EXHIBIT 10.8


 


PROGRAM MANAGEMENT AGREEMENT


 


This
Agreement, entered into as of April 10, 2006 (April 28, 2006 with respect to
Tower National Insurance Company) (the “Agreement”) by and between TOWER
INSURANCE COMPANY OF NEW YORK, a property and casualty insurance company
domiciled in New York and TOWER NATIONAL INSURANCE COMPANY, a property and
casualty insurance company domiciled in Massachusetts (collectively the “Company”),
CASTLEPOINT MANAGEMENT CORP., a Delaware corporation (“Manager”), each having
offices located at 120 Broadway, New York, N.Y. 10271.


 


PREAMBLE


 


WHEREAS,
Company desires to appoint Manager as its manager for performing underwriting
and claims services with respect to the Specialty Program Business and
Insurance Risk Sharing Business as set forth in this Agreement; and


 


WHEREAS,
Manager desires to perform such responsibilities;


 


NOW,
THEREFORE, Company and Manager, in consideration of
the mutual promises herein contained and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
agree as follows:


 


1.             Appointment.


 


1.1           Appointment. Company does hereby
nominate, constitute, and appoint Manager as its manager for: (i) the
soliciting, underwriting, quoting, binding, issuing, and servicing of Company’s
insurance policies classified as Specialty Program Business and Insurance Risk
Sharing Business as set forth in the schedule attached hereto as Exhibit A, as
may be amended from time to time (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).


 


1.2           Authority. Manager is authorized
to:


 


1.2.1        Issue, or direct Company to issue,
Policies subject to: (i) the scope and limits granted in Exhibit A attached
hereto, as may be amended from time to time; (ii) the terms and conditions
(including exclusions) of forms of Policies prescribed by Company; (iii)  applicable state insurance laws, rules, and
regulations; (iv) the underwriting guidelines approved by Company; (v) Company’s
ultimate right to veto the solicitation, underwriting, quoting, binding, and
issuing of any Policy by Manager; (vi) Company’s ultimate right to cancel any
Policy subject to applicable governmental regulatory requirements for
cancellation and non-renewal; (vii) Company’s ultimate right to veto the
appointment by Manager of any agent, broker or producer, and the ultimate power
of  Company to cancel any such agency
pursuant to Section


 


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1.2.4; (viii) 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 remit
premiums on Policies that Manager writes on behalf of Company in accordance
with Section 1.2.1 and, as full compensation, to retain commissions out of
premiums so collected in amounts as specified in Exhibit A attached hereto, as
may be amended from time to time. Manager agrees to pay all costs and expenses
of collection from insureds where premiums to be received by Manager pursuant
to this Agreement are not paid in full by the insured. Manager agrees that all
premiums, including return premiums received by Manager, are Company’s
property.


 


1.2.3        Secure or obtain agents and producers to
produce business. Company appointments will follow upon Manager providing
evidence that the agents and producers are lawfully licensed to transact the
type of insurance they are expected to write, are not serving on Company’s or
Manager’s board of directors and complete Company’s appointment process. The
agents and producers must meet the applicable compliance regulations for
licensure.


 


1.2.4        Terminate agents and producers.


 


1.2.5        Investigate and settle claims as provided
in Section 5 below and establish reserves for such claims.


 


1.2.6        Appoint small third party insurers or
their affiliates as Program Underwriting Agents using Company policies on the
condition that such small insurers participate as a reinsurer on the Specialty
Program Business and Insurance Risk Sharing Business they underwrite. “Program
Underwriting Agent” means an insurance intermediary that aggregates business
from retail and general agents and manages business on behalf of insurance
companies, including functions such as risk selection and underwriting, premium
collection, policy form design and client service


 


1.3           Performance. Manager
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 Manager commits a material breach of this Agreement, Company may, as one
remedy but not as an exclusive remedy, require its own employees or designated
representatives to carry out Manager’s duties hereunder. Manager 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, Manager shall pay such employees or representatives
directly. Such reimbursement or direct payments shall be made by Manager within
five (5) days after Manager’s receipt of invoices of such expenses.


 


1.5           Fee. Company
shall pay Manager a fee as set forth in Exhibit A.


 


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2.                                      Territory.


 


Manager’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, as may be amended from time to time,
subject to: (i) the applicable licensing authority of Company, (ii) Company
having made and received approval of all necessary regulatory filings and (iii)
Manager obtaining licenses wherever required for activities conducted by
Manager pursuant to this Agreement.


 


2.1           Representations and
Warranties of Manager. On the effective date hereof, during the term
of this Agreement, and for any period described in Section 10.5, Manager hereby
represents and warrants to Company as follows:


 


2.1.1        Laws
and Licenses. Manager has complied and will comply with all
applicable laws, rules, and regulations. Manager shall provide current copies
of Manager’s licenses, which will be maintained in Company’s records. Company
will appoint Manager in all applicable states. Manager will obtain and maintain
at its own expense all licenses required for it to perform this Agreement.


 


2.1.2        No
Breach. This Agreement is a valid and binding obligation of Manager.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated herein will not breach or conflict with Manager’s
by-laws or certificate of incorporation, nor with any agreement, covenant, or
understanding (oral or written) to which Manager is bound, and will not
adversely affect the application for issuance or the validity of any license of
Manager.


 


2.1.3        Status.
Manager is a duly organized and validly existing corporation in the State of
Delaware.


 


2.1.4        Authorization.
The execution, delivery, and performance of this Agreement by Manager has been
duly and properly authorized by it.


 


2.2           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, each Company hereby represents and warrants
to Manager as follows:


 


2.2.1        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.


 


2.2.2        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.


 


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


 


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2.2.4        Authorization. The execution,
delivery, and performance of this Agreement by Company has been duly and
properly authorized by it.


 


3.                                      Duties
and Responsibilities.


 


3.1           General. Subject to Company’s
supervision and instructions, Manager agrees to perform the following duties
and services in addition to those otherwise enumerated in this Agreement:


 


3.1.1        Solicit, underwrite, quote, bind, issue,
secure proper countersignature when required by applicable laws, and service
Policies on behalf of Company.


 


3.1.2        Cancel Policies issued or underwritten
by Manager in accordance with the terms of the Policies and applicable state
regulations.


 


3.1.3        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.


 


3.1.4        Underwrite and issue Policies in
accordance with the premium rates and underwriting criteria and guidelines as
approved by Company (or as may be modified from time to time as agreed upon by
Company and Manager).


 


3.1.5        Investigate and settle claims as
provided in Section 5 below and establish reserves for such claims.


 


3.1.6        Maintain at Manager’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.


 


3.1.7        Perform Manager’s responsibilities under
Section 7 of this Agreement.


 


3.1.8        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 Manager in accordance with Section 7.3.2.


 


3.1.9        Pay to Company any fines imposed by
regulatory authorities upon Company due to the use of unapproved forms or rates
by Manager or due to other market conduct violations caused by Manager’s
willful misconduct.


 


3.1.10      Maintain separately for Company and each
other insurer with which Manager does business, complete and current records
and accounts, including underwriting files, which Manager shall retain in
accordance with Section 8 and any applicable laws.


 


3.1.11      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.


 


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3.1.12      Collect, account, receipt for and remit
premiums on Policies that Manager writes on behalf of Company in accordance
with Section 1.2.1.


 


3.1.13      Hold all monies, including premiums,
return premiums, and monies received by Manager, in a fiduciary capacity for
Company. Except as otherwise authorized by this Agreement, Manager 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 Manager.


 


3.1.14      Comply with all regulatory requirements
including, but not limited to, the cancellation, non-renewal, or conditional
renewal of policies.


 


3.1.15      Return upon demand after termination of
this Agreement, all unused Policies, forms, and other property furnished to
Manager by Company. Such items remain the property of Company. Manager shall
fully cooperate with and assist Company in recovering such items from third
parties, if any.


 


3.1.16      Exercise Manager’s authority through
authorized employees of Manager or its affiliates.


 


3.1.17      Not represent other companies except as
permitted by Company.


 


3.1.18      Exercise exclusive and independent control
of Manager’s time and conduct.


 


4.                                      CLAIM
SETTLEMENT AUTHORITY


 


4.1           Claims. Manager shall or shall
arrange to investigate, negotiate, and settle all Policy claims or losses on
behalf of Company; however, Manager 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. Manager shall determine
coverage for claims; however, Manager shall obtain the prior written approval
of Company for the handling of litigation in which Company is named as a
defendant or claims in which Manager seeks declaratory relief on behalf of
Company. All claims or losses shall be reported in monthly statements pursuant
to Section 7 below. In addition, Manager shall immediately notify Company in
writing of any claim or loss of the following kind and such other information
and records concerning such claim or loss as Company requests upon receiving
notice or knowledge of: (i) any Policy claim or loss in excess of Two Hundred
Fifty Thousand Dollars ($250,000) gross incurred loss; or (ii) any loss
regardless of incurred dollar amount involving the following: fatalities; brain
stem/brain damage injuries; spinal cord injuries; heart attacks; severe,
non-accumulative hearing loss; severe, non-accumulative vision loss; amputation
of major body part; paraplegia; quadriplegia; serious burns (i.e. second or
third degree and/or burns over 50% of the body); non-union, compound,
comminuted, serious fractures; injury to the spine or pervasive nerve damage;
class action suits; allegations of criminal conduct by an insured or
allegations of criminal conduct on the insured’s premises; bad faith claims or
suits; demands in excess of policy limits; actual or alleged violations of the
Deceptive Trade Practices Act; actual or alleged


 


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violations of the applicable State Insurance
Codes; actual or alleged violation of law by Manager; or litigation naming
Company as a defendant. In determining gross incurred loss, Manager shall
consider the facts and circumstance of the claim or loss, Manager’s analysis of
the insured’s liability for the claim or loss, Manager’s analysis of damages
resulting from the claim or loss and Manager’s analysis of the applicability of
coverage for the claim or loss. 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 Manager 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.


 


4.2           Legal Counsel. Whenever Manager
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
Manager, who have substantial experience in the handling of claims litigation
of the type involved. Upon execution of this Agreement, Manager 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 fourteen (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, Manager 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 assume the defense of any claim or
loss reported to Company and, in the event an attorney has already been
employed by Manager, the service of such attorney which has already been
employed by Manager shall be terminated by Manager forthwith and Manager shall
waive any conflict of interest that may have been created by such attorney’s
employment by Manager.


 


b)            In
the event that Company is named as a defendant in any lawsuit, Manager 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.


 


4.3           Allocated Claim Costs. Company
shall reimburse Manager for fees to attorneys and service providers who are
employees of, or on permanent retainers to, Manager. Company hereby agrees to
pay for the claims adjustment services rendered by Manager as well as legal
defense services rendered.


 


5.                                      Expenses.


 


5.1           Manager
shall pay from its own monies (and not seek reimbursement from Company for) all
commissions to any agents, sub-agents, brokers, and sub-producers, all
inspection fees, expenses of examinations of Manager, and other governmental
expenses in connection therewith, all refunds of unearned commissions owed to
Company on canceled


 


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policies, all costs to print and inventory
Policy forms, all costs to service claims (except for allocated loss adjustment
expenses and except as stated in Section 4.3 above), and all costs to collect
premiums in regard to Policies issued, underwritten, or serviced pursuant to
this Agreement.


 


6.                                      Accounting
and Reporting Procedures.


 


Manager shall:


 


6.1           Within
thirty (30) days after the end of each month, remit to Company all premiums
collected on Policies issued under the terms of this Agreement, less the
commission due to Manager in accordance with Exhibit A, as may be amended from
time to time. Manager may not offset balances due to Company hereunder against
balances due Manager under any other contract with Company;


 


6.2           On
behalf of Company supply accounting, underwriting, and claim bordereaux with
copies to Company, pursuant to their terms and conditions;


 


6.3           With
regard to business placed by Manager with Company hereunder, furnish to
Company, in electronic format:


 


6.3.1        Within thirty (30) days after the end of
each month a report of:  written, earned,
and unearned premiums; losses and loss adjustment expenses paid and
outstanding; loss and loss adjustment expenses incurred; commissions earned by
Manager;


 


6.3.2        Provide detail and summary reports, in
an electronic or printed medium, as are required to meet all reporting
requirements of state regulatory or taxation authorities, their managers for
data collection, and advisory organizations including but not limited to:


 


a.             Within thirty (30) days of the
close of the calendar quarter:  direct
premiums (written and earned); in force premiums; policy counts (written and in
force); direct losses and loss adjustment expenses including subrogation (paid
and reserved); number of claims open, closed with payment, and closed without
payment; as prescribed by state regulatory authorities.


 


b.             Within thirty (30) days of the
close of the calendar quarter:  direct
written premium, losses, and loss adjustment expense including subrogation
(paid and reserved) transaction data as prescribed by advisory organizations
providing loss cost and policy forms.


 


c.             Thirty (30) days prior to the
prescribed deadline:  the reports of
direct premiums (written and earned), losses, and loss adjustment expenses
including salvage and subrogation (paid and reserved) as required by state regulatory
data collection agents, including but not limited to financial calls, unit
statistical data, summary statistical data, and detailed claim information for
National Council on Compensation Insurance (NCCI), Insurance Services Office
(ISO), and National Association of Independent Insurers (NAII), and various
state-specific reporting requirements as necessary.


 


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6.4           By
the first business day of February of each year, Manager shall provide Company
with any information Company may require in order to complete its statutory
financial statements for the prior year.


 


7.                                      Books
and Records.


 


Manager shall
at its own expense keep such books and records as may be (i) reasonably
requested by Company; or (ii) required by law, rulings, or orders of the
insurance departments of the states having jurisdiction over: (a) Manager or
Manager’s business or (b) any Policies. Manager shall make such books and
records available for examination, audit, and copying by the insurance
departments of such states and by Company, or by their authorized
representatives. Company and the Reinsurers shall have the right to examine and
review at any reasonable time all books, records, files, and papers, including,
but not by way of limitation, claim files and underwriting files maintained and
kept by Manager which relate to this Agreement and the Policies. Manager shall
institute and maintain retention and disposal systems for claim files and
underwriting files in accordance with procedures and requirements as prescribed
by law. All books and records of Manager shall be maintained at the principal
place of business of Manager and shall be complete, accurate, and up-to-date,
and shall reflect all monies paid or received by Agent and all transactions of
Manager pursuant to this Agreement. Anything to the contrary notwithstanding,
all of the books, records, files, and papers maintained and kept by Manager
relating to underwriting and claims matters involving this Agreement or the
Policies, shall be and remain the sole and exclusive property of Company except
that upon termination of this Agreement, all right, title, and interest in and
to all Policy renewals or expirations and all records with respect to renewals
and expirations shall automatically and irrevocably transfer to and vest in
Manager provided Manager has accounted for and has made payments of all amounts
due Company and continues to do so.


 


8.                                      Indemnification.


 


8.1           Manager shall indemnify and hold
harmless Company from and against all losses, damages, costs, expenses, claims,
fines, penalties, or liabilities of any description suffered by Company with
respect to Manager or any Policies issued or underwritten by Manager,
including, without limitation, any attorney’s fees, in connection with or
arising out of: (i) any violations by Manager of laws, rules, or regulations to
which it is subject; (ii) any material breach of any warranty or representation
of Manager made in this Agreement or any other material breach of this
Agreement by Manager; or (iii) any willful misconduct, gross negligence, or
misrepresentation, of Manager or of it officers, directors, employees, agents,
sub-producers, or independent contractors.


 


8.2           Company shall indemnify and hold
harmless Manager from and against all losses, damages, costs, expenses, claims,
fines, penalties, or liabilities of any description suffered by Manager with
respect to Company or any Policies issued or underwritten by Company,
including, without limitation, any attorney’s fees, in connection with or
arising out of: (i) any violations by Company of laws, rules, or regulations to
which it is subject; (ii) any breach of any warranty or representation of
Company made in this Agreement or any other breach of this Agreement by
Company; or (iii) any alleged or actual misconduct, negligence,


 


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misrepresentation,
or other acts or failures to act of Company or of it officers, directors,
employees, agents, sub-producers, or independent contractors.


 


9.                                      Termination
of Agreement.


 


9.1           This
Agreement shall continue until terminated in accordance with Sections 10.2
through 10.4 below.


 


9.2           This
Agreement may be terminated immediately by either party upon giving written
notice to the other party via electronic, certified or registered mail in the
event of:


 


9.2.1        The misappropriation by either party of
any funds or property belonging to the other party;


 


9.2.2        The fraud, gross negligence, or willful
misconduct of the other party;


 


9.2.3        The license or certificate of authority
of the other party in their state of domicile is canceled, non-renewed or
suspended by any public authority;


 


9.2.4        An assignment by the other party for the
benefit of creditors; the dissolution or liquidation of the other party; the
appointment of a conservator, receiver, or liquidator for a substantial part of
the other party’s property; the institution of bankruptcy, insolvency, or
similar proceedings by or against the other party;


 


9.2.5        Material breach by the other party of
any provision of this Agreement;


 


9.2.6        If any law or regulation of the federal,
state, or local government of any jurisdiction in which the other party is
doing business shall render illegal or invalid any transaction contemplated by
this Agreement, or any term of this Agreement, this Agreement may be terminated
insofar as it applies to such jurisdiction by either party giving notice to the
other party to such effect or by either party giving notice to the other party
to such effect;


 


9.2.7        Change in ownership of ten percent (10%)
or more of the outstanding voting stock of the other party, sale or transfer of
the other party’s assets, merger of the other 
party, or change or resignation of any principal officer or director of
the other party;


 


9.2.8        The licenses required of the other party
for it to perform under this Agreement expire, are terminated, or are not valid
pursuant to the law of the State in which the other party is transacting
business on behalf of either party.


 


9.3           This
Agreement may be terminated at any time by mutual written agreement.


 


9.4           Upon
termination of this Agreement:


 


9.4.1        If at any time either party sends notice
of termination to the other party as provided in Section 10.2 above or the
Agreement is otherwise terminated as provided herein,


 


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the Manager shall not solicit, underwrite,
quote, bind, or issue any Policies or renew any existing Policies for which the
inception date or renewal date falls after the effective date of termination of
this Agreement, nor shall Manager cancel and rewrite any existing Policies.


 


9.4.2        Unless otherwise indicated by this
Agreement or either party otherwise notifies the other party in writing,
Manager’s duties and responsibilities under this Agreement shall survive termination
of this Agreement until such time as all Policies issued, underwritten, or
serviced by Manager pursuant to this Agreement have expired and all known
losses thereunder have been paid or settled, have run off or otherwise have
been disposed of in the judgment of Company, all incurred but not reported loss
reserves have been reduced to zero, and any amounts owed to Company by others
has been paid. The only compensation Manager shall receive for its performance
of its duties hereunder (both during and after the term of this Agreement) is
set forth in the Fee Section of Exhibit A attached hereto (as may be amended
from time to time).


 


9.4.3        Manager shall, unless notified in
writing to the contrary by Company:


 


a.             Continue to represent Company for
the purpose of servicing Policies placed by Manager with Company which are in
force on, or renewed at Company’s election, or as required by law, after the
date of termination of this Agreement, and Manager shall continue to receive
its normal compensation for such services.


 


b.             Issue and countersign appropriate
endorsements on Policies in force, provided that without prior written approval
of Company, such endorsement shall not increase nor extend Company’s liability
nor extend the term of any Policy.


 


c.             Collect and receipt for premiums
and retain commissions out of premiums collected as full compensation.


 


9.5           Any
notice issued pursuant to this Section shall be effective on the day after it
is received by Manager.


 


10.                               Suspension
of Manager’s Authority.


 


10.1         In
lieu of terminating this Agreement, Company may give written notice to Manager
that Company is immediately suspending Manager’s authority in its entirety or
in any particular state to bind new or renewal business, change any existing
Policy and/or settle any claim during the pendency of any of the following
events:


 


10.1.1      Manager is delinquent in payment of any
monies due Company;


 


10.1.2      Any dispute exists between Manager and
Company regarding the existence of any of the events listed in Section 10.2;


 


10.1.3      Such suspension shall remain in effect
until such delinquency is cured or dispute is resolved and Manager receives
written notification from Company to that effect. If such delinquency is not
cured within fifteen (15) days from the date of receipt of written


 


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notification by Manager of such delinquency,
Company may exercise its right to terminate this Agreement under Section 10.2.


 


10.2         Unless
otherwise notified in writing to the contrary by Company, Manager’s obligation
under this Agreement shall continue during the suspension of Manager’s
authority under this Agreement.


 


10.3         Any
notice of suspension issued pursuant to this Section shall be effective
immediately.


 


11.                               Ownership
of Expirations


 


Subject to
Section 8, the use and control of expirations will remain the property of
Manager; and Company will not, without consent of Manager, (a) refer or
communicate to any other agent or broker, Company’s records of insureds,
expiration dates and other material information relating to specific risks
except for loss or claims information specifically requested by the insured or
the insured’s authorized representative nor (b) use such material information
relating to specific risks for purposes of solicitation.


 


12.                               Mediation
and Arbitration.


 


If any dispute
arises between Company and Manager with reference to the interpretation,
performance, or breach of this Agreement (whether the dispute arises before or
after termination of this Agreement) such dispute, if not resolved by the
parties, must be submitted to non-binding mediation. If such dispute is not
resolved by non-binding mediation within sixty (60) days it will then be
submitted for decision to a panel of three arbitrators. Notice requesting
arbitration will be in writing and sent certified or registered mail, return
receipt requested.


 


One arbitrator
shall be chosen by each party and the two arbitrators shall, before instituting
the hearing, choose an impartial third arbitrator who shall preside at the hearing.
If either party fails for any reason to appoint its arbitrator within thirty
(30) days after being requested to do so by the other party, the latter, after
ten (10) days notice by certified or registered mail of its intention to do so,
may appoint the second arbitrator. If the two arbitrators are unable to agree
upon the third arbitrator within thirty (30) days of their appointment, the
third arbitrator shall be selected from a list of six individuals (three named
by each arbitrator) by a judge of the United States District Court having
jurisdiction over the geographical area in which the arbitration is to take
place, or if that court declines to act, the state court having general
jurisdiction in such area.


 


All
arbitrators shall be active or retired disinterested officials of insurance or
reinsurance companies not under the control or management of either party to
this Agreement and will not have personal or financial interests in the result
of the arbitration.


 


Within thirty
(30) days after notice of appointment of all arbitrators, the panel shall meet
and determine timely periods for briefs, discovery procedures, and schedules
for hearings.


 


The panel
shall be relieved of all judicial formality and shall not be bound by the
strict rules of procedure and evidence. Unless the panel agrees otherwise,
arbitration shall take place


 


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in New York,
New York, but the venue may be changed when deemed by the panel to be in the
best interest of the arbitration proceeding. Insofar as the arbitration panel
looks to substantive law, it shall consider the law of the State of New York. The
decision of any two arbitrators when rendered in writing shall be final and
binding. The panel is empowered to grant interim relief as it may deem
appropriate.


 


The panel
shall interpret this Agreement as an honorable engagement rather than merely a
legal obligation and shall make its decision considering the custom and
practice of the applicable insurance and reinsurance businesses within sixty
(60) days following the termination of the hearing unless the parties consent
to an extension. Judgment upon the award may be entered in any court having
jurisdiction thereof.


 


Punitive
damages will not be awarded. The arbitrators may, however, at their discretion
award such other costs and expenses as they deem appropriate, including but not
limited to attorneys’ fees, the cost of arbitration, and arbitrators’ fees, to
the extent permitted by law.


 


13.                               Miscellaneous.


 


13.1         This
Agreement may be revised by mutual agreement of Manager and Company and such
revision shall be evidenced by a written agreement duly executed by authorized
representatives of Manager and Company, which specifies the effective date
thereof.


 


13.2         Manager
shall not have authority to represent Company on any exclusive basis with
respect to any policy form, line, or class or subclass of business, unless
otherwise authorized in writing by Company.


 


13.3         Manager
shall not commit Company to any expenses or obligations not specifically
provided for herein without the prior written permission of Company.


 


13.4         Company
shall have the right to oversee and supervise the operation of this Agreement,
including but not limited to the right at all reasonable times to have access
to and to copy at Company’s expense Manager’s books and records as they relate
to this Agreement, which rights shall survive the termination or expiration of
this Agreement. The director or commissioner of insurance of any state where
Manager issues Policies on behalf of Company shall have at all reasonable times
the right of access to all books, records, and bank account of Manager in a
form usable by such official.


 


13.5         During
the term of this Agreement, Manager shall obtain and maintain in full force and
effect, at its expense, fidelity insurance with a minimum policy limit of
$1,000,000, errors and omissions insurance with a minimum policy limit of
$2,000,000, directors and officers insurance with a minimum policy limit of
$2,000,000, and general liability insurance with a minimum policy limit of
$1,000,000 and on such terms as are reasonably acceptable to Company. Manager
shall furnish Company with copies of the certificates of insurance for such
insurance, and shall not cancel or amend any such insurance without Company’s
prior written consent.


 


13.6         During
the term of this Agreement and until all premium applicable to policies issued
hereunder is fully earned, Manager shall obtain and maintain in full force and
effect, at its


 


12

















 


own expense, an Account Receivable Guarantee
Bond with a minimum policy limit of $1,000,000/$3,000,000 and issued by a
carrier acceptable to Company.


 


13.7         Manager
shall provide to Company, copies of its quarterly financial reports and annual
audited financial reports.


 


13.8         If
Manager fails in any respect to fulfill its duties and responsibilities under
this Agreement, then the expense incurred by Company in order to fulfill
Manager’s duties and responsibilities under this Agreement will be fully
reimbursed by Manager.


 


13.9         This
Agreement may not be directly or indirectly assigned by either party in whole
or in part, nor may Manager appoint a sub managing general Manager.


 


13.10       Any
provision of this Agreement which conflicts with applicable law or regulation
will be amended to the minimum extent necessary to effectuate compliance with
such law or regulation.


 


13.11       Manager
is an independent contractor, not an employee of Company, and nothing in this
Agreement shall be construed to create an employer/employee relationship
between Company and Manager.


 


13.12       This
Agreement shall be construed in accordance with the laws of the State of New
York.


 


13.13       Neither
Company nor Manager shall disclose material details of this Agreement and the
Policies without the prior consent of the other party. However, this
restriction will not apply to disclosures made by Company or Manager to its
agents, producers, shareholders, policyholders, auditors, accountants,
arbitrators, legal counsel, or other third parties as required in the ordinary
course of business, nor to disclosures required by arbitration panels,
governmental agencies, regulatory authorities, or courts of law.


 


13.14       Failure
of either party to enforce compliance with any term or condition of this
Agreement shall not constitute a waiver of such term or condition. No waiver of
any breach or default hereunder shall be valid unless in writing and signed by
the party giving such waiver, and no such waiver shall be deemed a waiver of
any subsequent breach or default of the same or similar nature.


 


13.15       Manager
acknowledges and agrees that it will benefit from this Agreement and that a
breach by it of the covenants contained in Sections 1, 2, 4, 5, or 10.5 herein
would cause Company irreparable damages that could not adequately be
compensated for only by monetary compensation. Accordingly, it is understood
and agreed that in the event of any such breach or threatened breach, Company
may apply to a court of competent jurisdiction for, and shall be entitled to,
injunctive relief from such court, without the requirement of posting a bond or
proof of damages, designed to cure existing breaches and to prevent a future
occurrence or threatened future occurrence of like breaches on the part of
Manager. It is further understood and agreed that the remedies and recourses
herein provided shall be in addition to, and not in lieu of, any other remedy
or recourse which is available to Company either at law or in equity in the
absence of this paragraph including without limitation the right to damages.


 


13

















 


13.16       Manager
shall notify Company in writing via electronic, certified or registered mail,
within five (5) days if there is a change in ownership of ten percent (10%) or
more of the outstanding voting stock of Manager, sale or transfer of all
Manager’s assets, merger of Manager, or change of any principal officer or
director of Manager including, but not limited to, resignation.


 


13.17       Any
notice or other communications required or permitted hereunder shall be
sufficiently given if sent by electronic, certified or registered mail, postage
prepaid, if to Company, addressed to Tower Insurance Company of New York, 120
Broadway, 17th Floor, New York, New York, 10271, Attention: Steven G. Fauth,
Secretary and if to Company addressed to CastlePoint Management Corp., 120
Broadway, 17th Floor, New York, NY 10271, Attention: Joe Beitz, President  or such other address as notified by either
party to the other.


 


13.18       This
Agreement is entered into as of the date hereof by the parties hereto, except
that with respect to Tower National Insurance Company it shall be deemed to be
entered into as of April 28, 2006, subject in any case to the satisfaction of
applicable insurance regulatory requirements of New York and Massachusetts,
including any conditions such regulators may impose on the terms of this
Agreement subsequent to the date hereof. Subject to the foregoing, this
Agreement shall be effective as of April 5, 2006.


 


14

















 


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


 


	
   

  	
  CASTLEPOINT MANAGEMENT CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joel S.
  Weiner

  	
   

  
	
   

  	
  Name: Joel S. Weiner

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TOWER INSURANCE COMPANY OF

  NEW YORK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Francis
  Colalucci

  	
   

  
	
   

  	
  Name: Francis M. Colalucci

  
	
   

  	
  Title: Chief Financial Officer and
  Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TOWER NATIONAL INSURANCE

  COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Francis Colalucci

  	
   

  
	
   

  	
  Name: Francis M. Colalucci

  
	
   

  	
  Title: Chief Financial Officer and Treasurer

  



 


[SIGNATURE PAGE TO PROGRAM MANAGEMENT AGREEMENT]


 

















 


EXHIBIT A


 


SCHEDULE OF
AUTHORITY


 


Manager is
only authorized to accept or bind business, as defined in Section A below,
subject to the amounts and stipulations indicated below. Amounts in excess of
the authorized limits or classifications must be referred to Company for review
and approval prior to binding.


 


A.                                   AUTHORIZED
BUSINESS. Any Specialty Program Business and Insurance Risk Sharing Business as
defined below:


 


1.     “Specialty Program Business”
as used herein shall mean (i) all types of program business except traditional
program business written by Company and (ii) traditional program business that
Company elects not to manage and CastlePoint Holdings, Ltd., together with any
of its subsidiaries, including Manager, elects to manage. “Program Business”
used herein means narrowly defined classes of business that are underwritten on
an individual policy basis by Program Underwriting Agents on behalf of
insurance companies. Traditional Program Business shall mean  blocks of Program Business in excess of $5
million in gross written premium that Tower has historically underwritten,
consisting of non-auto related personal lines and the following commercial
lines of business: retail stores and wholesale trades, commercial and
residential real estate, restaurants, 
grocery stores, office and service industries,  and artisan contractors. “Program
Underwriting Agent” shall mean an insurance intermediary that aggregates
business from retail and general agents and manages business on behalf of
insurance companies, including functions such as risk selection and
underwriting, premium collection, policy form design and client service.


 


2.     “Insurance Risk Sharing
Business” means various risk sharing arrangements such as (i) pooling or
sharing of premiums and losses between CPIC or Tower on the one hand and other
insurance companies on the other hand based upon their respective percentage
allocations or (ii) appointing other third party insurance companies as Program
Underwriting Agents with such third party insurance companies assuming through
reinsurance a portion of the business they produce as Program Underwriting
Agents.


 


Manager must
obtain specific written consent from Company to write any type of insurance
risk sharing business.


 


B.                                     GROSS NET WRITTEN PREMIUM LIMIT   A maximum of $50,000,000 unless Manager
obtains the prior written consent of Company. Gross Net Written Premium shall
mean gross written premium of Company less returned premium for cancellations
and reductions.


 


1

















 


C.                                     POLICY LIMITS AND COVERAGE CLASSIFICATIONS


 


Small Market Business, Middle Market Business and Large Lines Real
Estate General Liability Business.


 


	
  Coverage

  	
   

  	
  Limit

  
	
  Commercial Property (including Equipment Breakdown)

  	
   

  	
  $30 Million

  
	
  Commercial General Liability

  	
   

  	
  $1 Million per Occurrence / $2 Million Aggregate

  



 


The above
coverages are provided on ISO forms and certain independent manuscript forms to
be agreed.


 


No other
classes of insurance may be written on Company’s insurance policies.


 


D. COMMISSIONS
  Company
will allow Manager a management fee based on an initial management fee
percentage of 30% less charges for boards bureaus and taxes (which will be applied
each year to premium written during that year) and will be adjusted based on
the net loss ratio of the business covered under the Agreement. The Management
Fee Percentage may, on each six month anniversary of the Effective Date,
increase nine-tenths of a percentage point for every percentage point by which
the net loss ratio is below 63% up to a maximum Management Fee Percentage of
36%, as follows:


 




	
  Net Loss Ratio

  	
   

  	
  Management Fee Percentage

  	
   

  
	
  63% or higher

  	
   

  	
  30.0

  	
   

  
	
  62

  	
   

  	
  30.9

  	
   

  
	
  61

  	
   

  	
  31.8

  	
   

  
	
  60

  	
   

  	
  32.7

  	
   

  
	
  59

  	
   

  	
  33.6

  	
   

  
	
  58

  	
   

  	
  34.5

  	
   

  
	
  57

  	
   

  	
  35.4

  	
   

  
	
  56.33 or lower

  	
   

  	
  36.0

  	
   

  






 


The annual management fee paid will be equal
to the sum of (1) the applicable management fee percentage multiplied by the
gross written premium of the business covered under the Agreement, net of
return premiums and net of ceded reinsurance premiums that inure to the benefit
of the covered business, less (2) ceding commission consisting of actual
commissions paid to agents or brokers, premium taxes, guarantee fund
assessments, fees and assessments for boards, bureaus and taxes and fees and
assessments for industry and residual markets, less (3) certain expenses
involved in managing the business covered.


 


2

















 


D.            TERRITORIAL LIMITATIONS   Manager shall not issue any policy in any
jurisdiction other than the authorized states defined as those states in which
Company is licensed and has filed and approved rates and policies. Company at
its own discretion may limit or revoke Manager’s authority as regards any
particular state.


 


3