
Policies). If the Reinsurer does not for any reason assume by
novation any
Vision Policy, then the Reinsurer shall accept and reinsure, on
an indemnity
reinsurance basis, 100% of the Policy Liabilities related to
such Non-Novated
Vision Policies in accordance with the terms and conditions of
this Agreement.
Section 2.03. Direct Obligations. To the extent that the
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Reinsurer assumes by novation any Vision Policies under
applicable Law, as of
the Novation Date (i) the Reinsurer shall be the successor to
the Company under
such Novated Vision Policies as if such Novated Vision Policies
were direct
obligations originally issued by the Reinsurer and the Reinsurer
shall be
responsible for the performance of all obligations and the
payment of all
benefits and amounts due under the Novated Vision Policies in
accordance with
their terms, (ii) the Reinsurer shall be substituted in the
place and stead of
the Company, and each Member under any such Novated Vision
Policy shall
disregard the Company as a party thereto and treat the Reinsurer
as if it had
been originally obligated thereunder except as otherwise
provided herein, (iii)
the Company shall be released of all liability with respect to
such Novated
Vision Policies, (iv) the Members under such Novated Vision
Policies shall have
the right to file claims arising under such Novated Vision
Policies directly
with the Reinsurer and shall have a direct right of action for
indemnification,
benefits and services under such Novated Vision Policies against
the Reinsurer,
and the Reinsurer hereby consents to be subject to any such
direct action taken
by any such Member, (v) the Reinsurer shall be responsible for
all matters
relating to administration of the Novated Vision Policies,
including but not
limited to policy changes, reinstatement standards, premium rate
changes, policy
renewals, agent commissions and administrative methods and
procedures, and (vi)
any indemnity reinsurance of such Novated Vision Policies and
related
liabilities thereunder by the Reinsurer shall cease and instead
be replaced by
such assumption by novation.
Section 2.04. Indemnity Reinsurance. Effective as of the
----------------------
Effective Time, the Company shall cede to the Reinsurer, and the
Reinsurer shall
assume from the Company on an indemnity reinsurance basis, 100%
of the Policy
Liabilities under all Vision Policies (including those Vision
Policies that are
identified in Schedule 2.01 attached hereto and made a part
hereof)
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<PAGE>
which the Reinsurer has not for any reason (including the lack
of any required
approval or consent of a party to a Vision Policy) as of the
Effective Time
assumed by novation (each such Vision Policy being referred to
herein as a
"Non-Novated Vision Policy"). Notwithstanding the foregoing, the
term
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"Non-Novated Vision Policy" shall not include any Vision Policy
from and after
the date of its assumption by novation at any time by the
Reinsurer.
Section 2.05. Policy Liabilities. The Reinsurer accepts,
-------------------
reinsures, and assumes the Policy Liabilities subject to any and
all defenses,
setoffs, and counterclaims to which the Company would be
entitled with respect
to the Policy Liabilities, it being expressly understood and
agreed by the
Parties hereto that no such defenses, setoffs, or counterclaims
are or shall be
waived by the execution and delivery of this Agreement or the
consummation of
the transactions contemplated hereby, and that the Reinsurer is
and shall be
fully subrogated in and to all such defenses, setoffs, and
counterclaims. From
and after the Effective Time, as among the Parties, the
Reinsurer shall bear and
shall have responsibility for paying or performing all Policy
Liabilities. The
Policy Liabilities ceded under this Agreement shall be subject
to any changes
required by Law or regulation and the same rates, terms,
conditions, waivers,
interpretations, modifications and alterations as the
Non-Novated Vision
Policies.
ARTICLE III
ASSUMPTION CERTIFICATES; OPTION LETTERS
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Section 3.01. Member Materials. The Reinsurer shall prepare
and
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deliver to every party to a Vision Policy a Notice of Transfer,
Certificate of
Assumption, and Notice of Rejection of Assumption substantially
in the
appropriate forms set forth in Exhibit A attached hereto
(collectively, the
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"Member Materials") and otherwise acceptable to both the
Reinsurer and Company,
-----------------
which shall inform each party to a Vision Policy of the proposed
transfer and
enable such party to accept or reject the assumption and
novation.
Section 3.02. Mailing. The Member Materials shall be mailed on a
date
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agreed upon by the Reinsurer and the Company, and, to the extent
required by
applicable Law, shall be reviewed by and found acceptable to
applicable
regulatory authorities prior to mailing. The Reinsurer shall
deliver only
Member Materials that are in compliance with applicable Law,
regulation or
regulatory authority. No assumption by novation of a Vision
Policy shall take
effect until the earlier of the acceptance of the assumption by
the party to a
Vision Policy or 90 days (or such other period, if any, as may
be required by
applicable Law) (the "Novation Date") after Member Materials
have been mailed to
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the party to such Vision Policy.
Section 3.03. Expenses. All expenses incurred by the Parties
hereto
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pursuant to this Article shall be shared equally by the
Parties.
ARTICLE IV
TERM
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Section 4.01. Term. This Agreement shall remain in force and
----
effect until all Policy Liabilities reinsured and assumed by
Reinsurer have been
discharged in full, or all Vision Policies are transferred and
assumed by the
Reinsurer by novation and all obligations of the Reinsurer
hereunder have been
discharged in full.
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ARTICLE V
CONSIDERATION
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Section 5.01. Consideration to the Reinsurer. The Reinsurer
shall
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be entitled to all premium, premium adjustments and other
consideration
allocable to coverage after the Effective Time (irrespective of
when due)
received by the Company or the Reinsurer with respect to the
Vision Policies.
In the event that the Company receives any premium or other
consideration with
respect to a Vision Policy allocable to coverage after the
Effective Time, the
Company shall promptly remit such premiums and other
consideration to the
Reinsurer along with all pertinent information pertaining
thereto including the
nature of the payment, source of funds, policy number and period
to which it
relates. In the event that the Reinsurer receives any premium or
other
consideration with respect to a contractual liability or
contractual obligation
arising under a Vision Policy paid or performed by the Company
prior to the
Effective Time, the Reinsurer shall promptly remit such premiums
and other
consideration to the Company along with all pertinent
information pertaining
thereto including the nature of the payment, source of funds,
policy number and
period to which it relates.
Section 5.02. Application of Future Consideration. Any
premium,
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premium adjustments and other consideration received and
retained by the
Reinsurer pursuant to Section 5.01 shall be applied by the
Reinsurer to the
oldest unpaid obligations or outstanding invoices relating to
the period after
the Effective Time.
Section 5.03. Additional Consideration for Indemnity Reinsurance
of
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Non-Novated Vision Policies. As additional consideration for the
assumption by
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Reinsurer on an indemnity reinsurance basis of 100% of the
Policy Liabilities
under the Non-Novated Vision Policies, the Company shall (i)
transfer to
Reinsurer at the Effective Time admitted assets having a net
admitted asset
value determined in accordance with SAP as prescribed or
permitted by the
California Department of Insurance equal to the Company's net
unearned premium
reserve, loss, and loss adjustment expense (including losses
that have been
incurred but not reported) reserve, if any, attributable to
claims arising under
the Non-Novated Vision Policies prior to the Effective Time; and
(ii) assign to
Reinsurer any amounts due to Company under any reinsurance
agreements in effect
on the Effective Time between the Company and any reinsurer
(other than the
Reinsurer) relating to the Policy Liabilities assumed by the
Reinsurer under
this Agreement.
Section 5.04. Additional Consideration for Assumption of Novated
Vision
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Policies. As additional consideration for the assumption by
novation by
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Reinsurer of the Novated Vision Policies, the Company shall (i)
transfer to
Reinsurer within five (5) Business Days after the end of the
calendar month
following the Novation Date admitted assets having a net
admitted asset value
determined in accordance with SAP as prescribed or permitted by
the California
Department of Insurance equal to the Company's net unearned
premium reserve,
loss, and loss adjustment expense (including losses that have
been incurred but
not reported) reserve, if any, attributable to claims arising
under the Novated
Vision Policies prior to the Effective Time; and (ii) assign to
Reinsurer any
amounts due to Company under any reinsurance agreements in
effect on the
Effective Time between the Company and any reinsurer (other than
the Reinsurer)
relating to the Novated Vision Policies assumed by the Reinsurer
under this
Agreement.
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ARTICLE VI
ACCOUNTING AND SETTLEMENT
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Section 6.01. Accounting Reports. On or before the last Business
Day
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of each month, the Reinsurer shall provide the Company with
reports of
activities under this Agreement with respect to the Non-Novated
Vision Policies
for the preceding month showing any amounts due the Company or
the Reinsurer, as
the case may be, as reimbursement for paid claims, premiums or
other amounts due
with respect to the Non-Novated Vision Policies and any
information required by
the Statement of Statutory Accounting Principles, as amended, of
the National
Association of Insurance Commissioners. On or before the last
Business Day of
January, April, July and October, the Reinsurer shall provide
the Company with
quarterly reports or an annual report of such activities as
appropriate.
Section 6.02. Financial Statement Information. The Reinsurer and
the
--------------------------------
Company shall each provide the other with the financial,
accounting and
actuarial information necessary to prepare SAP regulatory, tax
and GAAP monthly,
quarterly and annual financial statements and returns and
satisfy other
requirements including reserve and related calculations
regarding the
Non-Novated Vision Policies in the form reasonably required by
the Reinsurer and
the Company. The Company and the Reinsurer shall agree to
mutually acceptable
procedures and time schedules for the transmission and receipt
of such
information.
Section 6.03. Settlements. Within ten (10) Business Days
after
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delivery of each monthly report, the Reinsurer and the Company
shall settle on
an estimated basis, all amounts then due under this Agreement
for that month.
The Reinsurer and the Company shall make a final settlement of
all amounts due
for each calendar year within twenty (20) Business Days after
the delivery of
the annual report referred to in Section 6.01 hereof.
Section 6.04. Net Payment Basis. Amounts payable under this
Agreement
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by the Parties hereto shall be settled against each other,
dollar for dollar,
and only a net payment shall be due; provided, however, that no
balance or
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amount due by the Parties under any other agreement shall be
offset against any
obligation arising under this Agreement.
Section 6.05. Late Payments. Should any payment due any party
be
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received by such party more than sixty (60) days after the due
date for such
payment under this Agreement, interest shall accrue from the
date on which such
payment was due (taking into account the provisions of 6.06
hereof) until
payment is received by the party entitled thereto, at an annual
rate equal to
the Bank of America Reference Rate quoted for six month periods
as reported in
The Wall Street Journal on the first Business Day of the month
in which such
payment first becomes due.
Section 6.06. Federal Funds. All settlements in accordance with
this
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Agreement shall be made by wire transfer of immediately
available funds on the
due date, or if such day is not a Business Day, on the next day
which is a
Business Day. Payment may be made by check payable in
immediately available
funds in the event the party entitled to receive payment has
failed to provide
wire transfer instructions.
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Section 6.07. Reports to Regulatory Authorities. During the term
of
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this Agreement, the Reinsurer and the Company shall promptly
furnish the other
copies of any and all filings with, and reports or
communications received from,
any regulatory authority which relates directly and materially
to the
Non-Novated Vision Policies, including, without limitation, each
annual
statement, each quarterly financial report to the regulatory
authority of the
party's domicile having principal jurisdiction over the party
and each report on
periodic examination issued by such regulatory authority to the
extent it
relates to the Non-Novated Vision Policies.
ARTICLE VII
VISION POLICY ADMINISTRATION; REPORTING
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Section 7.01. Administration of Non-Novated Vision Policies.
The
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Company hereby grants the Reinsurer authority in all matters
relating to
administration of the Non-Novated Vision Policies to the fullest
extent such
authority may be granted pursuant to applicable Law. In
furtherance of the
foregoing, the Company hereby nominates, constitutes and
appoints the Reinsurer
as its attorney-in-fact with respect to the rights, duties,
privileges and
obligations of the Company in and to the Non-Novated Vision
Policies, with full
power and authority to act in the name, place and stead of the
Company with
respect to the Non-Novated Vision Policies. Without limiting the
foregoing, the
Reinsurer shall provide reasonable advance notice to the Company
of its intent
to cancel specific Non-Novated Vision Policies for non-payment
of premium.
Unless the Company objects to the proposed cancellations within
five calendar
days of receipt of the notice from the Reinsurer, the Reinsurer
shall have the
right to cancel the referenced Non-Novated Vision Policies on
behalf of the
Company for non-payment of premium in a manner consistent with
applicable Law.
If the Company objects to the proposed cancellation of any
Non-Novated Vision
Policy for non-payment of premium, the Company shall indemnify
the Reinsurer for
any unpaid premium with respect to any such policy until such
policy is
cancelled.
Section 7.02. Administration. The Reinsurer shall, at its
expense,
--------------
provide the technical and administrative service, assistance and
support
functions described in Schedule 7.02 attached hereto (the
"Services") reasonably
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necessary or appropriate for the proper management and
administration of the
Non-Novated Vision Policies, which shall include, but not be
limited to,
Services required for the proper administration of the
Non-Novated Vision
Policies prior to the Effective Time and not performed as of the
Effective Time.
The Services at all times shall be consistent with the Company's
prevailing
practices and procedures as of the Effective Time with respect
to similar types
of policies actually communicated by the Company to Reinsurer
and all applicable
Law, regulations, and regulatory actions and pronouncements. (As
used elsewhere
in this Agreement, the terms "prevailing practices and
procedures" will refer to
the Company's prevailing practices and procedures as of the
Effective Time
communicated by the Company to the Reinsurer).
Section 7.03. Claims Payment Instructions. The Reinsurer at its
own
-----------------------------
cost shall administer and process all payments to reimburse
providers and
Members for covered Vision Services under the Non-Novated Vision
Policies (the
"Claims") in conformance with the Company's prevailing practices
and procedures
------
with respect to similar types of policies, including review,
investigation,
adjustment, settlement, defense and payment of Claims, special
investigation and
anti-fraud compliance, and preparation of any report required
concerning the
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<PAGE>
foregoing Vision Services and will, in connection with such
Claims
administration, retain, at its sole discretion and cost, any
outside
investigation firms, adjusters, attorneys or other professionals
that the
Reinsurer deems necessary in the adjustment of such Claims. If a
Claim arising
prior to the Effective Time under a Non-Novated Vision Policy is
presented that
the Reinsurer in good faith disputes, the Reinsurer shall
consult with the
Company. If, after such consultation, the Reinsurer and the
Company disagree as
to how to resolve a Claim, the Company shall be entitled to
assume, at its own
expense, the control of the handling or the defense of such a
disputed Claim (a
"Disputed Claim"), including employment of counsel. The Company
shall apprise
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the Reinsurer of and consult with the Reinsurer with respect to
the progress of
a Disputed Claim. In exercising such control, the Company shall
act in good
faith in accordance with generally accepted claims practices of
similar
insurance companies under similar circumstances. Any payment of
any portion of
a Disputed Claim made by the Company shall be added to the
Policy Liabilities
and shall be unconditionally binding on the Reinsurer; provided,
however, that
-------- -------
if the Company receives an offer of settlement or compromise
from the other
parties to a Disputed Claim for a particular amount or obtains a
commitment from
such other parties that they would accept a compromise or
settlement requiring
only the payment of a specific amount, the granting of an
appropriate release or
similar accommodation, and the Company, after mandatory
consultation with and
over the objection of the Reinsurer, refuses to consent thereto
and elects to
continue to dispute or otherwise pursue such Disputed Claim,
then the liability
of the Reinsurer with respect of such Disputed Claim shall be
deemed limited to
that amount including expenses which the Company would have been
liable if such
compromise or settlement had been accepted by the Company.
Section 7.04. Communications Relating to Non-Novated Vision
Policies.
-------------------------------------------------------
On and after the Effective Time, the Company shall forward
promptly to the
Reinsurer all notices and other written communications it
receives relating to
the Non-Novated Vision Policies (including all inquiries or
complaints from
state insurance regulators, agents, brokers and Members and all
notices of
claims, suits and actions for which it receives service of
process). The
Company shall be entitled to retain copies of all such
materials.
Section 7.05. Complaint Handling Procedure. The Parties
shall
------------------------------
cooperate with each other in providing information necessary to
respond to any
inquiries and complaints concerning the Non-Novated Vision
Policies. All
inquiries and complaints concerning the Non-Novated Vision
Policies received by
the Company shall be forwarded immediately by facsimile or
overnight mail to a
contact person designated by the Reinsurer for reply. After
consultation with
the Company, except as provided below, the Reinsurer shall
answer all inquiries
and complaints received by it concerning the Non-Novated Vision
Policies. If
the Reinsurer and the Company disagree as to the appropriate
response to an
inquiry or complaint, the Company shall be entitled to assume,
at its own
expense, the control of the handling of the response to such
i
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