EXHIBIT 10.42


 


SERVICE AND
EXPENSE SHARING AGREEMENT


 


This
(“Agreement”) is entered into as of October 1, 2006 by and between Tower
Insurance Company of New York (“TICNY”), a property
and casualty insurance company domiciled in New York with offices located at
120 Broadway, New York, N.Y. 10271 and CastlePoint Management Corp. and
any of its after acquired property and casualty insurance company subsidiaries
(collectively “CPM”), a Delaware corporation with offices located at 120
Broadway, New York, N.Y. 10271.


 


 


RECITALS


 


WHEREAS, TICNY and CPM entered into
a Service and Expense Sharing  Agreement
dated April 4, 2006, but now find it advisable to amend and restate such
agreement; and


WHEREAS,
CPM plans to acquire one or more property and casualty insurance companies
(hereinafter referred to as “CastlePoint Insurance Companies” or “CPIC”); and


 


WHEREAS,
TICNY plans to underwrite Brokerage Business, as defined below on behalf of
itself and CPIC pursuant to a pooling agreement between TICNY and CPIC; and


 


WHEREAS,
CPM plans to manage Specialty Program Business and Insurance Risk Sharing
Business and Traditional Program Business as defined herein on behalf of TICNY
prior to CPM’s acquisition of CPIC pursuant to a Program Management Agreement
between CPM and TICNY; and


 


WHEREAS,
upon CPM’s acquisition of CPIC, CPIC plans to underwrite Specialty Program
Business and Insurance Risk Sharing Business on behalf of itself and underwrite
Specialty Program Business through TICNY pursuant to a pooling agreement
between CPIC and TICNY; and


 


WHEREAS, TICNY and CPM are desirous of entering into an
agreement whereby TICNY provides services to CPM at its request (other than
services provided in its role as the manager of the Brokerage Business) and to
provide a method for sharing those expenses as well as sharing any profits and
losses from rendering services to third parties; and


 


NOW THEREFORE, in consideration of the mutual agreements
described in this Agreement, TICNY and CPM agree
as follows:


 


ARTICLE 1 — PERFORMANCE OF SERVICES 


 


1.01                           In addition to
the services that TICNY may provide to CPIC in managing the Brokerage Business
TICNY shall provide various insurance companies services to CPM on the terms
and conditions set forth herein.  The
services provided shall be:


 


•                  Underwriting
and marketing services


•                  Policy
issuance, billing and collection services


•                  State filing
and regulatory compliance services


•                  Loss
prevention and premium audit services


•                  Claims
services


•                  Administrative
services such as human resources and IT


 


 


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•                  Facilities


 


ARTICLE 2 — COMPENSATION 


 


2.01                           Any compensation paid by CPM
to TICNY for services rendered hereunder must be on an actual cost basis, but
in no case should the compensation paid be greater than either company would
expend in providing such services for itself.


 


2.02                           Expenses for
the services rendered by TICNY to CPM shall be allocated and reported in
accordance with NY Department’s Regulation 30 and any other applicable
regulation.


 


2.03                               With respect to
claims services, CPM shall pay TICNY for the loss adjustment expenses incurred
by  TICNY in adjusting and defending
claims on behalf of CPM at the hourly billing rate established by TICNY which
shall be the same billing rate or method of payment established to allocate or
assign unallocated expenses to adjust and defend TICNY’s claims.


 


2.04                           Settlement of Accounts


 


(a)          TICNY shall submit to
CPM within thirty (30) days of the end of each calendar month a detailed
written estimate of the amount owed for services and the use of facilities
pursuant to this Agreement in that calendar month, and CPM shall pay to TICNY within
fifteen (15) days following receipt of such estimate the amount set forth in
the estimate.


(b)         Within thirty
(30) days of the end of each calendar quarter, TICNY shall submit to CPM a
detailed written statement of the amount owed for services and the use of the
facilities for that calendar quarter with a true-up of the monthly estimates
and CPM shall pay to TICNY within fifteen (15) days following receipt of such
written statement the amount set forth in the statement.


 


2.05         Profit Sharing


 


                                                CPM and TICNY
agree to share equally in profits and losses realized from providing insurance
company services to CPM’s or CPIC’s clients in connection with CPM’s or CPIC’s
management of the Specialty Program Business and Insurance Risk Sharing
Business and Traditional Program Business.


 


ARTICLE
3 — TERM, SUSPENSION AND TERMINATION


 


3.01         Original Term


 


The term of this Agreement will begin on the date of this
Agreement and will continue for a period of four (4) years, after which this Agreement will terminate unless the parties agree to
extend the term of this Agreement. This
Agreement may be terminated immediately by mutual consent of both parties or
upon the placement of TICNY or CPM into rehabilitation or liquidation by
regulatory authorities or upon the declaration of bankruptcy of either company.


 


3.02                           Agreement


 


Services and facilities shall be provided to CPM by TICNY
only to the extent that such arrangements do not impede either company’s
business or operations.


 


TICNY and CPM shall act hereunder so as to assure the
separateness of their respective operating 


 


 


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identities.  Books
and records shall be maintained separately for each party for services provided
by this Agreement.


 


This Agreement may not be assigned, terminated or amended
by either party without the prior written consent of the New York
Superintendent and any other regulatory body required to provide such consent.


 


3.03                           Rights Regarding Termination


 


A.                       This Agreement
may be terminated at any time by the mutual agreement of the parties, or by
either party for any of the following reasons:


 


(1)                      Immediately by
either party in the event of bankruptcy, insolvency, liquidation or assignment for the benefit of creditors by the
other party;


 


(2)                      Upon sixty
(60) days written notice by either party in the event of any material change in the ownership or control of the other party;


 


(3)                      Immediately by
either party in the event any law or regulation of a federal, state or local government has rendered this Agreement
illegal, but only insofar as that law or
regulation applies to this Agreement;


 


(4)                      Immediately by
either party in the event of fraud, abandonment, gross or willful misconduct, insolvency, or lack of legal capacity
to act on the part of either party;


 


(5)                      Upon sixty (60)
days written notice by either party in the event of default in any material
term of this Agreement, unless the default is cured prior to the end of the end
of the sixty (60) day period.


 


                B.        In the event of termination of this
Agreement:


(1)                      TICNY shall
promptly cease performing any services called for under this Agreement;


 


(2)                      Neither party
shall have any claim against the other
for loss of prospective profits or fees or damage to business arising there from;


 


(3)                      Notwithstanding
the termination of this Agreement, TICNY shall continue to perform such
services under this Agreement in settlement of accounts or winding up of affairs between TICNY and CPM if so requested
by CPM.  Expenses for the services rendered by TICNY shall be allocated in
accordance with NY Department’s Regulation 30 and any other applicable
regulation;


 


(4)                      Notwithstanding the termination of this Agreement, TICNY shall continue
to provide the claims and legal defense under this Agreement with respect to all claims reported to either
prior to the effective date of any
termination in accordance with the terms of this Agreement. In consideration for
performing its services as set forth
herein, CPM will continue to compensate TICNY in the manner set forth in
Article 2 of this Agreement. In the event CPM assumes the handling of its own claims after termination,
each party agrees to cooperate with
and instruct its respective employees to 


 


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                                    cooperate in such transition.


 


ARTICLE 4 — MAINTENANCE CONTROL AND
OWNERSHIP OF RECORDS


 


4.01         Maintenance
of Records


 


TICNY and CPM will maintain all appropriate records,
files, ledgers and reports so as to accurately reflect at all times the financial transactions with one another.


 


4.02         Ownership
of Records


 


All books, records, and files established and
maintained by TICNY or CPM by reason of its performance under this Agreement
which, absent this Agreement, would have been held by TICNY or CPM respectively
shall (i) be deemed the joint property of each party, (ii) be maintained in
accordance with all other applicable law and regulation and (iii) be subject to
examination at all times by CPM or TICNY and persons authorized by it or any
governmental agency having jurisdiction over CPM or TICNY.


 


Each party is the owner of all
records related to its company regardless of in whose possession those records
may be at any time.


 


ARTICLE 5 — GENERAL REQUIREMENTS


5.01         TICNY’s
General Duties


TICNY is responsible to perform the duties assumed under
this Agreement in accordance with standard procedures for the performance of
such duties, which exist in the insurance industry.


 


ARTICLE 6 — MISCELLANEOUS 


6.01         Notices


All
notice requirements and other communications indicated shall be deemed given
when personally delivered or on the third succeeding business day after being
mailed by registered or certified mail,
return receipt requested, to the appropriate party at its address below or at such other address as shall be
specified by notice given hereunder.


 


CPM:                                                                                                                CastlePoint
Management Corp.


                                                                                                                                                120 Broadway


                                                                                                                                                New York, NY
10271


 


TTICNY:                                                                                                Tower Insurance
Company of New York


                                                                                                                                                120 Broadway, 31st
Floor


                                                                                                                                                New York,
NY  10271


 


6.02         Binding Effect and
Assignment


 


This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, representatives, successors and
assigns.  This Agreement may not be assigned without mutual consent of the parties,
but such consent shall not be unreasonably withheld. This paragraph may not be
implemented without the prior approval of the State of New York, 


 


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Superintendent of Insurance.


 


6.03            Amendment


 


This
Agreement may not be amended, altered or modified except in writing signed by
the party against whom enforcement or any waiver, change, discharge,
alternation or modification is sought.


 


6.04            Invalidity


 


The
invalidity of any provision of this Agreement shall not affect the validity of
the remainder of any such provision or the remaining provisions of this
Agreement.


 


6.05         Interpretation


 


The
article, section and paragraph headings included in this Agreement have been
used solely for convenience and shall not
be used in the interpretation of this Agreement. References to articles, sections and paragraphs shall refer to such
provisions in this Agreement unless otherwise stated.


 


6.06            Waiver


 


The failure of either party at any time to require
performance by the other party of any provision
of this Agreement shall not be deemed a continuing waiver of that provision or
a waiver of any other provision of
this Agreement and shall in no way affect the full right to require such performance from the other party at
any time thereafter.


6.07            Severability


 


This
Agreement and the transaction contemplated herein constitute one transaction
and shall not be divisible in any manner. A
breach of any portion of this Agreement shall be deemed a breach of the whole Agreement.


 


6.08            Counterparts


 


If
photocopies or duplicates of the original of this Agreement are signed by both
parties, then each such originally signed
document shall be deemed to be an original of this Agreement.


 


6.09            Indemnification


 


CPM and TICNY shall hold harmless and defend and
indemnify the other party against any expenses, damages, liability,
action, cost or other claims, including attorney fees arising out of the other party’s material breach of any duty
or obligation hereunder or any claims made against a party relating to, or
arising out of, the other party’s willful misconduct or gross negligence in
performing, or in failing to perform, services hereunder.


 


6.10            Arbitration


 


Any dispute or difference between CPM and TICNY relating
to the interpretation or performance of this Agreement, including its formation
or validity, or any transaction under
this Agreement, whether arising before or after termination, shall be submitted
to arbitration.


 


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Upon written request of any party, each party shall
choose an arbitrator and the two chosen shall select a third arbitrator.
If either party refuses or neglects to appoint an arbitrator within 30 days after receipt of the written request
for arbitration, the requesting party may appoint a second arbitrator.
If the two arbitrators fail to agree on the selection of a third arbitrator within 30 days of their appointment,
each of them shall nominate three individuals, of whom the other shall
decline two. The current President of the National Association of Independent Insurers shall appoint the third arbitrator
from the two remaining nominees. All the arbitrators shall be chosen from those
submitted by the parties.


 


The parties hereby waive all objections to the selection
of the arbitrators, provided they are selecting
in conformity with this paragraph 6.10.


 


All arbitrators shall be active or retired officers of
insurance or reinsurance companies, or Lloyd’s of London
underwriters, and disinterested in the outcome of the arbitration. Each party shall submit its case to the arbitrators
within 30 days of the appointment of the third arbitrator.


 


The arbitrators shall have the
power to determine all procedural rules for the holding of the arbitration
including but not limited to inspection of documents, examination
of witnesses and any other matter relating to the conduct of the
arbitration. The arbitrators shall interpret this Agreement as an
honorable engagement and not as merely a legal obligation; they are relieved of all judicial formalities and
may abstain from following the strict rules of law. The arbitrators may award interest and costs.
Each party shall bear the expense of its
own arbitrator and shall share equally with the other party the expense of the
third arbitrator and of the arbitration.


 


6.11                           Remittance reports are to be
furnished quarterly and settlement within 30 days of the receipt of such
reports.  The report shall provide in
reasonable detail the type and nature of expenses.


 


6.12                           This Agreement is entered into as
of the date hereof by the parties hereto, but implementation is subject in any
case to the satisfaction of New York Insurance Law § 1505, including
any conditions such a regulator may impose on the terms of this Agreement
subsequent to the date hereof.


 


IN WITNESS
WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.


 


 


	
   

  	
  Tower Insurance Company of New York

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Francis M. Colalucci

  
	
   

  	
   

  	
   

  
	
   

  	
  CastlePoint Management Corp.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Joel S. Weiner

  



 


 


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