Commercial Renewal Rights Agreement between OneBeacon Insurance Group LLC, Subsidiaries, and Tower Group, Inc.
Summary
This agreement, dated September 13, 2004, is between OneBeacon Insurance Group LLC and its insurance subsidiaries (the Sellers) and Tower Group, Inc. The Sellers agree to stop renewing certain commercial insurance policies in New York after December 1, 2004, and to help Tower Group or its designees write renewals for those policies. The Sellers will provide policy lists, notify policyholders of non-renewal, and assist in appointing agents to facilitate the transition. The agreement outlines each party’s responsibilities and the process for handling renewals and agent appointments.
EX-10.30 2 b331754_ex10-30.txt COMMERCIAL RIGHTS AGREEMENT Exhibit 10.30 EXECUTION VERSION COMMERCIAL RENEWAL RIGHTS AGREEMENT This COMMERCIAL RENEWAL RIGHTS AGREEMENT dated as of September 13, 2004 (this "Agreement") is entered into among OneBeacon Insurance Group LLC ("OneBeacon Group"), each of the insurance company subsidiaries of OneBeacon Group listed on Schedule A hereto (each a "Seller" and collectively, "Sellers"), and Tower Group, Inc. (the "Company"). WITNESSETH: WHEREAS, Sellers desire to cease writing the Subject Policies (as defined below) on and after the Non-Renewal Date (as defined below), and the Company desires that Sellers assist the Permitted Designees (as defined below) in writing renewals of the Subject Policies, in each case subject to the terms and conditions set forth below; and WHEREAS, Sellers have decided to terminate the appointment of certain of the insurance agents who produced the Subject Policies and to assist the Permitted Designees in the appointment of certain of such agents; NOW, THEREFORE, in consideration of the premises and mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, Sellers and the Company hereby agree as follows: ARTICLE I. DEFINITIONS Section 1.1. Definitions. The following terms when used in this Agreement shall have the following meanings: "Additional Policies" has the meaning set forth in Section 3.3. "Affiliate" means, with respect to any Person, at the time in question, any other Person controlling, controlled by, or under common control with such Person. As used in the foregoing sentence, the term "control" (including, with correlative meaning, the terms "controlling," "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an institution, whether through the ownership of voting securities, by contract or otherwise. "Agreement" has the meaning set forth in the introductory paragraph. "Business Day" means any day that is not a Saturday, Sunday or a day on which banks in the State of New York are authorized or required to be closed. "Company" has the meaning set forth in the introductory paragraph. "Contractholders" means the holders of the Subject Policies. "Governmental Consents" has the meaning set forth in Section 4.3. "Governmental Entity" means any federal, state, local, foreign, international or multinational entity or authority exercising executive, legislative, judicial, regulatory, administrative or taxing functions of or pertaining to government. "Law" means any constitution, law, ordinance, rule, principle of common law, regulation, statute, treaty, order, judgment, decree or other requirements of any Governmental Entity. "Minimum Amount" has the meaning set forth in Section 3.2. "Minimum Annual Amount" has the meaning set forth in Section 3.2. "Non-Renewal Date" has the meaning set forth in Section 2.1. "OneBeacon Group" has the meaning set forth in the introductory paragraph. "Overlap Agents" means collectively those agents listed on Schedule B hereto. "Person" means any individual, corporation, partnership, firm, joint venture, association, limited liability company, joint stock company, trust, unincorporated association or organization or other entity. "Permitted Designee" has the meaning set forth in Section 9.2. "Scheduled Commission" has the meaning set forth in Section 3.1. "Sellers" has the meaning set forth in the introductory paragraph. "Subject Policies" means the: (1) Commercial Multi-Peril; (2) Workers' Compensation; (3) Commercial Umbrella; (4) Commercial Inland Marine; (5) Commercial Auto; (6) Fire and Allied Lines; and (7) General Liability (Other) policies (excluding commercial auto policies produced as part of the AutoOne CLAD or Take-Out Program) produced by the agents listed on Schedule C hereto with respect to risks primarily located in the State of New York and in effect as of the Non-Renewal Date; provided, however, the Subject Policies shall not include: (a) the policies acquired from Atlantic Mutual Insurance Company or its affiliates as part of a renewal rights transaction that closed on March 31, 2004 and policies written by Atlantic Mutual Insurance Company or Centennial Insurance Company and reinsured by the Sellers; (b) any "Specialty" policies of the Sellers, which include policies written through any of the Sellers' Specialty Operations, including International Marine Underwriters, OneBeacon Professional Partners, Dewar Insurance Services, Agri, or OneBeacon Specialty Property and (c) policies written by the Overlap Agents which (i) qualify for placement with Atlantic Specialty Insurance Company as set forth on Schedule D hereto; (ii) qualify for OnePac (the Sellers' small business package product) or are additional policies written for OnePac policyholders in conjunction with the issuance of policies that qualify for OnePac or (iii) are monoline inland marine policies. 2 ARTICLE II. RENEWALS; AGENTS Section 2.1. Cessation of Renewals. Sellers shall cease renewing the Subject Policies effective from and after December 1, 2004 (the "Non-Renewal Date"), except (i) to the extent required by applicable Law, (ii) to the extent required under agency agreements with the agents listed on Schedule C hereto or (iii) to honor quotes outstanding on such date. Section 2.2. Renewals. (a) Sellers shall provide to the Company, in accordance with the time frame set forth on Schedule E, a true, complete and correct list of the Subject Policies that are either in force on the date hereof or lapsed as of the date hereof but subject to reinstatement as well as a list of all then still in-force policies non-renewed during the 90 days preceding the date hereof that would have been Subject Policies had they been in effect on the Non-Renewal Date. (b) In connection with the first policy anniversary of each Subject Policy on or after the Non-Renewal Date (or, with respect to such Subject Policies as remain in effect with a Seller subsequent to such anniversary for the reasons set forth in Section 2.1, in connection with the next such policy anniversary), Seller shall send to each Contractholder selected by the Company a written notice in the form agreed by the parties, and in compliance with all applicable Laws, notifying such Contractholder of the non-renewal of such Subject Policy by Seller. Seller shall send a copy of such non-renewal notice to the insurance agent appointed by such Contractholder and, as directed by the Company, shall send a notice to such agent substantially in the form as attached hereto as Exhibit A informing such agent of the availability of replacement insurance from a Permitted Designee and encouraging such agent to place such insurance with a Permitted Designee. (c) From and after the Non-Renewal Date, in connection with any Subject Policy with respect to which renewal rate quotes are outstanding on the applicable anniversary date of such policy, the Company and Sellers shall each use its commercially reasonable efforts to actively encourage each Contractholder selected by the Company and its agent to purchase insurance from a Permitted Designee in substitution for Seller as the issuing carrier. In the event that a Contractholder should decline to so accept a Permitted Designee and accepts a policy issued by a Seller, such policy shall nevertheless be subject to the provisions of Section 2.2(b); for the avoidance of doubt, the provisions of Section 2.2(b) shall be applicable to such policies on the first policy anniversary after the date of issuance of such policy by Sellers. (d) From and after the date hereof, Sellers shall perform the duties set forth on Schedule E hereto. (e) Notwithstanding anything in this Agreement to the contrary, except to the extent required by applicable Law, in no event shall Sellers be obligated under this Agreement to renew any Subject Policy subsequent to the second policy anniversary date of such Subject Policy following the Non-Renewal Date or to send any notices to Contractholders or their appointed agents or otherwise attempt to encourage Contractholders to obtain coverage with a Permitted Designee after such date. 3 (f) Neither the Company nor any Permitted Designee is assuming, nor shall they be liable for, any of the liabilities, debts, claims, obligations or other liability of Sellers of any nature whatsoever, except to the extent caused by the Company or a Permitted Designee. Neither the Company nor any Permitted Designee is assuming, nor shall they be liable for, any insurance obligations of Sellers to the Contractholders. In addition, neither the Company nor any Permitted Designee warrants the legal validity of any notice provided by the Sellers to the Contractholders in connection with the non-renewal of any Subject Policy or the compliance of any such notice with any applicable Laws or regulations. Further, it is acknowledged and agreed that neither the Company nor any Permitted Designee is required to offer insurance coverage to all Contractholders, to any particular Contractholder, or to any minimum percentage of Contractholders. The Company and the Permitted Designees shall apply their own underwriting judgment and premium rates to the replacement policies as they determine are appropriate in their sole discretion. (g) Notwithstanding anything to the contrary in this Agreement, the Company acknowledges and agrees that Sellers do not have the power or ability to require any Contractholder of any of the Subject Policies, or to require any agent, to write or renew any such Subject Policy upon expiration or otherwise. (h) From and after the date hereof until the Non-Renewal Date, Sellers shall non-renew policies that will be Subject Policies if in effect on the Non-Renewal Date only in the ordinary course of business consistent with practices in effect prior to July 1, 2004. Section 2.3. Agents. (a) The Company acknowledges that Sellers have entered into the agency agreements with the agents listed on Schedule C hereto and that such agreements give ownership rights to expirations to the agents who are parties to such agreements. (b) From and after the Non-Renewal Date, in accordance with applicable Law and the terms of the agency agreements, Sellers agree to terminate their agency appointments with those agents listed on Schedule C hereto, other than the Overlap Agents, and to assist the Company in contracting with such agents as selected by the Company; provided, however, the Sellers shall have no obligation to terminate the agency appointments of such agents with respect to their appointment to the Sellers or its Affiliates for personal lines and other insurance products not included in the types of coverages under Subject Policies or the insurance policies excluded from the definition of Subject Policies. (c) Sellers agree to provide to the Company, in accordance with the time frame set forth on Schedule E, a producer experience report with regards each agent listed on Schedule C hereto other than the Overlap Agents listed on Schedule B hereto. (d) Set forth on Schedule F hereto is a list of all agents of Sellers producing New York business for Sellers whose agency agreements were terminated at any time during the 75 day period preceding the date hereof. Sellers agree to send, within five Business Days following the date hereof, to each such agent a notice of the transactions contemplated by this Agreement, such notice to be in a form reasonably acceptable to Sellers and the Company. 4 Section 2.4. Cooperation. Each party hereto shall cooperate fully with the other in all reasonable respects and shall use commercially reasonable efforts to accomplish the objectives of this Agreement including making available to each their respective officers and employees for interviews and meetings with agents and Governmental Entities and furnishing any additional assistance, information and documents as may be reasonably requested by a party from time to time. ARTICLE III. CONSIDERATION Section 3.1. Commission. In consideration of the service to be provided by Sellers pursuant to this Agreement, the Company shall pay or cause to be paid to Sellers, a commission equal to 5% for the first year, 4% for the second year and 1% for the third year of the direct written premium (as adjusted for cancellations and endorsements) for the Subject Policies renewed by the Permitted Designees during each one-year period commencing on the Non-Renewal Date (the "Scheduled Commission"). The Company shall pay or cause to be paid the Scheduled Commission to Sellers, in arrears, within forty-five (45) days after the end of each three month period ending after the Non-Renewal Date based on direct written premiums on the Subject Policies renewed by the Permitted Designees. Section 3.2. Minimum Commission. (a) The amount of Scheduled Commission paid or caused to be paid by the Company to Sellers, together with additional commission paid pursuant Section 3.3, shall be subject to an aggregate minimum of $5 million (the "Minimum Amount"), with a minimum amount of $2 million through the end of the first year, $4 million through the end of the second year, and $5 million through the end of the third year (such minimum accrued amounts being referred to herein as the "Minimum Annual Amount"). If the Scheduled Commission paid pursuant to Section 3.1 together with additional commission paid pursuant to Section 3.3 does not equal the Minimum Annual Amount applicable to such year, the Company shall pay or cause to be paid to Sellers, concurrent with the payment of the amount due for the final period for such year, the amount by which the Minimum Annual Amount exceeds such Scheduled Commission paid for such year. For the avoidance of doubt, the aggregate Minimum Annual Amount for the three years is cumulative and shall take into account any amount of Scheduled Commission paid and commission paid pursuant to Section 3.3 in excess of the Minimum Annual Amount, such that once the aggregate Scheduled Commission paid in any or all of the three years under Section 3.1 and commission paid pursuant to Section 3.3 below equals or exceeds $5 million, no further Minimum Annual Amount shall be due or payable. (b) In order to secure the obligations of the Company to pay or cause to be paid the Minimum Annual Amounts, the Company shall, within five Business Days of the date of this Agreement, post or cause to be posted a letter of credit, in such form as agreed by the Company and Sellers, in favor and for the benefit of Sellers in the amount of $2 million, which, 5 subject to adjustments as discussed below, shall be renewed or replaced upon the first anniversary of the Non-Renewal Date with a replacement letter of credit in the amount of $2 million and on the second anniversary of the Non-Renewal Date with a replacement letter of credit in the amount of $1 million; provided, that in lieu of any of the foregoing letters of credit, the Company shall be permitted to place in escrow funds in the amount required hereby with an escrow agent and subject to the terms of an escrow agreement in each case as agreed by the Company and Sellers. The letter(s) of credit or escrow account may be drawn upon by Sellers only to the extent that the Company fails to pay or cause to be paid when due the Scheduled Commission or commission due pursuant to Section 3.3 to Sellers (including the Minimum Annual Amounts) and fails to remedy such failure within five Business Days of receipt of notice thereof. The Company shall have the right from time to time to reduce the amount of the letter of credit or funds in escrow to the extent that payments of Scheduled Commissions pursuant to Section 3.1 and commission paid pursuant to Section 3.3 are made during the respective years on the condition that there shall be no reduction of any letter of credit or funds in escrow unless the sum of (1) cumulative Scheduled Commissions paid pursuant to Section 3.1 and commissions paid pursuant to Section 3.3 and (2) amounts represented by letter of credit or funds in escrow exceed (A) $2 million, with respect to a reduction at any time prior to the first anniversary of the Non-Renewal Date, (B) $4 million, with respect to a reduction at any time on or after the first anniversary and prior to the second anniversary of the Non-Renewal Date and (C) $5 million with respect to a reduction at any time period on or after the second anniversary of the Non-Renewal Date. Section 3.3. Commission on Additional Policies. To the extent the Permitted Designees are able to write policies produced by any of the terminated agents referred to in Section 2.3(c) which policies would have been Subject Policies hereunder if produced by the agents listed on Schedule C (hereafter "Additional Policies"), the Company shall pay or cause to be paid to Sellers a commission equal to 2% for the first year, 2% for the second year and 1% for the third year of the direct written premium (as adjusted for cancellations and endorsements) for the Additional Policies written by the Permitted Designees during each one-year period commencing on the date hereof, such commissions to be a credit against the Minimum Annual Commission as set forth in Section 3.2(a). The Company shall pay or cause to be paid such commissions to Sellers, in arrears, within forty-five (45) days after the end of each three month period ending after the date hereof based on direct written premiums on the Additional Policies. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF ONE BEACON GROUP AND SELLERS OneBeacon Group and each Seller hereby represents and warrants to the Company as follows: Section 4.1. Organization and Standing; Power and Authority. Each Seller is duly organized and validly existing under the laws of its respective state of incorporation and has all requisite power and authority to sell, own, lease and operate its assets and business and to carry on its business as now being conducted. 6 Section 4.2. Execution, Delivery and Performance. Each Seller has all requisite power and authority to execute and deliver this Agreement and to perform all of its obligations hereunder. The execution, delivery and performance of this Agreement by Sellers have been duly and validly authorized by all necessary action of Sellers, and no further action, consent or approval on the part of Sellers is required for the valid performance of its obligations hereunder. This Agreement has been duly executed and delivered by Sellers and, assuming the due execution and delivery of this Agreement by the Company, this Agreement constitutes the valid and legally binding obligations of Sellers, enforceable against Sellers in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting rights of creditors generally and by general principles of equity. Section 4.3. Governmental Authorities; Consents. (i) No Seller is required to submit any notice to, or receive any approval, consent, license, permit, waiver, registration or other authorization from, any Governmental Entity ("Governmental Consents") in connection with the execution or delivery of this Agreement or the consummation of the transactions contemplated hereby; and (ii) no consent, approval, exemption or authorization of any other person, is required to be obtained by Sellers in connection with Sellers' execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby. Section 4.4. Disclosure. To the best of their knowledge, all data, analysis and other documentation and information provided in the binder titled "OneBeacon Insurance New York Project Presentation" dated August 17, 2004 represents the best estimates of OneBeacon Group and Sellers when delivered to the Company. Section 4.5. Annualized Premium; Loss Ratios. To the best of their knowledge, the annualized premium for the Subject Policies in force as of August 31, 2004 was approximately between $105 million and $112 million and the loss and allocated loss expense ratio on the Subject Policies and the policies written by the Overlap Agents, in the aggregate, for accident year 2003, as currently estimated as of the date hereof, is approximately 57%. No assurance can be given that the ultimate actual loss ratio will not be materially different from this estimate because it is predicated on events which have not yet occurred, makes assumptions based on past patterns and trends which may not continue and does not anticipate any changes in claims handling structure. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Sellers as follows: Section 5.1. Organization and Standing; Corporate Power and Authority. The Company is a corporation duly organized and validly existing under the laws of New York. The Company has all requisite corporate power and authority to sell, own, lease and operate its assets, properties and business and to carry on its business as now being conducted. 7 Section 5.2. Execution, Delivery and Performance. The Company has all requisite corporate power and authority to execute and deliver this Agreement and to perform all of its obligations hereunder. The execution, delivery and performance of this Agreement by the Company has been duly and validly authorized by all necessary corporate action of the Company, and no further corporate action, consent or approval on the part of the Company is required for the valid performance of its obligations hereunder. This Agreement has been duly executed and delivered by the Company and, assuming the due execution and delivery of this Agreement by Sellers, this Agreement constitutes the valid and legally binding obligations of the Company, enforceable against the Company in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting rights of creditors generally and by general principles of equity. Section 5.3. Governmental Authorities; Consents. (i) The Company is not required to submit any notice to, or receive any Governmental Consents from, any Governmental Entity in connection with the execution or delivery by it of this Agreement or the consummation of the transactions contemplated hereby, other than such rate and form filings and approvals as may be necessary to permit the Company to issue replacement policies for the Subject Policies; and (ii) no consent, approval, exemption or authorization of any other person, is required to be obtained by the Company in connection with the Company's execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby. Section 5.4. Ratings. As of the date of this Agreement, the Permitted Designees consist of two New York licensed insurance companies which are rated A- by A.M. Best and a New York licensed insurance company rated B++ by A.M. Best. The Company agrees that for so long as no New York licensed insurance company Affiliate rated A- or better is available to the Company for renewal of the Subject Policies, it shall make available all of the Permitted Designees referenced above for renewal of the Subject Policies. ARTICLE VI. NONCOMPETITION Section 6.1. One Beacon Group's and Sellers' Agreement Not to Compete. OneBeacon Group and each Seller hereby covenants and agrees, subject to the exceptions in Section 6.3, that for a period of two (2) years from the Non-Renewal Date: (a) Neither it nor any of its majority owned subsidiaries shall market, underwrite or issue to any of the Contractholders any policies of insurance which would have been Subject Policies if in effect on the date hereof and if produced by an agent listed on Schedule C, except as contemplated by Section 2.1 above. (b) Neither it nor any of its majority owned subsidiaries shall, directly or indirectly, solicit for employment or hire or appoint any agents terminated by it pursuant to Section 2.3. (c) Neither it nor any of its majority owned subsidiaries shall provide to any Person, including without limitation, any current or future Affiliate not party to this Agreement, any data or other information provided by it to the Company or any Permitted Designee pursuant to the terms of this Agreement, including without limitation, pursuant to the provisions of Schedule E hereto. 8 Section 6.2. Company's Agreement Not to Compete. The Company agrees that for a period of two (2) years from the Non-Renewal Date neither it nor its majority owned subsidiaries will renew, rewrite or replace any insurance policies produced before the Non-Renewal Date by the Overlap Agents which (i) were written by Atlantic Specialty Insurance Company or Atlantic Mutual Insurance Company or Centennial Insurance Company and reinsured by the Sellers, (ii) are OnePac policies (the Sellers' small business package product) or are additional policies written for OnePac policyholders in conjunction with the issuance of policies that qualify for OnePac or (iii) are monoline inland marine policies; provided, that the foregoing shall not apply to insurance policies produced by Overlap Agents that as of the date hereof are agents of the Company or its majority owned subsidiaries. Section 6.3. Acquisition Exception. Notwithstanding any other provisions of this Agreement to the contrary, the provisions of Section 6.1(b) shall not prohibit OneBeacon Group or Sellers from acquiring ownership or management control of any insurance company or other risk bearing insurance entity having a pre-existing agency relationship with one of the agents terminated by it pursuant to Section 2.3, provided that the foregoing shall not release Sellers from their obligations pursuant to Section 6.1(a) above. ARTICLE VII. COVENANTS AND AGREEMENTS Section 7.1. Expenses. The parties to this Agreement shall bear their respective expenses incurred in connection with the preparation, execution and performance of this Agreement and the transactions contemplated hereby. Section 7.2. Right to Inspect. Prior to December 1, 2008, Sellers shall be entitled, through its representatives, to make such examination of the books and records of the Company and the Permitted Designees including the amount of direct written premium generated by the Subject Policies to the extent that such access may be reasonably required by Sellers to verify payments due under this Agreement; provided, however, a representative of the Company shall have the right to be present during any such examination. Any such examination shall be conducted during normal business hours and upon reasonable prior notice to the Company. Any information obtained by Sellers or its representatives pursuant to this Section 7.2 shall be held in strict confidence from any Person unless compelled to be disclosed by judicial or administrative process or by other requirements of applicable Law and shall not be used for any other purpose. Section 7.3. Further Assurances. Each of the parties, without further consideration, shall execute such documents and other papers, and take such further actions, as may be reasonably required or desirable or required under state insurance laws to effectuate the provisions hereof and the transactions contemplated hereby. The parties agree and understand that they must comply with any applicable insurance laws and regulations, including any necessary regulatory approvals, and will cooperate to comply with any such requirements in order to facilitate this transaction. 9 Section 7.4. Publicity. Except as may otherwise be required by Law (including, without limitation, the filing of registration statements and periodic and other reports with the Securities and Exchange Commission or other Governmental Entities concerning the transactions contemplated by this Agreement) or the rules of any applicable stock exchange, no release or announcement concerning this Agreement or the transactions contemplated hereby, shall be made without advance written approval thereof by Sellers and the Company, which approval shall not be unreasonably conditioned, delayed or withheld. As respects releases and announcements required to be made by Law, each party shall use commercially reasonable efforts to give the other party advance written notice of such releases and announcements. All parties shall cooperate with each other in making any release or announcement. ARTICLE VIII. INDEMNIFICATION Section 8.1. Indemnification by OneBeacon Group and Sellers. OneBeacon Group and Sellers hereby agree to indemnify the Company against (and agree to hold it harmless from) any and all damage, loss, liability and expense (including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation in connection with any action, suit or proceeding) incurred or suffered by the Company, arising out of: (i) any misrepresentation or breach of warranty, covenant or agreement pursuant to this Agreement by OneBeacon Group or Sellers, provided, that OneBeacon Group and Sellers shall have no obligation to indemnify the Company for any third party claim in respect of securities laws violations or alleged securities laws violations arising out of the initial public offering of the Company's common stock currently under registration with the U.S. Securities and Exchange Commission, provided further, however, that the foregoing proviso shall not limit the liability of OneBeacon Group or Sellers for gross negligence, willful misconduct or fraud; (ii) the obligations of Sellers to the Contractholders with respect to the Subject Policies written by Sellers; (iii) any claim by any present or former employee of OneBeacon Group or Sellers arising out of the employment of such employee or the termination thereof by OneBeacon Group, any Seller or any Affiliate thereof; and (iv) any claim by any present or former agent of OneBeacon Group or Sellers arising out of the agency relationship of such agent with OneBeacon Group or any Seller or the termination thereof, except to the extent that such claim results from the actions of the Company in violation of this Agreement or otherwise not contemplated by this Agreement. Section 8.2. Indemnification by the Company. The Company hereby agrees to indemnify OneBeacon Group and Sellers against (and agrees to hold them harmless from) any and all damage, loss, liability and expense (including, without limitation, reasonable attorneys' fees and reasonable expenses of investigation in connection with any action, suit or proceeding) incurred or suffered by OneBeacon Group or Sellers, arising out of: (i) any misrepresentation or breach of warranty, covenant or agreement pursuant to this Agreement by the Company; (ii) the obligations of the Permitted Designees with regards to the policies issued by the Permitted Designees as renewals of the Subject Policies; (iii) any claim by any present or former employee of OneBeacon Group, Sellers or any Affiliate thereof arising out of the employment of such employee by the Company, to the extent that such claim results from the actions of the Company with regards to such employee, excluding claims for severance or other benefits from OneBeacon Group, Sellers or their Affiliates based on prior service with OneBeacon Group, Sellers or their Affiliates; or (iv) any third party claim in respect of securities laws violations or alleged securities laws violations arising out of the initial public offering of the Company's common stock currently under registration with the U.S. Securities and Exchange Commission, provided that the foregoing shall not limit the liability of OneBeacon Group or Sellers for gross negligence, willful misconduct or fraud. 10 ARTICLE IX. MISCELLANEOUS PROVISIONS Section 9.1. Notices. All notices, requests, demands, claims and other communications required or permitted to be delivered, given or otherwise provided under this Agreement must be in writing and must be delivered, given or otherwise provided: (a) by hand (in which case, it will be effective upon delivery); (b) by facsimile (in which case, it will be effective upon receipt of confirmation of good transmission); or (c) by overnight delivery by a nationally recognized courier service (in which case, it will be effective on the Business Day after being deposited with such courier service); in each case, to the address (or facsimile number) listed below: If to the Seller, to it at: OneBeacon Insurance Company OneBeacon Street Boston, MA 02108 Tel: (617) 725-7171 Fax: (617) 725-7177 Attn: Roger M. Singer, Senior Vice President and General Counsel If to the Company, to it at: Tower Group Companies 120 Broadway 14th Floor New York, NY 10271-1699 Tel: (212) 655-5005 Fax: (212) 655-2199 Attn: Steven G. Fauth, Senior Vice President and General Counsel Each of the parties to this Agreement may specify a different address or facsimile number by giving notice in accordance with this Section 9 to each of the other parties hereto. 11 Section 9.2. No Consequential, Incidental or Punitive Damages. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, NO PARTY SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES FOR ANY REASON; PROVIDED, THAT THE FOREGOING EXCLUSION OF CONSEQUENTIAL DAMAGES SHALL NOT OPERATE OR BE CONSTRUED SO AS TO PREVENT OR PROHIBIT A PARTY FROM RECOVERING ACTUAL, DIRECT DAMAGES ARISING ON ACCOUNT OF CLAIMS FROM THIRD PARTIES FOR WHICH INDEMNIFICATION IS AVAILABLE PURSUANT TO THE TERMS OF ARTICLE VIII HEREOF. Section 9.3. Succession and Assignment; No Third-Party Beneficiary. Subject to the immediately following sentence, this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, each of which such successors and permitted assigns will be deemed to be a party hereto for all purposes hereof. No party may assign, delegate or otherwise transfer either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other parties; provided, however, that the Company shall be permitted to use from time to time one or more of its insurance company Affiliates or any insurance company for which the Company or its subsidiaries has underwriting authority (each, a "Permitted Designee") for purposes of writing renewals of the Subject Policies and otherwise performing its obligations and exercising its rights hereunder. Except as expressly provided herein, this Agreement is for the sole benefit of the parties and their permitted successors and assignees and nothing herein expressed or implied will give or be construed to give any person, other than the parties and such successors and assignees, any legal or equitable rights hereunder. Section 9.4. Amendments and Waivers. No amendment or waiver of any provision of this Agreement will be valid and binding unless it is in writing and signed, in the case of an amendment, by Sellers and the Company, or in the case of a waiver, by the party against whom the waiver is to be effective. No waiver by any party of any breach or violation or, default under or inaccuracy in any representation, warranty or covenant hereunder, whether intentional or not, will be deemed to extend to any prior or subsequent breach, violation, default of, or inaccuracy in, any such representation, warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. No delay or omission on the part of any party in exercising any right, power or remedy under this Agreement will operate as a waiver thereof. Section 9.5. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes any and all prior discussions, negotiations, proposals, undertakings, understandings and agreements, whether written or oral, with respect thereto. Section 9.6. Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute but one and the same instrument. This Agreement will become effective when duly executed and delivered by each party hereto. 12 Section 9.7. Severability. If any term or other provision of this Agreement is invalid or illegal, all other conditions and provisions of this Agreement nevertheless will remain in full force and effect so long as the economic and legal substance of the transactions contemplated by this Agreement are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid or illegal, the parties hereto will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated by this Agreement are fulfilled to the extent possible without adverse economic effect or other material adverse effect upon either party. Section 9.8. Headings. The headings contained in this Agreement are for convenience purposes only and will not in any way affect the meaning or interpretation hereof. Section 9.9. Construction. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Section 9.10. Governing Law. This Agreement, the rights of the parties and all actions arising in whole or in part under or in connection herewith, will be governed by and construed in accordance with the domestic substantive laws of the State of New York, without regard to principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. Section 9.11. Arbitration. The parties will submit to binding arbitration any dispute under or with respect to this Agreement except that in connection with seeking injunctive relief the parties will be free to seek such relief in accordance with Section 9.12(a). In any such arbitration, each party will have the right to appoint one arbitrator. The expenses and fees of a party-appointed arbitrator will be paid by the party appointing such arbitrator. The third arbitrator will be provided by JAMS/ENDISPUTE and will be mutually acceptable to the parties, and such arbitrator will preside over the matter. Any such arbitration will take place in the Borough of Manhattan, New York, and be conducted in accordance with the then existing Arbitration Rules of JAMS/ENDISPUTE. All decisions rendered by the arbitrators shall be final, and judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof and shall not be subject to appeal. The requirement to submit disputes to binding arbitration will not apply to any action for injunctive relief. Section 9.12. Jurisdiction; Venue; Service of Process. (a) Jurisdiction. Subject to the provisions of Section 9.11, each party to this Agreement, by its execution hereof, (i) hereby irrevocably submits to the exclusive jurisdiction of the United States District Court located in the Southern District of the State of New York (or, if notwithstanding the provisions of this Section 9.12(a) such court does not have jurisdiction, the state courts of the State of New York) for the purpose of any action between the parties arising in whole or in part under or in connection with this Agreement, (ii) hereby waives to the extent not prohibited by applicable law, and agrees not to assert, by way of motion, as a defense or 13 otherwise, in any such action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such action brought in one of the above-named courts should be dismissed on grounds of forum non conveniens, should be transferred or removed to any court other than one of the above-named courts, or should be stayed by reason of the pendency of some other proceeding in any other court other than one of the above-named courts, or that this Agreement or the subject matter hereof may not be enforced in or by such court and (iii) hereby agrees not to commence any such action other than before the United States District Court located in the Southern District of the State of New York (or, if notwithstanding the provisions of this Section 9.12(a) such court does not have jurisdiction, the state courts of the State of New York). Notwithstanding the previous sentence, a party may commence any action in a court other than the above-named courts solely for the purpose of enforcing an order or judgment issued by one of the above-named courts. (b) Venue. Each party agrees that for any Action between the parties arising in whole or in part under or in connection with this Agreement, such party will bring actions only in the Borough of Manhattan. Each party further waives any claim and will not assert that venue should properly lie in any other location within the selected jurisdiction. (c) Service of Process. Each party hereby (i) consents to service of process in any action between the parties arising in whole or in part under or in connection with this Agreement in any manner permitted by New York law, (ii) agrees that service of process made in accordance with clause (i) or made by registered or certified mail, return receipt requested, at its address specified pursuant to Section 9.1, will constitute good and valid service of process in any such action and (iii) waives and agrees not to assert (by way of motion, as a defense, or otherwise) in any such action any claim that service of process made in accordance with clause (i) or (ii) does not constitute good and valid service of process. Section 9.13. Specific Performance. Each of the parties acknowledges and agrees that the other parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached or violated. Accordingly, each of the parties agrees that, without posting bond or other undertaking, the other parties will be entitled to an injunction or injunctions to prevent breaches or violations of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the parties and the matter in addition to any other remedy to which it may be entitled, at law or in equity. Each party further agrees that, in the event of any action for specific performance in respect of such breach or violation, it will not assert that the defense that a remedy at law would be adequate. Section 9.14. Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE THEIR RIGHT TO TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND THAT ANY MATTER WILL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. 14 Section 9.15. Survival of Representations and Warranties. Each such representation and warranty by the parties hereunder shall survive the date hereof. No party has any right to rely upon any representations or warranties of the other party other than the representations and warranties contained herein. [Signature Page Follows] 15 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives as of the day and year first above written. ONEBEACON INSURANCE GROUP LLC By ------------------------------------------------ Name: Roger M. Singer Title: Senior Vice President ONEBEACON INSURANCE COMPANY By ------------------------------------------------- Name: Roger M. Singer Title: Senior Vice President ONEBEACON AMERICA INSURANCE COMPANY By ------------------------------------------------- Name: Roger M. Singer Title: Senior Vice President PENNSYLVANIA GENERAL INSURANCE COMPANY By ------------------------------------------------- Name: Roger M. Singer Title: Senior Vice President NORTHERN ASSURANCE COMPANY OF AMERICA By ------------------------------------------------- Name: Roger M. Singer Title: Senior Vice President EMPLOYER'S FIRE INSURANCE COMPANY By ------------------------------------------------- Name: Roger M. Singer Title: Senior Vice President HOMELAND INSURANCE COMPANY OF NEW YORK By ------------------------------------------------- Name: Roger M. Singer Title: Senior Vice President 16 PG INSURANCE COMPANY OF NEW YORK By ------------------------------------------------- Name: Roger M. Singer Title: Senior Vice President CAMDEN FIRE INSURANCE ASSOCIATION By ------------------------------------------------- Name: Roger M. Singer Title: Senior Vice President AMERICAN EMPLOYER'S INSURANCE COMPANY By ------------------------------------------------- Name: Roger M. Singer Title: Senior Vice President ONEBEACON MIDWEST INSURANCE COMPANY By ------------------------------------------------- Name: Roger M. Singer Title: Senior Vice President YORK INSURANCE COMPANY OF MAINE By ------------------------------------------------- Name: Roger M. Singer Title: Senior Vice President AMERICAN CENTRAL INSURANCE COMPANY By ------------------------------------------------- Name: Roger M. Singer Title: Senior Vice President TOWER GROUP, INC. By ------------------------------------------------- Name: Michael H. Lee Title: President and Chief Executive Officer 17 SCHEDULE A OneBeacon Group Subsidiary Parties OneBeacon Insurance Company OneBeacon America Insurance Company Pennsylvania General Insurance Company Northern Assurance Company of America Employer's Fire Insurance Company Homeland Insurance Company of New York PG Insurance Company of New York Camden Fire Insurance Association American Employer's Insurance Company OneBeacon Midwest Insurance Company York Insurance Company of Maine American Central Insurance Company A-1 SCHEDULE B NY COMMERCIAL LINES AGENTS -- "OVERLAP AGENTS"
B-1 SCHEDULE C NY COMMERCIAL LINES AGENTS -- TO TOWER AND "OVERLAP"
SCHEDULE D ASIC Segments Commercial Accounts I This industry segment represents a heterogeneous group of SIC codes that fall within our underwriting appetite. Some examples include service accounts and various types of manufacturing accounts. Commercial Real Estate This segment includes both lessors' risk of commercial property exposures as well as property management accounts. Cultural Institutions Customers in this market are primarily museums and libraries. Financial Services Customers in this market include companies involved in making financial decisions and/or processing financial transactions for both corporate entities and the general public. Includes, but is not limited to, banks, investment advisors, insurance carriers, stock brokers and mortgage brokers. Also includes specialty coverages such as, Foreclosure and Trust coverage, Mortgageholders E&O, Repossessed Auto and Stop Payment Liability. Food Industries This market includes establishments that manufacture or process foods and beverage for human consumption and certain related products (such as manufactured ice). Also includes numerous wholesale distributors and retailers of food and related products. Examples of eligible risks include Dried and Dehydrated Fruits and Vegetables, Confectionary Distributors, and Retail Bakeries. Metalworkers Customers in this market include manufacturers that make products such as components, sub-assemblies or a full working product from metal using various processes such as, but not limited to, machining, grinding, stamping on equipment such a machine centers, lathes, milling machines, press brakes, shears, stamping machines and punch presses. Also includes those businesses which assemble products made from metal. Plastics This market includes manufacturing operations that create plastic products by processing plastic resin pellets through various operations such as, but not limited to, injection molding, extrusion molding, blow molding, or thermoforming. Also represents manufacturers who create products from sheet plastic. D-1 Printers This industry segment includes establishments engaged in printing, publishing or printing/publishing. Includes, but is not limited to, books, periodicals, newspapers and brochures. Professional Services This industry segment includes companies that are involved in any kind of professionally based transactions or decisions. Includes, but is not limited to, law firms, accountants, insurance agents and brokers, medical offices and business or management consultants. Retailers This segment includes establishments engaged in selling merchandise for personal or household consumption and rendering services incidental to the sale of the goods. Examples of eligible risks include Men's and Boys Clothing Stores, Household Appliance Stores and Bookstores. Technology Industries This market represents both high and low-tech classes; primarily electronic hardware manufacturing including everything from commercial lighting to semiconductors and related devices. Our appetite also includes telecommunication companies and both software manufacturing and service related risks. Wholesalers Customers in this market include companies that are primarily engaged in selling merchandise to retailers, industrial, commercial, institutional or professional business users or to other wholesalers. Includes wholesale distributors of both durable and non-durable goods. Examples of eligible risks include Office Equipment Distributors and Footwear Distributors. D-2 SCHEDULE E Duties of Company and Seller Data and other information to be provided by Seller unless otherwise indicated will be provided to Company for Subject Policies 120 days prior to the first day of the expiration month of the policy beginning with February 2005. Such data will be provided by Seller to Company within 6 business days of the inception of this Agreement for November 2004 through January 2005. 1. Seller to provide Company list of names, addresses, phone number and total written premium for Commercial Policies of all Seller's agent and sub-brokers (if any) within 2 business day of the execution of the agreement. Such list will distinguish between Overlap Agents and other agents. 2. Seller to provide Company with access to monthly producer experience reports for all of the non-overlap agents within 2 business day from the signing of this agreement. 3. Seller to provide to Company a data feed of Subject Policies (except manually issued policies) from Sellers source systems in ASCII quoted and comma delimited format within 10 business days for all non-overlap agents and within 15 days for overlap agents for October through January renewal business (and then monthly thereafter). 4. Seller to provide to Company a data feed for Subject Policies on a monthly basis (based on specifications provided below) until completion of transfer of Subject Policies as outlined in this Agreement. The specifications for the Monthly Renewal report includes: a. One row per policy per risk location (as available) b. Excel spreadsheet by Line of Business c. Data elements: 1. Policy number 2. Agent 3. Named Insured 4. Policy expiration date 5. Line of Business (major) 6. OneBeacon expiring product type 7. Expiring Premium 8. Commission percentage 9. Number of risk locations 10. Risk Address, city & state, zip code 11. Total Insured building value 12. Total insured BPP-business personal property value 13. Total insured BII-business interruption insurance value 14. Sales receipts (as available) 15. Payroll by classification for WC (as available) 16. Square footage (as available) 17. Construction 18. NB (public protection) 19. # of vehicles 20. Loss ratio 21. Number of claims E-1 22. Total incurred loss ratio current policy year 23. Total incurred loss ratio 3 policy years 24. SIC code 25. SIC Description (will provide referential table) 26. GL classification code 27. GL classification description (will provide referential table for proprietary classes) 28. All WC classification codes 29. WC premium by classification code 30. WC merit or experience rating modification 31. Account number (5 character alphanumeric field) REX Number) 5. Seller to provide access to Insurance Contract policy declarations schedules and endorsement forms. This will be provided on an electronic image basis where available (excluding manual policies and overlap agents). For all overlap agents, access to paper files will be made available. 6. Seller to provide Company with access to Loss Information/ Loss Runs and Policy View (internet based applications) for all of the Subject Policies from the non-overlap agents. 7. Seller to provide Company with online access to loss control reports for Subject Policies. Any loss control reports for all of the overlap agents will remain a manual process. 8. Seller to provide to Company online access for changes affecting Subject Policies and covering the time period between the Monthly Renewal Report described in #4 above and the Non Renewal Date of the Subject Policies. This will include all transaction types listed below. For manual changes, these changes will be reported to Company within 10 days of processing of such transaction or request. a. Endorsements processed b. Cancellation transactions c. Any other relevant correspondence received from an agent or insured 9. Seller shall jointly draft a letter with Company to be attached and mailed with Subject Policy non-renewal notices effective for December 2004 renewals with a process date no earlier than September 27, 2004. For all other Subject Policies non renewal notices should not be sent earlier than 70 days from the expiring policies expiration date. 10. Seller to provide Company with access to policy files of the Subject Policies, including agent correspondence, applications, loss inspection reports, recommendation compliances, claims and loss history information and anti-arson applications via physical or electronic delivery for a period necessary for Company to review all Subject Policies for renewal. 11. Company and Seller agree to provide drafts of the public disclosures that will be issued prior to the execution of this agreement. 12. Seller to provide Company with Agent Data (Agent number, legal name, address, phone numbers, tax_id or social security number, contact names, commission by LOB, etc.) E-2 13. Seller to provide Company with Claim Data for the Subject Policies for the term to be renewed. This information will be provided within 10 business days for all non-overlap agents and within 15 days for overlap agents for October through January renewal business (and then monthly thereafter). Information will include: a. Claim Number, b. Policy Number, c. Agent, Insured, d. Loss Date, e. Cause of Loss, f. WC Injury, g. Annual Statement Line, h. Subline, i. Class Code, j. Paid Loss, k. Loss Reserve, l. Medical Paid, m. Medical Reserve, n. Expense Paid, o. Expense Reserve, p. Claim Status, q. Cat Code. 14. Seller to provide assistance from technical personnel to understand and translate the data provided by them to the Company. 15. Seller agrees to provide a training session to Company personnel on EDS/ File Net systems at Tower Insurance Company of NY's place of business. 16. Seller to provide copies of Agent Agreements and any variations within 15 days after the agreement.. 17. Seller to provide copies of contingency commission plans within 15 days of the agreement. 18. Seller to provide a list of recently terminated agents (within last 75 days), to include agency number, legal name, address, contact information, and premiums in force. 19. Company agrees to pay Seller a rate of $100 for One Beacon employees (and the actual rate not to exceed $175 per hour for outside contractors) for work not covered by the provisions of the contract. * Overlap agents are assumed to follow non-automated solutions unless otherwise specifically agreed E-3 SCHEDULE F NY ONEBEACON CL AGENTS -- CANCELLED (Cancelled within Last 75 days for Small Business and/or All CL)
EXHIBIT A [ONE BEACON LOGO] I N S U R A N C E September 14, 2004 To Our New York OneBeacon Agencies: As you know, over the past several years, we've worked hard to improve our commercial book's results in New York. In spite of your support through substantial reunderwriting and other actions, our results are still inconsistent with what we are seeing elsewhere at OneBeacon. Rather than prolonging the pain for both of us, we entered into a renewal rights agreement with Tower Group Companies. This agreement provides you with the opportunity to transfer much of your OneBeacon commercial business to Tower. Our press release announcing this agreement is attached for your reference. Coincident with this agreement your Statement of Binding Authority attached to your OneBeacon Agency Agreement is amended to delete COMMERCIAL LINES ONLY effective December 1, 2004, and your commercial lines Performance Incentive Agreement is terminated 90 days effective from today*. However, we are pleased to enable your continued and immediate access to A rated paper through Tower. You may already know Tower, which is comprised of Tower Insurance Company of New York and Tower Risk Management, an insurance group with an established focus on New York and a strong desire to expand its agency relationships into all regions of the state. The Tower team is eager to introduce itself to your agency and provide you with an understanding of its products, programs and appetite, which you will find competitive and comprehensive. You may expect to hear from a Tower representative shortly. Everyone at OneBeacon appreciates the support you have shown us over challenging times. We regret having to take this action, but hope you understand why and that you feel we're doing our best to make the transition process a little easier. Do not hesitate to call on us if we may be of assistance during the transition to Tower. John Tillistrand is available to all of you throughout the state, along with Pete Meehan on Long Island, Bart Oddo for upstate New York, and Rick Hernandez in New York City. And you may contact me at any time as well at either ###-###-#### or ***@*** Best Regards, /s/ Michael McSally /s/ John Tillistrand - ------------------------- ---------------------------------- Michael McSally John Tillistrand * - If your OneBeacon Agency Agreement is for Commercial Lines only, your Agency Agreement will terminate 90 days from today.
