Document:

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                                                                   EXHIBIT 10.15
                                                                  EXECUTION COPY

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                               GUARANTEE AGREEMENT

                                     between

                               TOWER GROUP, INC.,
                                  as Guarantor,

                                       and

                              JPMORGAN CHASE BANK,
                              as Guarantee Trustee

                         Dated as of September 30, 2003

                         TOWER GROUP STATUTORY TRUST II

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<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                     <C>
ARTICLE I         INTERPRETATION AND DEFINITIONS.........................................................2

         SECTION 1.1.       Interpretation...............................................................2

         SECTION 1.2.       Definitions..................................................................2

ARTICLE II        REPORTS................................................................................5

         SECTION 2.1.       List of Holders..............................................................5

         SECTION 2.2.       Periodic Reports to the Guarantee Trustee....................................5

         SECTION 2.3.       Event of Default; Waiver.....................................................5

         SECTION 2.4.       Event of Default; Notice.....................................................5

ARTICLE III       POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE.....................................6

         SECTION 3.1.       Powers and Duties of the Guarantee Trustee...................................6

         SECTION 3.2.       Certain Rights of the Guarantee Trustee......................................7

         SECTION 3.3.       Compensation.................................................................8

         SECTION 3.4.       Indemnity....................................................................8

         SECTION 3.5.       Securities...................................................................9

ARTICLE IV        GUARANTEE TRUSTEE......................................................................9

         SECTION 4.1.       Guarantee Trustee; Eligibility...............................................9

         SECTION 4.2.       Appointment. Removal and Resignation of the Guarantee Trustee................9

ARTICLE V         GUARANTEE.............................................................................10

         SECTION 5.1.       Guarantee...................................................................10

         SECTION 5.2.       Waiver of Notice and Demand.................................................10

         SECTION 5.3.       Obligations Not Affected....................................................10

         SECTION 5.4.       Rights of Holders...........................................................11

         SECTION 5.5.       Guarantee of Payment........................................................11

         SECTION 5.6.       Subrogation.................................................................11

         SECTION 5.7.       Independent Obligations.....................................................11

         SECTION 5.8.       Enforcement.................................................................11

ARTICLE VI        COVENANTS AND SUBORDINATION...........................................................12

         SECTION 6.1.       Dividends, Distributions and Payments.......................................12
</TABLE>

                                       i
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                                TABLE OF CONTENTS
                                   (continued)

<TABLE>
<S>                                                                                                     <C>
         SECTION 6.2.       Subordination...............................................................12

         SECTION 6.3.       Pari Passu Guarantees.......................................................12

ARTICLE VII       TERMINATION...........................................................................13

         SECTION 7.1.       Termination.................................................................13

ARTICLE VIII      MISCELLANEOUS.........................................................................13

         SECTION 8.1.       Successors and Assigns......................................................13

         SECTION 8.2.       Amendments..................................................................13

         SECTION 8.3.       Notices.....................................................................13

         SECTION 8.4.       Benefit.....................................................................14

         SECTION 8.5.       Governing Law...............................................................14

         SECTION 8.6.       Submission to Jurisdiction..................................................14

         SECTION 8.7.       Counterparts................................................................15

         SECTION 8.8.       Severability................................................................15
</TABLE>

                                       ii
<PAGE>

                                                                  EXECUTION COPY

         GUARANTEE AGREEMENT, dated as of September 30, 2003, executed and
delivered by TOWER GROUP, INC., a Delaware corporation (the "Guarantor") having
its principal office at 120 Broadway, 14th Floor, New York, New York, 10271. and
JPMORGAN CHASE BANK, a New York banking corporation, as trustee (in such
capacity, the "Guarantee Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Preferred Securities (as defined herein) of
TOWER GROUP STATUTORY TRUST I, a Delaware statutory trust (the "Issuer").

                              W I T N E S S E T H :

         WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as
of the date hereof (the "Trust Agreement"), among the Guarantor, as Depositor,
the Property Trustee, the Delaware Trustee and the Administrative Trustees named
therein and the holders from time to time of the Preferred Securities (as
hereinafter defined), the Issuer is issuing Ten Million Dollars ($10,000,000)
aggregate Liquidation Amount (as defined in the Trust Agreement) of its Floating
Rate Preferred Securities (Liquidation Amount $1,000 per preferred security)
(the "Preferred Securities") representing preferred undivided beneficial
interests in the assets of the Issuer and having the terms set forth in the
Trust Agreement;

         WHEREAS, the Preferred Securities will be issued by the Issuer and the
proceeds thereof, together with the proceeds from the issuance of the Issuer's
Common Securities (as defined below), will be used to purchase the Notes (as
defined in the Trust Agreement) of the Guarantor; and

         WHEREAS, as incentive for the Holders to purchase Preferred Securities
the Guarantor desires irrevocably and unconditionally to agree, to the extent
set forth herein, to pay to the Holders of the Preferred Securities the
Guarantee Payments (as defined herein) and to make certain other payments on the
terms and conditions set forth herein.

         NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Guarantee Agreement to
provide as follows for the benefit of the Holders from time to time of the
Preferred Securities:

<PAGE>

                                   ARTICLE I

                         INTERPRETATION AND DEFINITIONS

         SECTION 1.1. Interpretation.

In this Guarantee Agreement, unless the context otherwise requires:

         (a) capitalized terms used in this Guarantee Agreement but not defined
in the preamble hereto have the respective meanings assigned to them in Section
1.2;

         (b) the words "include", "includes" and "including" shall be deemed to
be followed by the phrase "without limitation";

         (c) all references to "the Guarantee Agreement" or "this Guarantee
Agreement" are to this Guarantee Agreement as modified, supplemented or amended
from time to time;

         (d) all references in this Guarantee Agreement to Articles and Sections
are to Articles and Sections of this Guarantee Agreement unless otherwise
specified;

         (e) the words "hereby", "herein", "hereof" and "hereunder" and other
words of similar import refer to this Guarantee Agreement as a whole and not to
any particular Article, Section or other subdivision;

         (f) a reference to the singular includes the plural and vice versa; and

         (g) the masculine, feminine or neuter genders used herein shall include
the masculine, feminine and neuter genders.

         SECTION 1.2. Definitions.

         As used in this Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings:

                  "Affiliate" of any specified Person means any other Person
         directly or indirectly controlling or controlled by or under direct or
         indirect common control with such specified Person; provided, that the
         Issuer shall not be deemed to be an Affiliate of the Guarantor. For the
         purposes of this definition, "control" when used with respect to any
         specified Person means the power to direct the management and policies
         of such Person, directly or indirectly, whether through the ownership
         of voting securities, by contract or otherwise; and the terms
         "controlling" and "controlled" have meanings correlative to the
         foregoing.

                  "Beneficiaries" means any Person to whom the Issuer is or
         hereafter becomes indebted or liable.

                  "Board of Directors" means either the board of directors of
         the Guarantor or any duly authorized committee of that board,

                  "Common Securities" means the securities representing common
         undivided beneficial interests in the assets of the Issuer.

                  "Debt" means with respect to any Person, whether recourse is
         to all or a portion of the assets of such Person, whether currently
         existing or hereafter incurred, and whether or not contingent and
         without duplication, (i) every obligation of such Person for money
         borrowed; (ii) every obligation of such Person evidenced by bonds,
         debentures, notes or other similar instruments, including obligations
         incurred in connection with the acquisition of property, assets or
         businesses; (iii) every reimbursement obligation of such Person with
         respect to letters of credit, bankers' acceptances or similar
         facilities issued to the account of such Person; (iv) every obligation
         of such Person issued or assumed as the deferred purchase price of
         property or services (but excluding trade accounts payable arising in
         the ordinary course of business); (v) every capital lease obligation of
         such Person; (vi) all indebtedness of such Person, whether incurred on
         or prior to the date of this Guarantee Agreement or thereafter
         incurred, for claims in respect of derivative products, including
         interest rate, foreign exchange rate and commodity forward contracts,
         options, swaps and similar arrangements; (vii) every obligation of the
         type referred to in clauses (i) through (vi) of another Person and all
         dividends of another Person the payment of which, in either case, such
         Person has guaranteed or is responsible or liable for, directly or
         indirectly, as obligor or otherwise; and (viii) any renewals,
         extensions, refundings, amendments or modifications of any obligation
         of the type referred to in clauses (i) through (vii).

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                  "Event of Default" means a default by the Guarantor on any of
         its payment or other obligations under this Guarantee Agreement;
         provided, that except with respect to a default in payment of any
         Guarantee Payments, the Guarantor shall have received notice of default
         from the Guarantee Trustee and shall not have cured such default within
         thirty (30) days after receipt of such notice.

                  "Guarantee Payments" means the following payments or
         distributions, without duplication, with respect to the Preferred
         Securities, to the extent not paid or made by or on behalf of the
         Issuer: (i) any accumulated and unpaid Distributions (as defined in the
         Trust Agreement) required to be paid on the Preferred Securities, to
         the extent the Issuer shall have funds on hand available therefor at
         such time, (ii) the Redemption Price with respect to any Preferred
         Securities to the extent the Issuer shall have funds on hand available
         therefor at such time, and (iii) upon a voluntary or involuntary
         termination, winding up or liquidation of the Issuer, unless Notes are
         distributed to the Holders, the lesser of (a) the aggregate of the
         Liquidation Amount of $1,000 per Preferred Security plus accumulated
         and unpaid Distributions on the Preferred Securities to the date of
         payment, to the extent that the Issuer shall have funds available
         therefor at such time and (b) the amount of assets of the Issuer
         remaining available for distribution to Holders in liquidation of the
         Issuer after satisfaction of liabilities to creditors of the Issuer in
         accordance with applicable law (in either case, the "Liquidation
         Distribution").

                  "Guarantee Trustee" means JPMorgan Chase Bank, until a
         Successor Guarantee Trustee, as defined below, has been appointed and
         has accepted such appointment pursuant to the terms of this Guarantee
         Agreement, and thereafter means each such Successor Guarantee Trustee.

                  "Guarantor" means Tower Group, Inc. and each of its successors
         and assigns.

                  "Issuer" has the meaning set forth herein above.

                  "Holder" means any holder, as registered on the books and
         records of the Issuer, of any Preferred Securities; provided, that, in
         determining whether the holders of the requisite percentage of
         Preferred Securities have given any request, notice, consent or waiver
         hereunder, "Holder" shall not include the Guarantor, the Guarantee
         Trustee or any Affiliate of the Guarantor or the Guarantee Trustee.

                  "Indenture" means the Junior Subordinated Indenture, dated as
         of the date hereof, as supplemented and amended, between the Guarantor
         and JPMorgan Chase Bank, as trustee.

                  "List of Holders" has the meaning specified in Section 2.1.

                                       3
<PAGE>

                  "Majority in Liquidation Amount of the Preferred Securities"
         means a vote by the Holder(s), voting separately as a class, of more
         than fifty percent (50%) of the aggregate Liquidation Amount of all
         then outstanding Preferred Securities issued by the Issuer.

                  "Obligations" means any costs, expenses or liabilities (but
         not including liabilities related to taxes) of the Issuer, other than
         obligations of the Issuer to pay to holders of any Trust Securities the
         amounts due such holders pursuant to the terms of the Trust Securities.

                  "Officers' Certificate" means, with respect to any Person, a
         certificate signed by the Chief Executive Officer, Chief Financial
         Officer, President or a Vice President of such Person, and by the
         Treasurer, an Assistant Treasurer, the Secretary or an Assistant
         Secretary of such Person, and delivered to the Guarantee Trustee. Any
         Officers' Certificate delivered with respect to compliance with a
         condition or covenant provided for in this Guarantee Agreement (other
         than the certificate provided pursuant to Section 2.2 shall include:

                  (a) a statement that each officer signing the Officers'
         Certificate has read the covenant or condition and the definitions
         relating thereto;

                  (b) a brief statement of the nature and scope of the
         examination or investigation undertaken by each officer in rendering
         the Officers' Certificate,

                  (c) a statement that each officer has made such examination or
         investigation as in such officer's opinion, is necessary to enable such
         officer to express an informed opinion as to whether or not such
         covenant or condition has been complied with; and

                  (d) a statement as to whether, in the opinion of each officer,
         such condition or covenant has been complied with.

                  "Person" means a legal person, including any individual,
         corporation, estate, partnership, joint venture, association, joint
         stock company, limited liability company, trust, unincorporated
         association, government or any agency or political subdivision thereof
         or any other entity of whatever nature.

                  "Preferred Securities" has the meaning set forth in the first
         recital hereof.

                  "Responsible Officer" means, with respect to the Guarantee
         Trustee, the officer in the Institutional Trust Services Department of
         the Trustee having direct responsibility for the administration of this
         Guarantee Agreement.

                  "Senior Debt" means the principal of and any premium, if any,
         and interest on (including interest accruing on or after the filing of
         any petition in bankruptcy or for reorganization relating to the
         Guarantor whether or not such claim for post-petition interest is
         allowed in such proceeding) all Debt of the Guarantor, whether incurred
         on or prior to the date of the Indenture or thereafter incurred, unless
         it is provided in the instrument creating or evidencing the same or
         pursuant to which the same is outstanding, that such obligations are
         not superior in right of payment to the Preferred Securities; provided,
         that if the Guarantor is subject to the regulation and supervision of
         an insurance regulatory authority, the Guarantor shall have received
         the approval of such appropriate insurance regulatory authority prior
         to issuing any such obligation; and provided further, that Senior Debt
         shall not include any other debt securities and guarantees in respect
         of such debt securities issued to any trust other than the Trust (or a
         trustee of any such trust), partnership or other entity affiliated with
         the Guarantor that is a financing vehicle of the Guarantor (a
         "financing entity") in connection with the issuance by such financing
         entity of equity securities or other securities that are treated as
         equity capital for regulatory capital purposes guaranteed by the
         Guarantor pursuant to an instrument that ranks pari passu with or
         junior in right of payment to the Indenture, including, without
         limitation, securities issued by the guarantor of floating rate junior
         subordinated deferrable interest debentures in the principal amount of
         $10,310,000 (which debentures and the unsecured junior subordinated
         deferrable interest notes issued under the Indenture shall rank pari
         passu in all respects) on May 15, 2003 to Tower Group Statutory Trust I
         in connection with the issuance of floating rate capital securities by
         such trust in the aggregate amount of $10,000,000 on May 15, 2003. For
         greater certainty, the term Senior Debt also includes, without limiting
         the generality of the foregoing, that certain Credit Agreement dated as
         of February 21, 2003 by and between the Company and The CIT
         Group/Equipment Financing, Inc.

                                       4
<PAGE>

                  "Trust Indenture Act" means the Trust Indenture Act of 1939,
         as amended and as in effect on the date of this Guarantee Agreement.

                  "Successor Guarantee Trustee" means a successor Guarantee
         Trustee possessing the qualifications to act as Guarantee Trustee under
         Section 4.1.

                  Capitalized or otherwise defined terms used but not otherwise
         defined herein shall have the meanings assigned to such terms in the
         Trust Agreement as in effect on the date hereof.

                                   ARTICLE II

                                     REPORTS

         SECTION 2.1. List of Holders.

         The Guarantor shall furnish or cause to be furnished to the Guarantee
Trustee at such times as the Guarantee Trustee may request in writing, within
thirty (30) days after the receipt by the Guarantor of any such request, a list,
in such form as the Guarantee Trustee may reasonably require, of the names and
addresses of the Holders (the "List of Holders") as of a date not more than
fifteen (15) days prior to the time such list is furnished, in each case to the
extent such information is in the possession or control of the Guarantor and is
not identical to a previously supplied list of Holders or has not otherwise been
received by the Guarantee Trustee in its capacity as such. The Guarantee Trustee
may destroy any List of Holders previously given to it on receipt of a new List
of Holders.

         SECTION 2.2. Periodic Reports to the Guarantee Trustee.

         The Guarantor shall deliver to the Guarantee Trustee, within one
hundred and twenty (120) days after the end of each fiscal year of the Guarantor
ending after the date of this Guarantee Agreement, an Officers' Certificate
covering the preceding fiscal year, stating whether or not to the knowledge of
the signers thereof the Guarantor is in default in the performance or observance
of any of the terms or provisions or any of the conditions of this Guarantee
Agreement (without regard to any period of grace or requirement of notice
provided hereunder) and, if the Guarantor shall be in default thereof,
specifying all such defaults and the nature and status thereof of which they
have knowledge.

         SECTION 2.3. Event of Default; Waiver.

         The Holders of a Majority in Liquidation Amount of the Preferred
Securities may, on behalf of the Holders, waive any past Event of Default and
its consequences. Upon such waiver, any such Event of Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Guarantee Agreement, but no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent therefrom.

         SECTION 2.4. Event of Default; Notice.

         (a) The Guarantee Trustee shall, within ninety (90) days after the
occurrence of a default, transmit to the Holders notices of all defaults
actually known to the Guarantee Trustee, unless such defaults have been cured or
waived before the giving of such notice; provided, that, except in the case of a
default in the payment of a Guarantee Payment, the Guarantee Trustee shall be
protected in withholding such notice if and so long as the Board of Directors,
the executive committee or a trust committee of directors and/or Responsible
Officers of the Guarantee Trustee in good faith determine that the withholding
of such notice is in the interests of the Holders. For the purpose of this
Section 2.4, the term "default" means any event that is, or after notice or
lapse of time or both would become, an Event of Default.

                                       5
<PAGE>

         (b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless the Guarantee Trustee shall have received written
notice, or a Responsible Officer charged with the administration of this
Guarantee Agreement shall have obtained written notice, of such Event of Default
from the Guarantor or a Holder.

                                  ARTICLE III

               POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

         SECTION 3.1. Powers and Duties of the Guarantee Trustee.

         (a) This Guarantee Agreement shall be held by the Guarantee Trustee for
the benefit of the Holders, and the Guarantee Trustee shall not transfer this
Guarantee Agreement to any Person except a Holder exercising its rights pursuant
to Section 5.4(d) or to a Successor Guarantee Trustee upon acceptance by such
Successor Guarantee Trustee of its appointment to act as Successor Guarantee
Trustee. The right, title and interest of the Guarantee Trustee shall
automatically vest in any Successor Guarantee Trustee, upon acceptance by such
Successor Guarantee Trustee of its appointment hereunder, and such vesting and
succession of title shall be effective whether or not conveyancing documents
have been executed and delivered pursuant to the appointment of such Successor
Guarantee Trustee.

         (b) The rights, immunities, duties and responsibilities of the
Guarantee Trustee shall be as provided by this Guarantee Agreement and there
shall be no other duties or obligations, express or implied, of the Guarantee
Trustee. Notwithstanding the foregoing, no provisions of this Guarantee
Agreement shall require the Guarantee Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
Whether or not herein expressly so provided, every provision of this Guarantee
Agreement relating to the conduct or affecting the liability of or affording
protection to the Guarantee Trustee shall be subject to the provisions of this
Section 3.1. To the extent that, at law or in equity, the Guarantee Trustee has
duties and liabilities relating to the Guarantor or the Holders, the Guarantee
Trustee shall not be liable to any Holder for the Guarantee Trustee's good faith
reliance on the provisions of this Guarantee Agreement. The provisions of this
Guarantee Agreement, to the extent that they restrict the duties and liabilities
of the Guarantee Trustee otherwise existing at law or in equity, are agreed by
the Guarantor and the Holders to replace such other duties and liabilities of
the Guarantee Trustee.

         (c) No provision of this Guarantee Agreement shall be construed to
relieve the Guarantee Trustee from liability for its own negligent action,
negligent failure to act or own willful misconduct, except that:

            (i) the Guarantee Trustee shall not be liable for any error of
         judgment made in good faith by a Responsible Officer of the Guarantee
         Trustee, unless it shall be proved that the Guarantee Trustee was
         negligent in ascertaining the pertinent facts upon which such judgment
         was made; and

            (ii) the Guarantee Trustee shall not be liable with respect to any
         action taken or omitted to be taken by it in good faith in accordance
         with the direction of the Holders of not less than a Majority in
         Liquidation Amount of the Preferred Securities relating to the time,
         method and place of conducting any proceeding for any remedy available
         to the Guarantee Trustee, or exercising any trust or power conferred
         upon the Guarantee Trustee under this Guarantee Agreement.

                                       6
<PAGE>

         SECTION 3.2. Certain Rights of the Guarantee Trustee.

         (a) Subject to the provisions of Section 3.1:

             (i) the Guarantee Trustee may conclusively rely and shall be fully
         protected in acting or refraining from acting in good faith and in
         accordance with the terms hereof upon any resolution, certificate,
         statement, instrument, opinion, report, notice, request, direction,
         consent, order, bond, debenture, note, other evidence of indebtedness
         or other paper or document reasonably believed by it to be genuine and
         to have been signed, sent or presented by the proper party or parties;

             (ii) any direction or act of the Guarantor contemplated by this
         Guarantee Agreement shall be sufficiently evidenced by an Officers'
         Certificate unless otherwise prescribed herein;

             (iii) the Guarantee Trustee may consult with counsel, and the
         advice of such counsel shall be full and complete authorization and
         protection in respect of any action taken, suffered or omitted to be
         taken by it hereunder in good faith and in reliance thereon and in
         accordance with such advice. Such counsel may be counsel to the
         Guarantee Trustee, the Guarantor or any of its Affiliates and may be
         one of its employees. The Guarantee Trustee shall have the right at any
         time to seek instructions concerning the administration of this
         Guarantee Agreement from any court of competent jurisdiction;

             (iv) the Guarantee Trustee shall be under no obligation to exercise
         any of the rights or powers vested in it by this Guarantee Agreement at
         the request or direction of any Holder, unless such Holder shall have
         provided to the Guarantee Trustee reasonable security or indemnity
         against the costs, expenses (including reasonable attorneys' fees and
         expenses) and liabilities that might be incurred by it in complying
         with such request or direction, including such reasonable advances as
         may be requested by the Guarantee Trustee; provided, that, nothing
         contained in this Section 3.2(a)(iv) shall be taken to relieve the
         Guarantee Trustee, upon the occurrence of an Event of Default, of its
         obligation to exercise the rights and powers vested in it by this
         Guarantee Agreement; provided, further, that nothing contained in this
         Section 3.2(a)(iv) shall prevent the Guarantee Trustee from exercising
         its rights under Section 4.2 hereof;

             (v) the Guarantee Trustee shall not be bound to make any
         investigation into the facts or matters stated in any resolution,
         certificate, statement, instrument, opinion, report, notice, request,
         direction, consent, order, bond, debenture, note, other evidence of
         indebtedness or other paper or document, but the Guarantee Trustee, in
         its discretion, may make such further inquiry or investigation into
         such facts or matters as it may see fit, and if the Guarantee Trustee
         shall determine to make such inquiry or investigation, it shall be
         entitled to examine the books, records and premises of the Guarantor,
         personally or by agent or attorney;

             (vi) the Guarantee Trustee may execute any of the trusts or powers
         hereunder or perform any duties hereunder either directly or by or
         through its agents, attorneys, custodians or nominees and the Guarantee
         Trustee shall not be responsible for any misconduct or negligence on
         the part of any such agent, attorney, custodian or nominee appointed
         with due care by it hereunder;

                                       7
<PAGE>

             (vii) whenever in the administration of this Guarantee Agreement
         the Guarantee Trustee shall deem it desirable to receive instructions
         with respect to enforcing any remedy or right hereunder, the Guarantee
         Trustee (A) may request instructions from the Holders of a Majority in
         Liquidation Amount of the Preferred Securities, (B) may refrain from
         enforcing such remedy or right or taking such other action until such
         instructions are received and (C) shall be protected in acting in
         accordance with such instructions;

             (viii) except as otherwise expressly provided by this Guarantee
         Agreement, the Guarantee Trustee shall not be under any obligation to
         take any action that is discretionary under the provisions of this
         Guarantee Agreement; and

             (ix) whenever, in the administration of this Guarantee Agreement,
         the Guarantee Trustee shall deem it desirable that a matter be proved
         or established before taking, suffering or omitting to take any action
         hereunder, the Guarantee Trustee (unless other evidence is herein
         specifically prescribed) may, in the absence of bad faith on its part,
         request and rely upon an Officers' Certificate which, upon receipt of
         such request from the Guarantee Trustee, shall be promptly delivered by
         the Guarantor.

         (b) No provision of this Guarantee Agreement shall be deemed to impose
any duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.

         SECTION 3.3. Compensation.

         The Guarantor agrees to pay to the Guarantee Trustee from time to time
reasonable compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provisions of law in regard to the
compensation of a trustee of an express trust) and to reimburse the Guarantee
Trustee upon request for all reasonable expenses, disbursements and advances
(including the reasonable fees and expenses of its attorneys and agents)
incurred or made by the Guarantee Trustee in accordance with any provisions of
this Guarantee Agreement.

         SECTION 3.4. Indemnity.

         The Guarantor agrees to indemnify and hold harmless the Guarantee
Trustee and any of its Affiliates and any of their officers, directors,
shareholders, employees, representatives or agents from and against any loss,
damage, liability, tax (other than income, franchise or other taxes imposed on
amounts paid pursuant to Section 3.3), penalty, expense or claim of any kind or
nature whatsoever incurred without negligence, bad faith or willful misconduct
on its part, arising out of or in connection with the acceptance or
administration of this Guarantee Agreement, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder. The Guarantee Trustee
will not claim or exact any lien or charge on any Guarantee Payments as a result
of any amount due to it under this Guarantee Agreement. This indemnity shall
survive the termination of this Agreement or the resignation or removal of the
Guarantee Trustee.

         In no event shall the Guarantee Trustee be liable for any indirect,
special, punitive or consequential loss or damage of any kind whatsoever,
including, but not limited to, lost profits, even if the Guarantee Trustee has
been advised of the likelihood of such loss or damage and regardless of the form
of action.

         In no event shall the Guarantee Trustee be liable for any failure or
delay in the performance of its obligations hereunder because of circumstances
beyond its control, including, but not limited to, acts of God, flood, war
(declared or undeclared), terrorism, fire, riot, embargo, government action,
including any laws, ordinances, regulations, governmental action or the like
which delay, restrict or prohibit the providing of the services contemplated by
this Guarantee Agreement.

                                       8
<PAGE>

         SECTION 3.5. Securities.

         The Guarantee Trustee or any other agent of the Guarantee Trustee, in
its individual or any other capacity, may become the owner or pledgee of Common
or Preferred Securities.

                                   ARTICLE IV

                                GUARANTEE TRUSTEE

         SECTION 4.1. Guarantee Trustee; Eligibility.

         (a) There shall at all times be a Guarantee Trustee which shall:

             (i) not be an Affiliate of the Guarantor; and

             (ii) be a corporation organized and doing business under the laws
         of the United States or of any State thereof, authorized to exercise
         corporate trust powers, having a combined capital and surplus of at
         least fifty million dollars ($50,000,000), subject to supervision or
         examination by Federal or State authority and having an office within
         the United States. If such corporation publishes reports of condition
         at least annually, pursuant to law or to the requirements of such
         supervising or examining authority, then, for the purposes of this
         Section 4.1, the combined capital and surplus of such corporation shall
         be deemed to be its combined capital and surplus as set forth in its
         most recent report of condition so published.

         (b) If at any time the Guarantee Trustee shall cease to be eligible to
so act under Section 4.1(a), the Guarantee Trustee shall immediately resign in
the manner and with the effect set out in Section 4.2(c).

         (c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee shall either eliminate such interest or resign in the manner
and with the effect set out in Section 42(c).

         SECTION 4.2. Appointment, Removal and Resignation of the Guarantee
Trustee.

         (a) Subject to Section 4.2(b) the Guarantee Trustee may be appointed or
removed without cause at any time by the Guarantor, except during an Event of
Default.

         (b) The Guarantee Trustee shall not be removed until a Successor
Guarantee Trustee has been appointed and has accepted such appointment by
written instrument executed by such Successor Guarantee Trustee and delivered to
the Guarantor.

         (c) The Guarantee Trustee appointed hereunder shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.

         (d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within thirty (30) days
after delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition, at the expense of the Guarantor, any court of
competent jurisdiction for appointment of a Successor Guarantee Trustee. Such
court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Guarantee Trustee.

                                       9
<PAGE>

                                   ARTICLE V

                                    GUARANTEE

         SECTION 5.1. Guarantee.

         (a) The Guarantor irrevocably and unconditionally agrees to pay in full
to the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by or on behalf of the Issuer), as and when due, regardless of
any defense (except for the defense of payment by the Issuer), right of set-off
or counterclaim which the Issuer may have or assert. The Guarantor's obligation
to make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Issuer to pay such
amounts to the Holders. The Guarantor shall give prompt written notice to the
Guarantee Trustee in the event it makes any direct payment to the Holders
hereunder.

         (b) The Guarantor hereby also agrees to assume any and all Obligations
of the Issuer, and, in the event any such Obligation is not so assumed, subject
to the terms and conditions hereof, the Guarantor hereby irrevocably and
unconditionally guarantees to each Beneficiary the full payment, when and as
due, of any and all Obligations to such Beneficiaries. This Guarantee is
intended to be for the Beneficiaries who have received notice hereof.

         SECTION 5.2. Waiver of Notice and Demand.

         The Guarantor hereby waives notice of acceptance of the Guarantee
Agreement and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, Issuer or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.

         SECTION 5.3. Obligations Not Affected.

         The obligations, covenants, agreements and duties of the Guarantor
under this Guarantee Agreement shall in no way be affected or impaired by reason
of the happening from time to time of any of the following:

         (a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Issuer;

         (b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions (other than an extension of time for payment of
Distributions that results from the extension of any interest payment period on
the Notes as provided in the Indenture), Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Preferred
Securities or the extension of time for the performance of any other obligation
under, arising out of, or in connection with, the Preferred Securities;

         (c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred Securities, or
any action on the part of the Issuer granting indulgence or extension of any
kind;

         (d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;

                                       10
<PAGE>

         (e) any invalidity of, or defect or deficiency in, the Preferred
Securities;

         (f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or

         (g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.

         There shall be no obligation of the Holders to give notice to, or
obtain the consent of, the Guarantor with respect to the happening of any of the
foregoing.

         SECTION 5.4. Rights of Holders.

         The Guarantor expressly acknowledges that: (a) this Guarantee Agreement
will be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (b) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (c) the Holders of a Majority in Liquidation
Amount of the Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of this Guarantee Agreement or exercising any trust or power
conferred upon the Guarantee Trustee under this Guarantee Agreement; and (d) any
Holder may institute a legal proceeding directly against the Guarantor to
enforce its rights under this Guarantee Agreement, without first instituting a
legal proceeding against the Guarantee Trustee, the Issuer or any other Person.

         SECTION 5.5. Guarantee of Payment.

         This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment of
the Guarantee Payments in full (without duplication of amounts theretofore paid
by the Issuer) or upon distribution of Notes to Holders as provided in the Trust
Agreement.

         SECTION 5.6. Subrogation.

         The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Issuer in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement and shall have the right to waive
payment by the Issuer pursuant to Section 5.1; provided, that, the Guarantor
shall not (except to the extent required by mandatory provisions of law) be
entitled to enforce or exercise any rights it may acquire by way of subrogation
or any indemnity, reimbursement or other agreement, in all cases as a result of
payment under this Guarantee Agreement, if, at the time of any such payment, any
amounts are due and unpaid under this Guarantee Agreement. If any amount shall
be paid to the Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over such amount
to the Holders.

         SECTION 5.7. Independent Obligations.

         The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Preferred
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Guarantee
Agreement notwithstanding the occurrence of any event referred to in subsections
(a) through (g), inclusive, of Section 5.3.

         SECTION 5.8. Enforcement.

         A Beneficiary may enforce the Obligations of the Guarantor contained in
Section 5.1(b) directly against the Guarantor, and the Guarantor waives any
right or remedy to require that any action be brought against the Issuer or any
other person or entity before proceeding against the Guarantor.

                                       11
<PAGE>

                                   ARTICLE VI

                           COVENANTS AND SUBORDINATION

         SECTION 6.1. Dividends, Distributions and Payments.

         So long as any Preferred Securities remain outstanding, if there shall
have occurred and be continuing an Event of Default or the Guarantor shall have
entered into an Extension Period as provided for in the Indenture and such
period, or any extension thereof, shall have commenced and be continuing, then
the Guarantor may not (a) declare or pay any dividends or distributions on, or
redeem, purchase, acquire or make liquidation payment with respect to, any of
the Guarantor's capital stock or (b) make any payment of principal of or any
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Guarantor that rank pari passu in all respects with or junior
in interest to the Notes (other than (i) repurchases, redemptions or other
acquisitions of shares of capital stock of the Guarantor in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of any one of more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Guarantor (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the occurrence of such Event of
Default or the applicable Extension Period, (ii) as a result of an exchange or
conversion of any class or series of the Guarantor's capital stock (or any
capital stock of a subsidiary of the Guarantor) for any class or series of the
Guarantor's capital stock or any class of series of the Guarantor's indebtedness
for any class or series of the Guarantor's capital stock, (iii) the purchase of
fractional interests in shares of the Guarantor's capital stock pursuant to the
conversions or exchange provisions of such capital stock or the security being
converted or exchanged, (iv) any declaration of a dividend in connection with
any rights plan, the issuance of rights, stock or other property under any
rights plan or the redemption or repurchase of rights pursuant thereto, or (v)
any dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock).

         SECTION 6.2. Subordination.

         The obligations of the Guarantor under this Guarantee Agreement will
constitute unsecured obligations of the Guarantor and will rank subordinate and
junior in right of payment to all Senior Debt of the Guarantor.

         SECTION 6.3. Pari Passu Guarantees.

         (a) The obligations of the Guarantor under this Guarantee Agreement
shall rank pari passu with the obligations of the Guarantor under any similar
guarantee agreements issued by the Guarantor with respect to preferred
securities (if any) similar to the Preferred Securities, issued by trusts other
than the Issuer established or to be established by the Guarantor (if any), in
each case similar to the Issuer, including, without limitation, the guarantee
agreement issued by the Guarantor with respect to the preferred securities
issued by Tower Group Statutory Trust I.

         (b) The right of the Guarantor to participate in any distribution of
assets of any of its subsidiaries upon any such subsidiary's liquidation or
reorganization or otherwise is subject to the prior claims of creditors of that
subsidiary, except to the extent the Guarantor may itself be recognized as a
creditor of that subsidiary. Accordingly, the Guarantor's obligations under this
Guarantee will be effectively subordinated to all existing and future
liabilities of the Guarantor's subsidiaries, and claimants should look only to
the assets of the Guarantor for payments thereunder. This Guarantee does not
limit the incurrence or issuance of other secured or unsecured debt of the
Guarantor, including Senior Debt of the Guarantor, under any indenture or
agreement that the Guarantor may enter into in the future or otherwise.

                                       12
<PAGE>

                                  ARTICLE VII

                                   TERMINATION

         SECTION 7.1. Termination.

         This Guarantee Agreement shall terminate and be of no further force and
effect upon (a) full payment of the Redemption Price of all Preferred
Securities, (b) the distribution of Notes to the Holders in exchange for all of
the Preferred Securities or (c) full payment of the amounts payable in
accordance with the Trust Agreement upon liquidation of the Issuer.
Notwithstanding the foregoing, this Guarantee Agreement will continue to be
effective or will be reinstated, as the case may be, if at any time any Holder
must restore payment of any sums paid with respect to Preferred Securities or
this Guarantee Agreement. The obligations of the Guarantor under Sections 3.3
and 3.44 shall survive any such termination or the resignation and removal of
the Guarantee Trustee.

                                  ARTICLE VIII

                                  MISCELLANEOUS

         SECTION 8.1. Successors and Assigns.

        All guarantees and agreements contained in this Guarantee Agreement
shall bind the successors, assigns, receivers, trustees and representatives of
the Guarantor and shall inure to the benefit of the Holders of the Preferred
Securities then outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under Article VIII of the
Indenture and pursuant to which the successor or assignee agrees in writing to
perform the Guarantor's obligations hereunder, the Guarantor shall not assign
its rights or delegate its obligations hereunder without the prior approval of
the Holders of a Majority in Liquidation Amount of the Preferred Securities.

         SECTION 8.2. Amendments.

         Except with respect to any changes that do not adversely affect the
rights of the Holders in any material respect (in which case no consent of the
Holders will be required), this Guarantee Agreement may only be amended with the
prior approval of the Guarantor, the Guarantee Trustee and the Holders of not
less than a Majority in Liquidation Amount of the Preferred Securities. The
provisions of Article VI of the Trust Agreement concerning meetings or consents
of the Holders shall apply to the giving of such approval.

         SECTION 8.3. Notices.

         Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied or mailed by first class mail as follows:

             (a) if given to the Guarantor, to the address or facsimile number
         set forth below or such other address, facsimile number or to the
         attention of such other Person as the Guarantor may give notice to the
         Guarantee Trustee and the Holders:

                 Tower Group, Inc.
                 120 Broadway, 14th Floor
                 New York, New York  10271
                 Facsimile No.: (212) 271-5492
                 Attention: Francis M. Colalucci

                                       13
<PAGE>

             (b) if given to the Issuer, at the Issuer's address or facsimile
         number set forth below or such other address, facsimile number or to
         the attention of such other Person as the Issuer may give notice to the
         Guarantee Trustee and the Holders:

                 Tower Group Statutory Trust II
                 120 Broadway, 14th Floor
                 New York, New York, 10271
                 Facsimile No.: (212) 271-5492
                 Attention: Francis M. Colalucci

             (c) if given to the Guarantee Trustee, at the address or facsimile
         number set forth below or such other address, facsimile number or to
         the attention of such other Person as the Guarantee Trustee may give
         notice to the Guarantor and the Holders:

                 JPMorgan Chase Bank
                 600 Travis, Suite 1150
                 Houston, Texas  77002
                 Facsimile No.: (713) 577-5200
                 Attention: Institutional Trust Services

             (d) if given to any Holder, at the address set forth on the books
         and records of the Issuer.

         All notices hereunder shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.

             SECTION 8.4. Benefit.

         This Guarantee Agreement is solely for the benefit of the Holders and
is not separately transferable from the Preferred Securities.

             SECTION 8.5. Governing Law.

         This Guarantee Agreement and the rights and obligations of each party
hereto, shall be construed and enforced in accordance with and governed by the
laws of the State of New York without reference to its conflict of laws
provisions (other than Section 5-1401 of the General Obligations Law).

             SECTION 8.6. Submission to Jurisdiction.

         ANY LEGAL ACTION OR PROCEEDING BY OR AGAINST ANY PARTY HERETO OR WITH
RESPECT TO OR ARISING OUT OF THIS GUARANTEE AGREEMENT MAY BE BROUGHT IN OR
REMOVED TO THE COURTS OF THE STATE OF NEW YORK, IN AND FOR THE COUNTY OF NEW
YORK, OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK
(IN EACH CASE SITTING IN THE BOROUGH OF MANHATTAN). BY EXECUTION AND DELIVERY OF
THIS GUARANTEE AGREEMENT, EACH PARTY ACCEPTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS (AND COURTS OF APPEALS THEREFROM) FOR LEGAL PROCEEDINGS ARISING OUT OF OR
IN CONNECTION WITH THIS GUARANTEE AGREEMENT.

                                       14
<PAGE>

             SECTION 8.7. Counterparts.

         This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.

             SECTION 8.8. Severability.

         In the event that one or more of the provisions contained in this
Guarantee Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Guarantee, but this Guarantee
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.

                            [Signature pages follow.]

                                       15
<PAGE>

         IN WITNESS WHEREOF, the undersigned have executed this Guarantee
Agreement as of the date first above written.

                          TOWER GROUP, INC.

                          By:     /s/ Michael H. Lee
                              ----------------------------------------
                              Name:  Michael H. Lee
                              Title: President and Chief Executive Officer

                          JPMORGAN CHASE BANK, not in its individual
                          capacity, but solely as Guarantee Trustee

                          By:
                              ----------------------------------------
                              Name:  Donna Edmundson
                              Title: Vice President

                                                                       Guarantee

<PAGE>

         IN WITNESS WHEREOF, the undersigned have executed this Guarantee
Agreement as of the date first above written.

                               TOWER GROUP, INC.

                               By:
                                   ----------------------------------------
                                   Name:  Michael H. Lee
                                   Title: President and Chief Executive Officer

                               JPMORGAN CHASE BANK, not in its individual
                               capacity, but solely as Guarantee Trustee

                               By:     /s/ Donna Edmundson
                                   ----------------------------------------
                                   Name:  Donna Edmundson
                                   Title: Vice President

                                                                       Guarantee<PAGE>
                                                                   Exhibit 10.16

                      SERVICE AND EXPENSE SHARING AGREEMENT

This Service and Expense Sharing Agreement ("Agreement") is made this 28th day
of December, 1995, by and between Tower Insurance Company of New York ("Tower"),
and Tower Risk Management Corp. ("TRM").

                                    RECITALS

         WHEREAS, TRM has entered into agreements with various insurance
         companies (the "Clients") to perform certain underwriting and claims
         functions on behalf of those companies pursuant to the insurance laws
         and regulations in the various jurisdictions where such insurance
         companies are licensed;

         WHEREAS, Tower is an insurance company licensed to underwrite certain
         property and casualty insurance business in the State of New York;

         WHEREAS, TRM and Tower would like to enter into an agreement as set
         forth below to jointly share in the underwriting and claims expenses to
         be expended by the respective parties by utilizing Tower's existing
         facilities and staff;

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

ARTICLE 1 - PERFORMANCE OF SERVICES

Tower and TRM agree that Tower will make its facilities and employees available
to TRM to perform services for its Clients as more fully described in this
Agreement. All the services provided to the Clients by Tower are to be based
upon the written criteria, standards and guidelines of each respective Client as
set forth in each Client's respective agreement with TRM.

Notwithstanding any other provision of this Agreement, it is understood that the
business affairs of each party shall be managed by its respective Board of
Directors, and, to the extent delegated by such Board, by its appropriately
designated officers.

ARTICLE 2 - DUTIES

2.01     Tower's Duties

         In reference to the following duties, Tower will perform the following
         functions in compliance with the written criteria, standards and
         guidelines set forth by each Client in their respective agreements with
         TRM:

         A. Underwriting and marketing

         B. Premium collection

         C. State filing

         D. Loss prevention

         E. Claims

         F. Legal defense

2.02     TRM's Duties

         TRM will continue to perform all of the following functions:

<PAGE>

         A. Negotiate, secure and maintain agreements with TRM's Client
            insurance companies.

         B. Maintain of books and records and preparation of tax returns and
            financial statements.

         C. Handle all corporate, legal and regulatory matters other than state
            filing.

         TRM will perform all duties not itemized in Article 2.01. If Tower
         performs duties on behalf of TRM's Clients other than those described
         in paragraph 2.01, then TRM shall pay for such services in addition to
         compensation set forth in Article 3 of this Agreement.

ARTICLE 3 - COMPENSATION

3.01     Fees

         In consideration of the services rendered by Tower pursuant to this
         Agreement, TRM will pay a fee to Tower in accordance with the following
         formula:

         A. Underwriting: The greater of 5% of gross premiums written by TRM, or
            an amount equal to the following:

            Total # of policies issued by TRM         x Total Underwriting Cost
            -----------------------------------------
            Total # of policies issued by TRM & Tower

            The Total Underwriting Cost is defined as all expenses which are
            incurred by Tower to perform the duties itemized in paragraph 2.01 A
            through D of this Agreement.

         B. Claims:

            Total billable hours charged to TRM Clients     x Total Claims Cost
            -------------------------------------------
            Total Available Billable Hours

            Total Claims Cost is defined as all expenses which are incurred by
            Tower to perform the duties itemized in paragraph 2.01 E and F of
            this Agreement. Available Billable Hours is defined as 2,000
            multiplied by the number of employees performing the duties itemized
            in paragraph 2.01 E and F of the agreement.

3.02     Time of Payment

         The amount agreed upon as described in paragraph 3.01 will be payable
         at the end of each calendar quarter.

ARTICLE 4 - TERM, SUSPENSION AND TERMINATION

4.01     Original Term

         The term of this Agreement will begin on the date of this Agreement and
         will continue through December 29, 1996 ("Original Term"). The term
         will automatically be extended for successive five (5) year periods
         thereafter, unless either party provides written notice 90 days prior
         to the end of the original term or any extended term, as applicable,
         that it does not wish to extend the term or this Agreement is
         terminated pursuant to section 4.03.

                                       2
<PAGE>

4.02     Suspension

         TRM may suspend Tower's underwriting authority during the pendency of
         any dispute regarding the cause for termination.

4.03     Rights Regarding Termination

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

            (1)  Immediately upon written notice by TRM in the event any of its
                 agreements with its Client is terminated;

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

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

            (4)  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;

            (5)  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.

            (6)  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 shall promptly cease all solicitation and underwriting
                 activities provided for hereunder.

            (2)  Upon termination of this Agreement, neither party shall have
                 any claim against the other for loss of prospective profits or
                 fees or damage to business arising therefrom.

            (3)  Notwithstanding the termination of this Agreement, Tower shall
                 continue to perform the services described in Article 2.01 A
                 through D of this Agreement in settlement of accounts or
                 winding up of affairs between Tower and TRM if so requested by
                 TRM. In connection therewith, Tower shall perform these duties
                 without compensation until all the policies that are in force
                 at the date of the termination have been either terminated or
                 expired, whichever event occurs later. Thereafter, Tower agrees
                 to perform the aforementioned services for a fee to be agreed
                 upon between the parties if requested by TRM.

            (4)  Notwithstanding the termination of this Agreement, Tower shall
                 continue provide the claims and legal defense duties set forth
                 it paragraph 2.01 E and F of this Agreement with respect to all
                 claims reported to it 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,
                 TRM will continue to compensate Tower in the manner set forth
                 in Article 3 of this Agreement. In the event TRM takes over
                 handling of any or all outstanding claims after termination,
                 Tower agrees to cooperate with and instruct its employees to
                 cooperate with TRM in connection with TRM's handling of such
                 claims.

                                       3
<PAGE>

ARTICLE 5 - MAINTENANCE, CONTROL AND OWNERSHIP OF RECORDS

5.01     Maintenance of Records

         Tower will maintain all appropriate records, files, ledgers and reports
         so as to accurately reflect at all times the financial transactions of
         each Client in accordance with the written criteria, standards and
         guidelines set forth in each Client's respective agreement with TRM.

5.02     Ownership of Records

         Notwithstanding the terms of section 5.01, above, the use and control
         of expirations, including those on a direct billed business, the
         records thereof, and Tower's work product, shall be the sole property
         of TRM. Ownership of all records of any kind relating to each Client,
         including claim files, and disposition of same upon liquidation of a
         Client shall be determined in accordance with the terms and conditions
         of each Client's respective agreement with TRM.

ARTICLE 6 - GENERAL REQUIREMENTS OF TOWER

6.01     Tower's General Duties

         Tower 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.

6.02     Dealing with Third Parties

         Tower shall be authorized to use TRM's letterhead and may act for, make
         commitments on behalf of, and represent TRM and its Clients to any
         third party, in the ordinary course of business and in fulfillment of
         its obligations under this Agreement.

ARTICLE 7 - MISCELLANEOUS

7.01     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.

                      TRM:       Tower Risk Management Corp.
                                 110 William Street - 4th Fl.
                                 New York, New York  10038
                                 Attn:  Carl P. Lee

                                       4
<PAGE>

                   TOWER:        Tower Insurance Company of New York
                                 110 William Street - 4th Fl.
                                 New York, NY  10038
                                 Attn:  Michael H. Lee

7.02     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.

7.03     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.

7.04     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.

7.05     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.

7.06     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.

7.07     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.

7.08     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.

7.09     Indemnification

         TRM 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.

                                       5
<PAGE>

7.10     Arbitration

         Any dispute or difference between TRM 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 7.10.

         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.

                                         Tower Insurance Company of New York

                                         BY: /s/ Michael H. Lee
                                             ----------------------
                                             Michael H. Lee, Pres.

                                         Tower Risk Management Corp.

                                         BY: /s/ Michael H. Lee
                                             ---------------------
                                             Michael H. Lee, Pres.

                                       6

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