Exhibit 10.1

                                  CONFIDENTIAL
                                  ------------

                                  June 30, 2007


Steven G. Fauth
130 Beekman Street
Apartment 2MC
New York, NY  10038


                  Re:      Separation from Employment
                           --------------------------

Dear Steven:

     This  letter  ("Separation  Agreement")  sets forth the  agreement  reached
concerning the termination of your employment with Tower Group, Inc.,  including
its current and former parents,  subsidiaries and affiliated  corporations,  and
their  respective  current  and  former  successors,  assigns,  representatives,
agents,  attorneys,  shareholders,   officers,  directors  and  employees,  both
individually and in their official capacities (collectively, "Tower").

     1. Your employment with Tower,  and any and all  directorships,  offices or
positions you hold with Tower, will terminate June 30, 2007. Tower will continue
your salary, less applicable withholdings and deductions, through June 30, 2007.
You  acknowledge  and agree  that your  employment  with  Tower will end for all
purposes on June 30, 2007.

     2. In consideration for signing this Separation Agreement,  and in exchange
for the promises,  covenants and waivers set forth herein, Tower will (i) retain
you as a consultant  for the period from July 1, 2007 through  December 31, 2007
pursuant to the terms of the  consulting  agreement  annexed hereto as Exhibit A
("Consulting  Agreement");  (ii) pay you on or before July 1, 2007, the lump sum
of $571,135.50,  less applicable withholdings and deductions; (iii) provided you
elect such  coverage,  continue,  at no cost to you, your  coverage  pursuant to
COBRA under Tower's group health plans in which you currently participate for up
to twenty-four  (24) months from the date your employment  terminates;  and (iv)
accelerate the vesting (to June 30, 2007) of any equity awards you have received
from Tower that  remain  unvested  as of June 30,  2007.  In  addition,  we have
extended the expiration date of as stated in the Stock Option Agreement  section
3.(b).  to a date  nine  months  following  the  termination  of  the  Grantee's
employment. If you do not execute, or if you execute and revoke, this Separation
Agreement,  you shall have no right to enter into the Consulting Agreement or to
receive the payment provided for therein.

<PAGE>

     3. In consideration  of the payments and benefits  described in paragraph 2
above and for other good and  valuable  consideration,  you hereby  release  and
forever discharge,  and by this instrument release and forever discharge,  Tower
from  all  debts,  obligations,   promises,  covenants,  agreements,  contracts,
endorsements, bonds, controversies, suits, actions, causes of action, judgments,
damages,  expenses,  claims or demands, in law or in equity, which you ever had,
now have, or which may arise in the future,  regarding any matter  arising on or
before the date of your execution of this  Separation  Agreement,  including but
not limited to all claims  (whether known or unknown)  regarding your employment
at or termination of employment from Tower,  any contract  (express or implied),
any claim for equitable relief or recovery of punitive,  compensatory,  or other
damages or  monies,  attorneys'  fees,  any tort,  and all  claims  for  alleged
discrimination  based upon age, race,  color, sex, sexual  orientation,  marital
status,  religion,  national  origin,  handicap,   disability,  or  retaliation,
including any claim,  asserted or unasserted,  which could arise under Title VII
of  the  Civil  Rights  Act  of  1964;  the  Equal  Pay  Act of  1963;  the  Age
Discrimination  in Employment  Act of 1967 ("ADEA");  the Older Workers  Benefit
Protection Act of 1990; the Americans With  Disabilities  Act of 1990; the Civil
Rights Act of 1866, 42 U.S.C. ss. 1981; the Employee  Retirement Income Security
Act of 1974;  the Family and Medical Leave Act of 1993;  the Civil Rights Act of
1991; the Worker  Adjustment and  Retraining  Notification  Act of 1988; the New
York State Human  Rights Law;  the New York City Human Rights Law; and any other
federal,  state or local laws,  rules or regulations,  whether equal  employment
opportunity  laws,  rules or  regulations  or otherwise,  or any right under any
Tower pension,  welfare,  or stock plans.  This Separation  Agreement may not be
cited as, and does not  constitute  any  admission by Tower of, any violation of
any such law or legal  obligation  with respect to any aspect of your employment
or  termination  therefrom.  Nothing in this  paragraph  shall be  construed  as
waiving your rights to any vested  benefit  under any  employee  benefit plan or
your right to enforce the terms of this Agreement.

     4. You  represent  and agree that you have not filed any  lawsuits  against
Tower,  or filed or caused to be filed any charges or  complaints  against Tower
with any municipal,  state or federal agency charged with the enforcement of any
law.  Pursuant to and as a part of your release and  discharge of Tower,  as set
forth herein,  you agree,  not inconsistent  with EEOC  Enforcement  Guidance On
Non-Waivable  Employee Rights Under EEOC-Enforced  Statutes dated April 11,1997,
and to the  fullest  extent  permitted  by  law,  not to sue or  file a  charge,
complaint,  grievance or demand for  arbitration  against  Tower in any forum or
assist  or  otherwise   participate  willingly  or  voluntarily  in  any  claim,
arbitration,  suit, action,  investigation or other proceeding of any kind which
relates to any matter that involves Tower, and that occurred up to and including
the date of your execution of this Separation  Agreement,  unless required to do
so by court  order,  subpoena  or  other  directive  by a court,  administrative
agency, arbitration panel or legislative body. To the extent any such action may
be  brought  by a third  party,  you  expressly  waive  any claim to any form of
monetary or other damages, or any other form of recovery or relief in connection
with any such action.  Nothing in the foregoing  paragraph shall prevent you (or
your  attorneys)  from  commencing  an  action or  proceeding  to  enforce  this
Separation  Agreement  or to  challenge  the  validity of waivers or releases of
claims under the ADEA.

     5. You  represent,  warrant and  acknowledge  that Tower owes you no wages,
commissions,  bonuses, sick pay, personal leave pay, severance pay, vacation pay
or other  compensation  or benefits or payments or form of  remuneration  of any
kind or nature,  other than that  specifically  provided for in this  Separation
Agreement.

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<PAGE>

     6. You will not  criticize or disparage  Tower or issue any  communication,
written or  otherwise,  that  reflects  adversely on or  encourages  any adverse
action against Tower, except if testifying truthfully under oath pursuant to any
lawful  court  order  or  subpoena  or  otherwise  responding  to  or  providing
disclosures  required by law. Tower will not criticize or disparage you or issue
any  communication,   written  or  otherwise,  that  reflects  adversely  on  or
encourages any adverse action against you except if testifying  truthfully under
oath  pursuant to any lawful court order or subpoena or otherwise  responding to
or providing disclosures required by law.

     7. You agree not to  disclose,  nor use for your  benefit or the benefit of
any other  person or  entity,  any  information  received  from  Tower  which is
confidential  or proprietary  and (i) which has not been  disclosed  publicly by
Tower,  (ii) which is otherwise not a matter of public  knowledge or (iii) which
is a matter of public  knowledge  but you know or have  reason to know that such
information  became  a  matter  of  public  knowledge  through  an  unauthorized
disclosure.  Proprietary or confidential  information shall include  information
the  unauthorized  disclosure  or use of which  would  reduce  the value of such
information to Tower. Such information  includes,  without  limitation,  Tower's
client lists, its trade secrets, any confidential information about (or provided
by) any client or prospective or former client of Tower,  information concerning
Tower's  business  or  financial  affairs,  including  its  books  and  records,
commitments,  procedures,  plans and  prospects,  products  developed  by Tower,
securities  positions,  or current or  prospective  transactions  or business of
Tower.  You hereby confirm that, on or before your final day of employment  with
Tower, you will deliver to Tower and retain no copies of any written  materials,
records and documents  (including those that are electronically  stored) made by
you or coming into your  possession  during the course of your  employment  with
Tower  which  contain  or  refer  to  any  such   proprietary  or   confidential
information. You further confirm that, on or before your final day of employment
with Tower,  you will  deliver to Tower any and all  property  and  equipment of
Tower, including laptop computers, etc., which may have been in your possession.
Nothing in this Agreement,  however,  shall be construed as a limitation on your
right to work or consult for any other employer or entity.  However,  this shall
not in anyway  negate the original  terms as stated in paragraph  numbers  10.b,
10.c, and 10.d of the original employment agreement.,

     8. It is understood by Tower that the name "Steven G. Fauth" and variations
thereof  including  but not  limited  to "Law  Office of Steven  G.  Fauth,"  is
proprietary  and the sole and exclusive  property of you.  Tower agrees to cease
using  the name  "Law  Office  of Steven  G.  Fauth"  and to file  pleadings  in
appropriate courts to effect the removal of that name from litigation  involving
Tower or its insureds as soon as possible.

     9. You agree not to  disclose  the terms,  contents  or  execution  of this
Separation  Agreement,  the  claims  that  have been or could  have been  raised
against  Tower,  or the  facts  and  circumstances  underlying  this  Separation
Agreement, except in the following circumstances:

          a. You may  disclose  the terms of this  Separation  Agreement to your
immediate  family,  so long as each  family  member  agrees  to be  bound by the
confidential nature of this Separation Agreement;

          b. You may disclose the terms of this Separation Agreement to (i) your
tax  advisors so long as such tax  advisors  agree in writing to be bound by the
confidential  nature of this Separation  Agreement,  (ii) taxing  authorities if
requested by such  authorities and so long as they are advised in writing of the
confidential  nature of this  Separation  Agreement or (iii) your legal counsel;
and

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<PAGE>

          c.  Pursuant  to the  order  of a  court  or  governmental  agency  of
competent jurisdiction, or for purposes of securing enforcement of the terms and
conditions of this Separation Agreement should that ever be necessary.

     10. Upon service on you, or anyone acting on your behalf,  of any subpoena,
order,  directive  or other  legal  process  requiring  you to engage in conduct
encompassed  within  paragraphs 6, 7 or 8 of this Separation  Agreement,  you or
your attorney shall immediately  notify Tower of such service and of the content
of any testimony or information to be provided pursuant to such subpoena, order,
directive  or other  legal  process  and  within  2  business  days  send to the
undersigned  representative of Tower via overnight delivery (at Tower's expense)
a copy of the documents that have been served upon you.

     11. You agree that you will assist and  cooperate  with Tower in connection
with the  defense or  prosecution  of any claim  that may be made  against or by
Tower, or in connection with any ongoing or future  investigation  or dispute or
claim of any kind involving Tower, including any proceeding before any arbitral,
administrative,  judicial,  legislative,  or  other  body or  agency,  including
testifying  in any  proceeding  to the extent  such  claims,  investigations  or
proceedings  relate to services  performed  or required to be  performed by you,
pertinent knowledge possessed by you, or any act or omission by you. You further
agree to perform all acts and execute  and  deliver  any  documents  that may be
reasonably necessary to carry out the provisions of this paragraph.

     12.  Except  for  matters  covered  under  paragraphs  6, 7, 8, 9 and/or 10
hereof,  or section 10 of the August 1, 2004 employment  agreement between Tower
and you, in the event of any dispute or  difference  between  Tower and you with
respect to the subject matter of this  Separation  Agreement and the enforcement
of rights  hereunder,  either you or Tower may, by written  notice to the other,
require  such  dispute  or  difference  to  be  submitted  to  arbitration.  The
arbitrator or arbitrators  shall be selected by agreement of the parties,  or if
they cannot agree on an arbitrator or arbitrators  within 30 days after the date
arbitration  is required by either party,  then the  arbitrator  or  arbitrators
shall be selected by the American  Arbitration  Association upon the application
of you or Tower. The  determination  reached in such arbitration  shall be final
and  binding on both  parties  without  any right of appeal or further  dispute.
Execution of the  determination  by such arbitrator or arbitrators may be sought
in any court of competent jurisdiction.  The arbitrator or arbitrators shall not
be bound by judicial formalities and may abstain from following the strict rules
of evidence  and shall  interpret  this  Separation  Agreement  as an  honorable
engagement and not merely as a legal obligation.  Unless otherwise agreed by the
parties, any such arbitration shall take place in New York, New York.

     13.  This  Separation  Agreement,  along  with  the  Consulting  Agreement,
constitute the entire agreement  between Tower and you, and supersede and cancel
any and all prior and contemporaneous  written and oral agreements between Tower
and you,  except  that  section  10.b,  10.c,  and 10.d of your  August  1, 2004
employment  agreement  with  Tower  remains  in full  force  and  effect  and is
incorporated  herein by  reference.  You  affirm  that,  in  entering  into this
Separation Agreement and the Consulting Agreement,  you are not relying upon any
oral or  written  promise or  statement  made by anyone at any time on behalf of
Tower.

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<PAGE>

     14. This  Separation  Agreement  is binding  upon you and your  successors,
assigns, heirs, executors, administrators and legal representatives.

     15. If any of the provisions, terms or clauses of this Separation Agreement
are declared  illegal,  unenforceable  or  ineffective  in a legal forum,  those
provisions,  terms and clauses  shall be deemed  severable,  such that all other
provisions,  terms and clauses of this  Separation  Agreement shall remain valid
and binding upon both parties.

     16.  Without  detracting  in any respect  from any other  provision of this
Separation Agreement:

          a. You, in consideration of the payments and benefits  provided to you
as described in paragraph 2 of this Separation Agreement,  agree and acknowledge
that this Separation Agreement constitutes a knowing and voluntary waiver of all
rights or claims you have or may have against  Tower as set forth  herein,  that
you have no physical or mental  impairment of any kind that has interfered  with
your ability to read and understand the meaning of this Separation  Agreement or
its terms,  and that you are not acting under the influence of any medication or
mind-altering chemical of any type in entering into this Separation Agreement.

          b. You understand  that, by entering into this  Separation  Agreement,
you do not  waive  rights  or  claims  that  may  arise  after  the date of your
execution of this Separation Agreement,  including without limitation any rights
or claims that you may have to secure enforcement of the terms and conditions of
this Separation Agreement.

          c. You agree and acknowledge  that the  consideration  provided to you
under this Separation Agreement is in addition to anything of value to which you
are already entitled.

          d. Tower  hereby  advises  you to consult  with an  attorney  prior to
executing this Separation Agreement.

          e.  You  acknowledge  that  you  were  informed  that you had at least
twenty-one (21) days in which to review and consider this Separation  Agreement,
and to  consult  with  an  attorney  regarding  the  terms  and  effect  of this
Separation Agreement.

     17. You understand that you may not sign this Separation  Agreement  before
June 30, 2007, and that you may revoke this  Separation  Agreement  within seven
(7) days from the date you sign this  Separation  Agreement  in which  case this
Separation  Agreement shall be null and void and of no force or effect or either
Tower or you.  Any  revocation  must be in writing and received by Tower by 5:00
p.m. on or before the seventh day after this Separation Agreement is executed by
you. Such revocation  must be sent to the undersigned at Tower Group,  Inc., 120
Broadway, 31st Floor, New York, NY 10271-1699.

     18. This  Separation  Agreement may not be changed or altered,  except by a
writing  signed by Tower and you. This  Separation  Agreement is entered into in
the State of New York,  and the laws of the State of New York will  apply to any
dispute concerning it, excluding the conflict-of-law principles thereof.


                           [INTENTIONALLY LEFT BLANK]


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<PAGE>

     YOU EXPRESSLY ACKNOWLEDGE,  REPRESENT,  AND WARRANT THAT YOU HAVE READ THIS
SEPARATION AGREEMENT CAREFULLY; THAT YOU FULLY UNDERSTAND THE TERMS, CONDITIONS,
AND  SIGNIFICANCE  OF THIS SEPARATION  AGREEMENT;  THAT TOWER HAS ADVISED YOU TO
CONSULT WITH AN ATTORNEY CONCERNING THIS SEPARATION AGREEMENT; THAT YOU HAVE HAD
A FULL  OPPORTUNITY TO REVIEW THIS SEPARATION  AGREEMENT WITH AN ATTORNEY;  THAT
YOU UNDERSTAND THAT THIS SEPARATION AGREEMENT HAS BINDING LEGAL EFFECT; AND THAT
YOU HAVE EXECUTED THIS SEPARATION AGREEMENT FREELY, KNOWINGLY AND VOLUNTARILY.

     PLEASE READ  CAREFULLY.  THIS  SEPARATION  AGREEMENT  HAS  IMPORTANT  LEGAL
CONSEQUENCES.


Date:                                    /s/ Steven G. Fauth
      ------------                       --------------------
                                           Steven G. Fauth


     On this ____ day of  ________  2007,  before me  personally  came Steven G.
Fauth, to me known to be the individual  described in the foregoing  instrument,
who executed the foregoing instrument in my presence,  and who duly acknowledged
to me that he executed the same.


                                          ______________________________________
                                                        Notary Public


                                         Tower Group, Inc.

Date:                                    By: /s/ Michael H. Lee
      ------------                           ------------------
                                         Name:  Michael H. Lee
                                         Title: Chairman of the Board, President
                                                and Chief Executive Officer
                                                (Principal Executive Officer)



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