Managing General Agency Agreement

Exhibit 10.20


LARGE LINES REAL ESTATE


Managing General Agency Agreement - VSC2003/64


This Agreement, entered into on the 1st day of August 1, 2003 (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.


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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. 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.


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


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.


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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.


3.1.3 Status. Agent is a duly organized and validly existing corporation in the State of New York.


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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:


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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.


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.


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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.


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.


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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 Fifty Thousand Dollars ($50,000) 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 Fifty Thousand Dollars ($50,000) 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.


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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 ...