EXHIBIT 10.9


 


SERVICE
AND EXPENSE SHARING AGREEMENT


 


This (“Agreement”) is entered into as of April 10, 2006 (April 28,
2006 with respect to Tower National Insurance Company) by and between Tower
Insurance Company of New York (“TICNY”) and Tower National Insurance Company (“TNIC”)
, property and casualty insurance companies domiciled in New York and
Massachusetts, respectively,  (both
insurance companies collectively referred to as Tower insurance companies or “TIC”)
and Tower Risk Management Corp. (“TRM”), an insurance services company
domiciled in New York (TIC and TRM are collectively referred to as “Tower”)
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, CPM plans to acquire one or more
property and casualty insurance companies (hereinafter referred to as “CastlePoint
Insurance Companies” or “CPIC”); and


 


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


 


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


 


WHEREAS, TRM provides insurance company
services to third parties and would like to enter into an agreement initially
with CPM and then with CPIC to market these services to their clients in the
course of CPM’s and CPIC’s management of the Specialty Program Business and
Insurance Risk Sharing Business; and


 


WHEREAS, Tower and CPM are desirous of
entering into an agreement whereby Tower and CPM provide services to each other
at each other’s request (other than services provided in their respective role
as the manager of the Brokerage Business and Traditional Program Business and
Specialty Program Business and Insurance Risk Sharing 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, Tower 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


 

















 


and Traditional Program Business and CPM or CPIC may provide
to Tower in managing the Specialty Program Business and Insurance Risk Sharing
Business, TICNY and CPM agree (and CPM shall cause CPIC to agree) to provide
various insurance companies services to each other at terms and conditions set
forth herein.


 


ARTICLE 2 – COMPENSATION 


 


2.01         Any
compensation paid by CPM to Tower and by Tower to CPM for services rendered
hereunder must be on a 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         Fees


 


Fees for the services rendered by CPM to Tower and
by Tower 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,
to the extent such services are provided by either company to the other, each
agrees to pay for the loss adjustment expenses incurred by the servicing
company in adjusting and defending claims on the hourly billing rate to be
established by the companies.  Tower and
CPM agree to utilize the same billing rate or method of payment established to
allocate or assign unallocated expenses to adjust and defend claims.


 


2.04         Settlement
of Accounts


 


(a)   Each company shall submit to the other 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 each company shall pay to the other 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, each company shall submit to the other 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 each company
shall pay to the other within fifteen (15) days following receipt of such
written statement the amount set forth in the statement.


 


2.05         Profit Sharing


 


CPM and Tower 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.


 


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 three (3) 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 Tower or CPM into
rehabilitation or liquidation by regulatory authorities or upon the declaration
of bankruptcy of either company.


 


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3.02         Agreement


 


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


 


Tower and CPM shall act hereunder so as to
assure the separateness of their respective operating identities.  Books and records shall be maintained
separately for each party for services provided by this Sharing 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 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 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)       Tower and CPM 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,
Tower and CPM shall continue to perform such services under this Agreement in
settlement of accounts or winding up of affairs between Tower and CPM if so
requested by either party.  Fees for the
services rendered by Tower and CPM shall be allocated in accordance with NY
Department’s Regulation 30 and any other applicable regulation.


 


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(4)       Notwithstanding
the termination of this Agreement, Tower or CPM 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 and Tower will continue to compensate each other in
the manner set forth in Article 2 of this Agreement. In the event either
company assumes the handling of their own claims after termination, each party
agrees to cooperate with and instruct its respective employees to cooperate in
such transition.


 


ARTICLE 4 – MAINTENANCE CONTROL AND
OWNERSHIP OF RECORDS


 


4.01         Maintenance of Records


 


TOWER 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


 


(a)           All books, records, and
files established and maintained by TOWER or CPM by reason of its performance
under this Agreement which, absent this Agreement, would have been held by
TOWER 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
TOWER and persons authorized by it or any governmental agency having
jurisdiction over CPM or TOWER


 


(b)           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 OF
TOWER


 


5.01         TOWER’s and CPM’s General
Duties


 


TOWER and CPM are 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.


 


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  CPM:

  	
  CastlePoint Management Corp

  
	
   

  	
  120 Broadway

  
	
   

  	
  New York, NY 10271

  
	
   

  	
   

  
	
  TOWER:

  	
  Tower Insurance Company of New York

  
	
   

  	
  120 Broadway, 14th Floor

  
	
   

  	
  New York, NY 10271

  
	
   

  	
  Attn: Steven G. Fauth

  



 


 


6.02         Binding Effect and
Assignment


 


(a)   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.


 


(b)   The
foregoing subparagraph (a) may not be implemented without the prior approval of the State of New York,
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.


 


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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 TOWER 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 TOWER 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.


 


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.


 


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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, except that with respect to TNIC 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.


 


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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:

  	
       /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

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Tower Risk Management Corp.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
       /s/ Francis
  Colalucci

  	
   

  
	
   

  	
  Name: Francis M. Colalucci

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CastlePoint Management Corp.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph
  Beitz

  	
   

  
	
   

  	
  Name: Joseph P. Beitz

  
	
   

  	
  Title: President

  



 


[SIGNATURE PAGE TO SERVICE AND EXPENSE SHARING AGREEMENT]