Document:

EXHIBIT
10.16

 

FORM
OF BROKERAGE BUSINESS POOLING AGREEMENT

 

This Brokerage Business
Pooling Agreement (“Pooling Agreement”) by and between Tower Insurance Company
of New York (“TICNY”), an insurance company domiciled in New York, Tower
National Insurance Company (“TNIC”), an insurance company domiciled in
Massachusetts (collectively called “Tower”) and CastlePoint Insurance Company
(“CPIC”), an insurance company domiciled in
[             ],
is dated this      day of
                  ,
200[ ], and is made effective as of 12:01 a.m.,
[             ],
200[ ], (the “Effective Date”).

 

WHEREAS, TICNY, TNIC and CPIC are each authorized
to transact, and do transact, a multiple line property and casualty insurance
business; and

 

WHEREAS, TICNY, TNIC and CPIC desire to pool
their respective Brokerage Business (defined below) in order to make more
efficient use of available surplus and achieve other operating efficiencies;
and

 

WHEREAS, TICNY will act as the manager of such
pool;

 

NOW,
THEREFORE, for
mutual considerations, the sufficiency and receipt of which is hereby
acknowledged, TICNY, TNIC and CPIC agree as follows:

 

ARTICLE
I          Definitions

 

The following terms,
whenever used herein, shall have the following meanings:

 

“Brokerage Business”
shall mean broad classes of business that are underwritten on an individual
policy basis by an insurance company’s underwriting staff through wholesale and

 

 

 

retail agents, and for which most or all of the
services are provided by the insurance company as part of the overall product
offering.

 

“Brokerage
Business Pool” shall mean Brokerage Business written by or on behalf of the
Participating Companies or assumed by a Participating Company (including such
business assumed by TICNY from its affiliates), that is pooled and allocated to
each of the Participating Companies based upon their Pooling Percentage as set
forth in this Pooling Agreement.

 

“Existing Reinsurance”
shall mean reinsurance ceded by a Participating Company that is in effect on
the Effective Date, to the extent that such reinsurance relates to the
Brokerage Business of such Participating Company.

 

“Management
Fees” shall mean the management fees payable by CPIC and TNIC to TICNY pursuant
to Article XIV.

 

“Net
Liability” shall mean the loss and loss adjustment expense liability remaining
after the application of Existing Reinsurance and, with respect to TICNY, Pool
Reinsurance, in each case to the extent collectible; provided, however,
that “Net Liability” shall not include liability with respect to losses and
loss adjustment expenses incurred prior to the Effective Date.

 

“Net Loss Ratio” shall
mean, for any period of time, the ratio of Net Losses and loss adjustment
expenses incurred during such period to Net Premium Earned for such period.

 

“Net
Losses” shall mean, for any period of time, any and all amounts that a
Participating Company is required to pay to or on behalf of insureds for
insurance claims made under its Policies, after the application of any
applicable reinsurance but not including loss adjustment expenses.

 

2

 

“Net Premium Earned”
shall mean, for any period of time, the earned portion of premiums written by a
Participating Company after payment for reinsurance, if any.

 

“Net
Written Premium” shall mean direct premium written on the Policies covered by
this Agreement plus additions, less refunds and return premium for
cancellations and reductions (but not dividends) and less premium paid or
payable for reinsurance that inures to the benefit of the Participating
Companies.

 

“Participating
Companies” shall mean TICNY, TNIC and CPIC.

 

“Policies”
shall mean all policies, certificates, binders, contracts and agreements of
insurance covering Brokerage Business issued or renewed on or after the
Effective Date by or on behalf of TICNY, TNIC or CPIC, as the case may be, all
of which shall be subject to this Pooling Agreement.

 

“Pool
Reinsurance” shall mean property catastrophe and excess of loss reinsurance
ceded by TICNY to an insurer that is not a Participating Company and that
inures to the benefit of the Brokerage Business Pool.

 

“Pooling
Percentages” shall be those percentages set forth on Schedule A attached, as
amended from time to time.

 

ARTICLE
II               
Cessions to Brokerage Business Pool

 

CPIC and TNIC shall
automatically and obligatorily cede to TICNY as reinsurance, and TICNY shall be
obligated to accept as assumed reinsurance, one hundred percent (100%) of the
Net Liabilities with respect to Policies issued or assumed by CPIC and TNIC, to
be combined with the Net Liabilities of TICNY under Policies issued or assumed
by TICNY, provided, however, that the total gross written

 

3

 

premium of CPIC after pooling shall not exceed $150
million for the first twelve (12) month period ending March 31, 2007, subject
to a growth factor of 25% per each twelve (12) month period thereafter.

 

ARTICLE
III      Participation in Brokerage Business Pool

 

TICNY
shall establish the Brokerage Business Pool, which shall consist of the Net
Liability under all Brokerage Business written or assumed by Tower and CPIC
(including business assumed by TICNY pursuant to this Pooling Agreement). 
Tower shall automatically and obligatorily cede to CPIC, and retain for Tower’s
own account, the applicable Pooling Percentages of such Net Liability and CPIC
shall automatically and obligatorily accept such cessions. 
Notwithstanding the foregoing, if Tower (i) writes business of the type that it
has historically not written or (ii) writes more than 25% of its gross written
premiums outside the state of New York in any 12 month period ending on the
anniversary date of this Pooling Agreement, then such non-historical business
and the excess of business not in New York over 25% may, at CPIC’s discretion,
be excluded from the pool. In addition, the pool shall exclude any property
excess of loss liabilities over $10 million resulting from any one
occurrence.  TICNY and TNIC shall determine how the Tower Pooling
Percentage will be allocated between each of them. Such Pooling Percentages
shall be applied to all Brokerage Business written by the Participating
Companies.  Any change in the Pooling Percentages shall be made only by a
written amendment to this Pooling Agreement signed by the parties hereto or as
otherwise set forth in Article XVI of this Pooling Agreement.  The
Participating Companies acknowledge that, following the acceptance or retention
of a percentage of the Brokerage Business Pool by a Participating Company, such
pooled business shall be subject to such reinsurance as may be entered into by
such Participating Company on or after the Effective Date that is for the
benefit of such Participating Company as to its participation in the Brokerage
Business Pool and does not inure to the benefit of the Brokerage Business Pool.

 

4

 

ARTICLE
IV       Reinsurance

 

TICNY,
as pool manager, shall negotiate, obtain and maintain such Pool Reinsurance as
it deems appropriate with respect to the liabilities of the Brokerage Business
Pool, which reinsurance shall inure to the benefit of the Participating
Companies according to their respective Pooling Percentages. TICNY shall
purchase property and casualty excess of loss reinsurance and property
catastrophe excess of loss reinsurance from third party reinsurers to protect
the net exposure of the Participating Companies. The property catastrophe
excess of loss reinsurance purchased by TICNY may provide for up to approximately
10% of the combined surplus of Tower and CPIC to be retained by the pool prior
to reinsurance by third party reinsurance companies (“Pooled Retention”). Any
of the Participating Companies also shall have the right, in its discretion, to
require TICNY to increase the Pooled Retention by an additional amount of up to
10% of the surplus of CastlePoint Reinsurance Company (“CPRe”) provided that
TICNY purchases reinsurance for such additional Pooled Retention from CPRe. In
addition, for the first 12 months of this Pooling Agreement, Tower shall
reimburse CPIC for the property catastrophe excess of loss premium paid to CPRe
to protect CPIC’s net exposure to the Pooled Retention that is in excess of an
amount equal to the product of $10 million multiplied by CPIC’s Pooling
Percentage in the Brokerage Business pool.

 

ARTICLE
V        Losses and Loss Adjustment
Expenses

 

A.           
All loss settlements made by TICNY with regards to the Brokerage Business,
whether under strict policy conditions or by way of compromise, shall be
unconditionally binding upon CPIC and TNIC.

 

5

 

B.           
Each Participating Company shall be liable for its proportionate share of loss
adjustment expenses incurred under or in connection with the Policies and shall
be credited with its proportionate share of any recoveries of such expense.

 

C.           
If a Participating Company pays or is held liable to pay any punitive,
exemplary, compensatory, or consequential damages (hereinafter called “Extra
Contractual Obligations”) because of alleged or actual negligence on its part
in handling a claim under a Policy, one hundred percent (100%) of such Extra
Contractual Obligations (to the extent permitted by law) shall be added to the Net
Liability, if any, of such Participating Company under the Policy involved, and
the sum thereof shall be subject to this Pooling Agreement.

 

D.           
If a Participating Company pays or is held liable to pay in connection with any
loss amounts in excess of the limit of its original Policy, such loss in excess
of that limit having been incurred because of its failure to settle within the
Policy limit or by reason of alleged or actual negligence in rejecting an offer
of settlement or in the preparation of the defense or in the trial of any
action against the original insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action (hereinafter called an
“Excess of Policy Limits Loss”), one hundred percent (100%) of such Excess of
Policy Limits Loss (to the extent permitted by law) shall be added to the Net
Liability, if any, of such Participating Company under the Policy involved, and
the sum thereof shall be subject to this Pooling Agreement.

 

ARTICLE
VI       Salvage and Subrogation

 

Each of the Participating
Companies shall be credited with its proportionate share of salvage and
subrogation on account of losses under the Policies.

 

6

 

ARTICLE
VII     Original Conditions Apply

 

All
reinsurance under this Pooling Agreement shall be subject to the same rates,
terms, conditions and waivers, and to the same modifications and alterations as
the respective Policies.  Each of the Participating Companies shall be
credited with the proportion equal to its Pooling Percentage of the original
premiums received under the Policies issued on or after the Effective Date, but
after deduction of premiums, if any, ceded under Existing Reinsurance and Pool
Reinsurance.

 

ARTICLE
VIII   Ceding Commission

 

Each of the Participating
Companies shall be charged with a ceding commission in an amount equal to such
Participating Company’s Pooling Percentage of actual commissions paid to agents
or brokers, premium taxes, guarantee fund assessments, fees and assessments for
boards, bureaus and associations, fees and assessments for industry and
residual markets, and other similar expenses incurred by the Participating
Companies on all premiums ceded hereunder, but after deduction of ceding
commissions or expense reimbursement amounts recovered under Existing
Reinsurance and Pool Reinsurance.

 

ARTICLE
IX      Remittances and Reports

 

A.           
As soon as practicable consistent with its standard financial reporting
practices, but no later than thirty (30) days after the end of each calendar
month, TICNY shall submit a pooling report to TNIC and CPIC setting forth the
following information as regards the Brokerage Business Pool:

 

1.            
Net Written Premium received during the month;

 

2.            
Net Premium Earned received during the month

 

3.            
Ceding commission thereon;

 

4.            
Losses and loss adjustment expenses paid during the month;

 

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5.            
Salvage and subrogation recoveries received;

 

6.            
Recoverables under inuring reinsurance; and

 

7.            
Management Fees due.

 

B.           
The balance shown to be due a Participating Company shall be remitted within
fifteen (15) days after the issuance of the reports by TICNY on a collected
basis; provided that TICNY may retain, as manager, a reserve out of amounts
otherwise due TNIC and CPIC for the payment of amounts reasonably estimated by
TICNY to be payable during the next sixty (60) days by the Brokerage Business
Pool and allocable to TNIC and CPIC hereunder.  Such balance shall be
remitted in cash or in readily marketable securities (valued at fair market
value) in an amount equal to such balance.  Should discrepancies arise in
the process of the verification of any report, such differences, once resolved,
should be remitted promptly.

 

C.           
As soon as practicable consistent with its financial reporting practices, but
no later than thirty (30) days after the end of each calendar quarter, TICNY
shall report to TNIC and CPIC ceded unearned premium reserves and ceded
outstanding loss and loss adjustment expense reserves as regards the Brokerage
Business as of the end of such quarter.

 

ARTICLE
X        Offset

 

Each of the Participating
Companies shall have and may exercise at any time, and from time to time, the
right to offset any balance or balances whether on account of premiums, losses
or amounts otherwise due from one Participating Company to the other under the
terms of this Pooling Agreement, subject to the provision of applicable law.

 

ARTICLE
XI      Errors and Omissions

 

Inadvertent delays,
errors or omissions made in connection with this Pooling Agreement or any
transaction hereunder shall not relieve any Participating Company from any

 

8

 

liability that would have attached had such delay,
error or omission not occurred, provided always that such error or omission
will be rectified as soon as possible after discovery.

 

ARTICLE XII
    Access to Records

 

The files and records of
each Participating Company with respect to this Pooling Agreement and the
Brokerage Business subject hereto shall be open to examination by any officer
or director of each of the other Participating Companies or their duly
authorized representatives during normal business hours.

 

ARTICLE
XIII   Term

 

A.           
This Pooling Agreement will become effective on the Effective Date. 
Either Tower or CPIC may terminate their respective participation in the
Brokerage Business Pool as of the date thirty six (36) months after the
Effective Date and thereafter as of the close of a calendar quarter by giving
at least six (6) months prior written notice to the other party by certified or
registered mail.

 

B.           
CPIC shall have the right to terminate its participation in the Brokerage
Business Pool at any time on or after twenty four (24) months after the
Effective Date and thereafter by giving sixty (60) days prior written notice by
certified or registered mail to Tower if the sum of the cumulative Net Loss
Ratio for the Brokerage Business Pool plus the Management Fee Percentage (as
defined in Article XIV) equals or exceeds 99 % for the period from the
Effective Date to the end of the calendar quarter immediately preceding the
date of such notice. If the Participating Companies cannot agree as to the
calculation of the Net Loss Ratio or Management Fee Percentage, within 30 days
of receiving the appropriate report, the calculation shall be arbitrated. The actuarial
firm of Towers Perrin shall furnish an arbiter for Tower, and CPIC will choose
another actuarial firm to furnish its arbiter. Those two arbiters will select a
third independent actuarial firm to furnish the third arbiter.

 

9

 

C.           
This Pooling Agreement may be terminated with respect to new or renewal
business (a) at any time on or after thirty-six (36) months from the Effective
Date by mutual consent in writing by each of the Participating Companies or
(b) as of the close of a calendar quarter, upon not less than six (6)
months or sixty (60) days, prior written notice, as the case may be, by a
Participating Company to the other Participating Companies of such
Participating Company’s exercise of its right to terminate its participation in
the Brokerage Business Pool, as set forth in Paragraph A or B, above, as the
case may be.

 

D.           
If this Pooling Agreement is terminated pursuant to this Article XIII, all
rights and obligations of the Participating Companies with respect to Brokerage
Business ceded pursuant to this Pooling Agreement prior to such termination
shall continue to be governed by the terms of this Pooling Agreement.

 

ARTICLE
XIV   Pool Management

 

TICNY agrees to act as the
manager of the Brokerage Business Pool and to provide management services which
shall include, but not be limited to, the following:

 

1.            
Marketing, underwriting and issuance of Policies;

 

2.            
Determining premium rates and other underwriting terms and conditions with
respect to the issuance of Policies;

 

3.            
Establishing commissions and fees to be paid to producers and/or brokers in
connection with the underwriting of Policies;

 

4.            
Establishing commissions and fees to be paid to service providers by or for the
account of the Brokerage Business Pool;

 

5.            
Collecting premiums and other amounts due under Policies;

 

6.            
Adjusting settling, defending and paying claims under Policies;

 

7.            
Perform all administrative and policyholder services in connection with the
issuance of Policies;

 

10

 

8.            
Purchasing, managing and administering Existing Reinsurance and Pool Reinsurance;

 

9.            
Underwriting audit and control, product development and state filings;

 

10.         
Loss prevention/premium audit;

 

11.         
Information technology;

 

12.         
Accounting and cash management; and

 

13.         
Human resources and other administrative functions;

 

Expenses
incurred in connection with the foregoing services excluding loss adjustment
expense included in the Net Loss Ratio (the “Management Expenses”) shall be
shared between the Participating Companies based upon their respective Pooling
Percentages.

 

CPIC and TNIC shall pay
to TICNY management fees for the foregoing services (“Management Fees”) during
each calendar year of this Pooling Agreement (or part thereof) equal to (i) (A)
the management fee percentage for such year (as set forth below) (the
“Management Fee Percentage”) times (B) their respective Pooling Percentage of
the gross written premium of the Brokerage Business for such year, net of
return premiums and net of ceded reinsurance premiums for Pool Reinsurance less
(ii) their pooling percentage of (A) ceding commissions set forth in Article
VIII and (B) the shared Management Expenses as set forth above and less (iii)
loss adjustment expenses included in the Net Loss Ratio. The Management Fee
Percentage for the Brokerage Business shall be 34% (which shall be applied
during each year as to premium written during the year) until April 1, 2007 and
be adjusted based on Net Loss Ratio of the pooled business.

 

The Management Fee
Percentage shall, on each six month anniversary of the Effective Date, increase
nine-tenths of a percentage point for every percentage point by which the Net
Loss Ratio is below 61% up to a maximum Management Fee Percentage of 36%, and
decrease nine-tenths of a 

 

11

 

percentage point for every percentage point by which
the Net Loss Ratio exceeds 61%, subject to a minimum Management Fee Percentage
of 31% as follows:

 

	
  Net
  Loss Ratio

  	
   

  	
  Management
  Fee Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  64.33% or higher

  	
   

  	
  31.0

  	
   

  
	
  64

  	
   

  	
  31.3

  	
   

  
	
  63

  	
   

  	
  32.2

  	
   

  
	
  62

  	
   

  	
  33.1

  	
   

  
	
  61

  	
   

  	
  34.0

  	
   

  
	
  60

  	
   

  	
  34.9

  	
   

  
	
  59

  	
   

  	
  35.8

  	
   

  
	
  58.78 or lower

  	
   

  	
  36.0

  	
   

  

 

Such Management Fee
Percentage shall remain provisional until all losses for a given year have been
settled (or deemed settled as set forth below).  Within sixty (60) days
following the end of each year, TICNY shall calculate the Net Loss Ratio for
each year that remains open and shall forward copies of such calculations to
TNIC and CPIC.  The Participating Companies will settle amounts due within
ten (10) days thereafter.  The Net Loss Ratio for each year shall be
deemed to be finalized six (6) years following the close of such year or at any
time before six (6) years by mutual agreement of the Participating Companies.
However, in recognition that regulatory authorities may not approve an
intercompany transaction containing these management fees, the Participating
Companies shall use their best good faith effort to structure the transaction
for the Participating Companies in order that the sum of the Net Loss Ratio
plus Management Fees equals 95% for the Brokerage Business Pool.

 

ARTICLE
XV     Amendments 

 

This Pooling Agreement
may be amended only if in writing and signed by each Participating Company.

 

12

 

ARTICLE
XVI   Adjustments to Participation

 

TICNY may, in its sole
discretion, change the Pooling Percentages effective as of the date that is six
(6) months following the Effective Date and, from time to time, as of any six
(6) month anniversary of the Effective Date thereafter, upon not less ninety
(90) days prior written notice to CPIC; provided, however that
the Pooling Percentage of CPIC shall at all times during the term of this
Pooling Agreement be a minimum of 25% and a maximum of 45%, and provided
further, however, that the total gross written premium of CPIC assumed under
this Pooling Agreement shall not exceed $150 million for the twelve (12) month
period ending March 31, 2007, subject to a growth factor of 25% per twelve (12)
month period ending March 31, thereafter. Each such change shall apply to
Policies issued or renewed after the effective date of such change. 
Exhibit A shall be revised to reflect all such changes and the effective date
of each such change. If the maximum gross written premium after pooling is
attained in any twelve (12) month period ending March 31 as set forth herein,
then the Pooling Percentage, which shall apply to all premiums and losses on a
pro-rated basis for such period, of CPIC shall be decreased for that twelve
(12) month period, even if such Pooling Percentage is below 25%.

 

ARTICLE
XVII  Investments

 

The investments of the
Participating Companies and any income, gains or losses derived therefrom and
expenses related thereto, are not part of, nor are they subject to the terms
of, this Pooling Agreement.

 

ARTICLE
XVIII               
Insolvency

 

A.           
In the event of the insolvency or the appointment of a liquidator, receiver or
other statutory successor of a Participating Company, any amount due such
Participating Company as a ceding party shall be payable by the accepting party
on the basis of the liability of the ceding party under the Policies

 

13

 

reinsured without diminution because
of the insolvency of the ceding party.  Payments by the accepting party
shall be made directly to the ceding party or to the liquidator, receiver or
statutory successor, except (a) where any Policy specifically provides another
payee of such reinsurance in the event of the insolvency of the ceding party,
or (b) where the accepting party, with the consent of the direct insured or
insureds, has assumed such Policy obligations of the ceding party as direct
obligations of the accepting party to payees under such Policies and in
substitution for the obligations of the ceding party to such payees.

 

B.           
The liquidator or receiver or statutory successor of the ceding party shall
give written notice to the accepting party of the pendency of any claim against
the insolvent ceding party on the Policies reinsured within a reasonable time
after such claim is filed in the insolvency proceeding.  During the
pendency of such claim, the accepting party may investigate the claim and
interpose in the proceeding where the claim is to be adjudicated, at its own
expense, any defense or defenses which it may deem available to the ceding
party or its liquidator or receiver or statutory successor.  The expenses
thus incurred by the accepting party shall be chargeable, subject to court
approval, against the insolvent ceding party solely as a result of the defense
undertaken by the accepting party.

 

ARTICLE
XIX   Arbitration

 

A.           
As a condition precedent to any right of action hereunder, in the event of any
dispute or difference of opinion hereafter arising with respect to this Pooling
Agreement (except as set forth in Article XIII, it is hereby mutually agreed
that such dispute or difference of opinion shall be submitted to
arbitration.  One Arbiter shall be chosen by each Participating Company
that is a party to such dispute and an Umpire shall be chosen by the Arbiters
before they enter upon arbitration, all of whom shall be active or retired
disinterested executive officers of insurance or reinsurance companies or
Underwriters at Lloyd’s of London.  In the event that a Participating
Company should fail to choose an Arbiter within

 

14

 

thirty (30) days following a
written request by another Participating Company to do so, the requesting
Participating Company’s Arbiter shall choose a second arbiter before entering
upon arbitration.  If the two arbitrators are unable to agree upon the
third arbitrator within thirty (30) days of their appointment, the third arbitrator
shall be selected from a list of six individuals (three named by each
arbitrator) by a judge of the United States District Court having jurisdiction
over the geographical area in which the arbitration is to take place, or if
that court declines to act, the state court having general jurisdiction in such
area.

 

B.           
Participating Companies party to the dispute shall present their case to the
Arbiters within thirty (30) days following the date of appointment of the
Umpire.  The Arbiters shall consider this Pooling Agreement as an
honorable engagement rather than merely as a legal obligation and they are
relieved of all judicial formalities and may abstain from following the strict
rules of law.  The decision of the Arbiters shall be final and binding on
all Participating Companies; but failing to agree, they shall call in the
Umpire and the decision of the majority shall be final and binding upon all
parties.  Judgment upon the final decision of the Arbiters may be entered
in any court of competent jurisdiction.

 

C.           
Each Participating Company that is a party to the dispute shall bear the
expense of its own Arbiter, and shall jointly and equally bear with the other
the expense of the Umpire and of the arbitration.  In the event that the
two Arbiters are chosen by the requesting Participating Company, as above
provided, the expense of the Arbiters, the Umpire and the arbitration shall be
equally divided between the Participating Companies that are parties to the
arbitration.

 

ARTICLE
XX     Miscellaneous Provisions

 

A.           
Headings used herein are not a part of this Pooling Agreement and shall not
affect the terms hereof.

 

15

 

B.           
All notices, requests, demands and other communications under this Pooling
Agreement must be in writing and will be deemed to have been duly given or made
as follows:  (a) if sent by registered or certified mail in the United
States return receipt requested, upon receipt; (b) if sent by reputable overnight
air courier, two business days after mailing; (c) if sent by facsimile
transmission, with a copy mailed on the same day in the manner provided in (a)
or (b) above, when transmitted and receipt is confirmed by telephone; or (d) if
otherwise actually personally delivered, when delivered.

 

C.           
This Pooling Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, permitted assigns and legal
representatives.  Neither this Pooling Agreement, nor any right or
obligation hereunder, may be assigned by any party without the prior written
consent of the other party hereto.

 

D.           
This Pooling Agreement may be executed by the parties hereto in any number of
counterparts, and by each of the parties hereto in separate counterparts, each
of which counterparts, when so executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.

 

E.           
This Pooling Agreement will be construed, performed and enforced in accordance
with the laws of the State of New York without giving effect to its principles
or rules of conflict of laws thereof to the extent such principles or rules
would require or permit the application of the laws of another jurisdiction.

 

F.            
This Pooling Agreement constitutes the entire agreement between the parties
hereto relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, statements, representations and
warranties, negotiations and discussions, whether oral or written, of the
parties and there are no general or specific warranties, representations or
other agreements by or among the parties in connection with the entering into
of this Pooling Agreement or the subject matter hereof

 

16

 

except as specifically set forth or
contemplated herein. If any provision of this Pooling Agreement is held to be
void or unenforceable, in whole or in part, (i) such holding shall not
affect the validity and enforceability of the remainder of this Pooling
Agreement, including any other provision, paragraph or subparagraph, and
(ii) the parties agree to attempt in good faith to reform such void or
unenforceable provision to the extent necessary to render such provision
enforceable and to carry out its original intent.

 

G.           
No consent or waiver, express or implied, by any party to or of any breach or
default by any other party in the performance by such other party of its
obligations hereunder shall be deemed or construed to be a consent or waiver to
or of any other breach or default in the performance of obligations hereunder
by such other party hereunder.  Failure on the part of any party to complain
of any act or failure to act of any other party or to declare any other party
in default, irrespective of how long such failure continues, shall not
constitute a waiver by such first party of any of its rights hereunder. 
The rights and remedies provided are cumulative and are not exclusive of any
rights or remedies that any party may otherwise have at law or equity.

 

H.           
Except as expressly provided for in the insolvency provisions above, nothing in
this Pooling Agreement will confer any rights upon any person that is not a
party or a successor or permitted assignee of a party to this Pooling
Agreement.

 

I.            
Wherever the words “include,” “includes” or “including” are used in this
Pooling Agreement, they shall be deemed to be followed by the words “without
limitation.”

 

J.            
This Article XX shall survive the termination of this Pooling Agreement.

 

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INTENTIONALLY LEFT BLANK]

 

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

 

 

	
   

  	
  TOWER
  INSURANCE COMPANY OF NEW YORK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  TOWER
  NATIONAL INSURANCE COMPANY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CASTLEPOINT
  INSURANCE COMPANY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

18

 

EXHIBIT
A

 

POOLING
PERCENTAGES

 

The percentages of participation of
Net Liability of the Pooling Agreement to which this Exhibit A is attached
shall be as indicated below:

 

	
  Company

  	
   

  	
  Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Tower

  	
   

  	
  75

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  CastlePoint Insurance
  Company

  	
   

  	
  25

  	
  %

  

 

 

19EXHIBIT 10.17

 

FORM OF
TRADITIONAL PROGRAM BUSINESS POOLING AGREEMENT

 

This Traditional Program
Business Pooling Agreement (“Pooling Agreement”) by and between Tower Insurance
Company of New York (“TICNY”), an insurance company domiciled in New York, Tower
National Insurance Company (“TNIC”), an insurance company domiciled in
Massachusetts (collectively called “Tower”)  and CastlePoint Insurance
Company (“CPIC”), an insurance company domiciled in
[             ],
is dated this     day of
                ,
200[ ], and is made effective as of 12:01 a.m.,
[             ],
200[ ], (the “Effective Date”).

 

WHEREAS, TICNY, TNIC and CPIC are each authorized
to transact, and do transact, a multiple line property and casualty insurance
business; and

 

WHEREAS, TICNY, TNIC and CPIC desire to pool
their respective Traditional Program Business (defined below) in order to make
more efficient use of available surplus and achieve other operating
efficiencies; and

 

WHEREAS, TICNY will act as the manager of such
pool;

 

NOW,
THEREFORE, for
mutual considerations, the sufficiency and receipt of which is hereby
acknowledged, TICNY, TNIC and CPIC agree as follows:

 

ARTICLE I -
Definitions

 

The following terms, whenever used herein, shall have
the following meanings:

 

1

 

“Existing Reinsurance”
shall mean reinsurance ceded by a Participating Company that is in effect on
the Effective Date, to the extent that such reinsurance relates to the
Traditional Program Business of such Participating Company.

 

“Management Fees” shall
mean the management fees payable by CPIC and TNIC to TICNY pursuant to
Article XIV.

 

“Net Liability” shall
mean the loss and loss adjustment expense liability remaining after the
application of Existing Reinsurance and, with respect to TICNY, Pool
Reinsurance, in each case to the extent collectible; provided, however, that
“Net Liability” shall not include liability with respect to losses and loss
adjustment expenses incurred prior to the Effective Date.

 

“Net Loss Ratio” shall
mean, for any period of time, the ratio of Net Losses and loss adjustment
expenses incurred during such period to Net Premium Earned for such period.

 

“Net Losses” shall mean,
for any period of time, any and all amounts that a Participating Company is
required to pay to or on behalf of insureds for insurance claims made under its
Policies, after the application of any applicable reinsurance but not including
loss adjustment expenses.

 

“Net Premium Earned”
shall mean, for any period of time, the earned portion of premiums written by a
Participating Company after payment for reinsurance, if any.

 

“Net Written Premium”
shall mean direct premium written on the Policies covered by this Agreement
plus additions, less refunds and return premium for cancellations and
reductions 

 

2

 

(but not dividends) and less premium paid or payable
for reinsurance that inures to the benefit of the Participating Companies.

 

“Participating Companies”
shall mean TICNY, TNIC and CPIC.

 

“Policies” shall mean all
policies, certificates, binders, contracts and agreements of insurance covering
Traditional Program Business issued or renewed on or after the Effective Date
by or on behalf of TICNY, TNIC or CPIC, as the case may be, all of which shall
be subject to this Pooling Agreement.

 

“Pool Reinsurance” shall
mean property catastrophe and excess of loss reinsurance ceded by TICNY to an
insurer that is not a Participating Company that inures to the benefit of the
Traditional Program Business Pool.

 

“Pooling Percentages”
shall be those percentages set forth on Schedule A attached, as amended
from time to time.

 

“Program Business” shall
mean narrowly defined classes of business that are underwritten on an
individual policy basis by Program Underwriting Agents on behalf of insurance
companies.

 

“Program Underwriting
Agent” shall mean an insurance intermediary that aggregates business from
retail and general agents and manages business on behalf of insurance
companies, including functions such as risk selection and underwriting, premium
collection, policy form design and client service.

 

3

 

“Traditional Program
Business Pool” shall mean Traditional Program Business written by or on behalf
of the Participating Companies or assumed by a Participating Company (including
such business assumed by TICNY from its affiliates), that is pooled and
allocated to each of the Participating Companies based upon their Pooling
Percentage as set forth in this Pooling Agreement.

 

“Traditional
Program Business” shall mean blocks of Program Business in excess of $5 million
in gross written premium that Tower has historically underwritten, consisting
of non-auto related personal lines and the following commercial lines of
business: retail stores and wholesale trades, commercial and residential real
estate, restaurants, grocery stores, office and service industries, and artisan
contractors.

 

ARTICLE II-
Cessions to Traditional Program Business Pool

 

CPIC
and TNIC shall automatically and obligatorily cede to TICNY as reinsurance, and
TICNY shall be obligated to accept as assumed reinsurance, one hundred percent
(100%) of the Net Liabilities with respect to Policies issued or assumed by
CPIC and TNIC, to be combined with the Net Liabilities of TICNY under Policies
issued or assumed by TICNY provided, however, that the total gross written
premium of CPIC after pooling shall not exceed $50 million for the first 12
month period ending March 31, 2007, subject to a growth factor of 25% per
each 12 month period thereafter.

 

ARTICLE III -
Participation in Traditional Program Business Pool

 

TICNY
shall establish the Traditional Program Business Pool, which shall consist of
the Net Liability under all Traditional Program Business written or assumed by
Tower and 

 

4

 

CPIC (including business assumed by
TICNY pursuant to this Pooling Agreement).  Tower shall automatically and
obligatorily cede to CPIC, and retain for Tower’s own account, the applicable
Pooling Percentages of such Net Liability and CPIC shall automatically and
obligatorily accept such cessions. Notwithstanding the foregoing, if Tower
(i) writes business of the type that it has historically not written or
(ii) writes more than 25% of its gross written premiums outside the state
of New York in any 12 month period ending on the anniversary date of this
Pooling Agreement, then such non-historical business and the excess of business
not in New York over 25% may, at CPIC’s discretion, be excluded from the pool.
In addition, the pool shall exclude any property excess of loss liabilities
over $10 million resulting from any one occurrence. TICNY and TNIC shall
determine how the Tower Pooling Percentage will be allocated between each of
them.  Such Pooling Percentages shall be applied to all Traditional
Program Business written by the Participating Companies.  Any change in
the Pooling Percentages shall be made only by a written amendment to this
Pooling Agreement signed by the parties hereto or as otherwise set forth in
Article XVI of this Pooling Agreement.  The Participating Companies
acknowledge that, following the acceptance or retention of a percentage of the
Traditional Program Business Pool by a Participating Company, such pooled
business shall be subject to such reinsurance as may be entered into by such
Participating Company on or after the Effective Date that is for the benefit of
such Participating Company as to its participation in the Traditional Program
Business Pool and does not inure to the benefit of the Traditional Program
Business Pool.

 

ARTICLE IV -
Reinsurance

 

TICNY,
as pool manager, shall negotiate, obtain and maintain such Pool Reinsurance as
it deems appropriate with respect to the liabilities of the Traditional Program
Business Pool, 

 

5

 

which reinsurance shall inure to
the benefit of the Participating Companies according to their respective
Pooling Percentages. TICNY shall purchase property and casualty excess of loss
reinsurance and property catastrophe excess of loss reinsurance from third
party reinsurers to protect the net exposure of the Participating Companies.
The property catastrophe excess of loss reinsurance purchased by TICNY may
provide for up to approximately 10% of the combined surplus of Tower and CPIC
to be retained by the pool prior to reinsurance by third party reinsurers
(“Pooled Retention”). Any of the Participating Companies also shall have the
right, in its discretion, to require TICNY to increase the Pooled Retention by
an additional amount of up to 10% of the surplus of CastlePoint Reinsurance
Company (“CPRe”) provided that TICNY purchases reinsurance for such additional
Pooled Retention from CPRe.

 

ARTICLE V -
Losses and Loss Adjustment Expenses

 

A.           
All
loss settlements made by TICNY with regards to the Traditional Program
Business, whether under strict policy conditions or by way of compromise, shall
be unconditionally binding upon TNIC and CPIC.

 

B.           
Each
Participating Company shall be liable for its proportionate share of loss
adjustment expenses incurred under or in connection with the Policies and shall
be credited with its proportionate share of any recoveries of such expense.

 

C.           
If
a Participating Company pays or is held liable to pay any punitive, exemplary,
compensatory, or consequential damages (hereinafter called “Extra Contractual
Obligations”) because of alleged or actual negligence on its part in handling a
claim under a Policy, one hundred percent (100%) of such Extra Contractual
Obligations (to the extent permitted by law) 

 

6

 

shall be added to the Net
Liability, if any, of such Participating Company under the Policy involved, and
the sum thereof shall be subject to this Pooling Agreement.

 

D.           
If
a Participating Company pays or is held liable to pay in connection with any
loss amounts in excess of the limit of its original Policy, such loss in excess
of that limit having been incurred because of its failure to settle within the
Policy limit or by reason of alleged or actual negligence in rejecting an offer
of settlement or in the preparation of the defense or in the trial of any
action against the original insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action (hereinafter called an
“Excess of Policy Limits Loss”), one hundred percent (100%) of such Excess of
Policy Limits Loss (to the extent permitted by law) shall be added to the Net
Liability, if any, of such Participating Company under the Policy involved, and
the sum thereof shall be subject to this Pooling Agreement.

 

ARTICLE VI -
Salvage and Subrogation

 

Each
of the Participating Companies shall be credited with its proportionate share
of salvage and subrogation on account of losses under the Policies.

 

ARTICLE VII -
Original Conditions Apply

 

All
reinsurance under this Pooling Agreement shall be subject to the same rates,
terms, conditions and waivers, and to the same modifications and alterations as
the respective Policies.  Each of the Participating Companies shall be
credited with the proportion equal to its Pooling Percentage of the original
premiums received under the Policies issued on or after the Effective Date, but
after deduction of premiums, if any, ceded under Existing Reinsurance and Pool
Reinsurance.

 

7

 

ARTICLE VIII
- Ceding Commission

 

Each
of the Participating Companies shall be charged with a ceding commission in an
amount equal to such Participating Company’s Pooling Percentage of actual
commissions paid to agents or brokers, premium taxes, guarantee fund
assessments, fees and assessments for boards, bureaus and associations, fees and
assessments for industry and residual markets, and other similar expenses
incurred by the Participating Companies on all premiums ceded hereunder but
after deduction of ceding commissions or expense reimbursement amounts
recovered under Existing Reinsurance and Pool Reinsurance.

 

ARTICLE IX -
Remittances and Reports

 

A.           
As
soon as practicable consistent with its standard financial reporting practices,
but no later than thirty (30) days after the end of each calendar month, TICNY
shall submit a pooling report to TNIC and CPIC setting forth the following
information as regards the Traditional Program Business Pool:

 

1.            
Net
Written Premium received during the month;

2.            
Net
Premium Earned received during the month

3.            
Ceding
commission thereon;

4.            
Losses
and loss adjustment expenses paid during the month;

5.            
Salvage
and subrogation recoveries received;

6.            
Recoverables
under inuring reinsurance; and

7.            
Management
Fees due.

 

B.           
The
balance shown to be due a Participating Company shall be remitted within
fifteen (15) days after the issuance of the reports by TICNY on a collected
basis; provided that 

 

8

 

TICNY may retain, as manager, a
reserve out of amounts otherwise due TNIC and CPIC for the payment of amounts
reasonably estimated by TICNY to be payable during the next sixty (60) days by
the Traditional Program Business Pool and allocable to TNIC and CPIC hereunder. 
Such balance shall be remitted in cash or in readily marketable securities
(valued at fair market value) in an amount equal to such balance.  Should
discrepancies arise in the process of the verification of any report, such
differences, once resolved, should be remitted promptly.

 

C.           
As
soon as practicable consistent with its financial reporting practices, but no
later than thirty (30) days after the end of each calendar quarter, TICNY shall
report to TNIC and CPIC ceded unearned premium reserves and ceded outstanding
loss and loss adjustment expense reserves as regards the Traditional Program
Business as of the end of such quarter.

 

ARTICLE X -
Offset

 

Each
of the Participating Companies shall have and may exercise at any time, and from
time to time, the right to offset any balance or balances whether on account of
premiums, losses or amounts otherwise due from one Participating Company to the
other under the terms of this Pooling Agreement, subject to the provision of
applicable law.

 

ARTICLE XI -
Errors and Omissions

 

Inadvertent
delays, errors or omissions made in connection with this Pooling Agreement or
any transaction hereunder shall not relieve any Participating Company from any
liability that would have attached had such delay, error or omission not
occurred, provided always that such error or omission will be rectified as soon
as possible after discovery.

 

9

 

ARTICLE XII -
Access to Records

 

The
files and records of each Participating Company with respect to this Pooling
Agreement and the Traditional Program Business subject hereto shall be open to
examination by any officer or director of each of the other Participating
Companies or their duly authorized representatives during normal business
hours.

 

ARTICLE XIII
- Term

 

A.         
This
Pooling Agreement will become effective on the Effective Date.  Either
Tower or CPIC may terminate their respective participation in the Traditional
Program Business Pool as of the date thirty six (36) months after the Effective
Date and thereafter as of the close of a calendar quarter by giving at least
six (6) months prior written notice to the other party by certified or
registered mail.

 

B.         
CPIC
shall have the right to terminate its participation in the Traditional Program
Business Pool at any time on or after twenty four (24) months after the
Effective Date and thereafter by giving sixty (60) days prior written notice by
certified or registered mail to Tower if the sum of the cumulative Net Loss
Ratio for the Traditional Program Business Pool plus the Management Fee
Percentage (as defined in Article XIV) equals or exceeds 99 % for the
period from the Effective Date to the end of the calendar quarter immediately
preceding the date of such notice. If the Participating Companies cannot agree
as to the calculation of the Net Loss Ratio or Management Fee Percentage,
within 30 days of receiving the appropriate report, the calculation shall be
arbitrated. The actuarial firm of Towers Perrin shall furnish an arbiter for
Tower, and CPIC will choose another actuarial firm to furnish its arbiter.
Those two arbiters will select a third independent actuarial firm to furnish
the third arbiter.

 

10

 

C.         
This
Pooling Agreement may be terminated with respect to new or renewal business
(a) at any time on or after thirty-six (36) months from the Effective
Date, by mutual consent in writing by each of the Participating Companies or
(b) as of the close of a calendar quarter, upon not less than six
(6) months or sixty (60) days prior written notice, as the case may be, by
a Participating Company to the other Participating Companies of such
Participating Company’s exercise of its right to terminate its participation in
the Traditional Program Business Pool, as set forth in Paragraph A or B, above,
as the case may be.

 

D.         
If
this Pooling Agreement is terminated pursuant to this Article XIII, all
rights and obligations of the Participating Companies with respect to
Traditional Program Business ceded pursuant to this Pooling Agreement prior to
such termination shall continue to be governed by the terms of this Pooling
Agreement.

 

ARTICLE XIV -
Pool Management

 

TICNY
agrees to act as the manager of the Traditional Program Business Pool and to
provide management services which shall include, but not be limited to, the
following:

 

1.            
Marketing,
underwriting and issuance of Policies;

 

2.            
Determining
premium rates and other underwriting terms and conditions with respect to the
issuance of Policies;

 

3.            
Establishing
commissions and fees to be paid to producers and/or brokers in connection with
the underwriting of Policies;

 

4.            
Establishing
commissions and fees to be paid to service providers by or for the account of
the Traditional Program Business Pool;

 

5.            
Collecting
premiums and other amounts due under Policies;

 

11

 

6.            
Adjusting
settling, defending and paying claims under Policies;

 

7             
Perform
all administrative and policyholder services in connection with the issuance of
Policies;

 

8.            
Purchasing,
managing and administering Existing Reinsurance and Pool Reinsurance;

 

9.            
Underwriting
audit and control, product development and state filings;

 

10.         
Loss
prevention/premium audit;

 

11.         
Information
technology;

 

12.         
Accounting
and cash management;

 

13.         
Human
resources and other administrative functions; and

 

14.         
Appointing
small third party insurers or their affiliates as Program Underwriting Agents
using Policies of any Participating Company on the condition that such small
insurers participate as a reinsurer on the Traditional Program Business they
underwrite.

 

Expenses
incurred in connection with the foregoing services excluding loss adjustment
expense included in the Net Loss Ratio (the “Management Expenses”) shall be
shared between the Participating Companies based upon their respective Pooling
Percentages.

 

CPIC
and TNIC shall pay to TICNY management fees for the foregoing services
(“Management Fees”) during each calendar year of this Pooling Agreement (or
part thereof) equal to (i) (A) the management fee percentage for such
year (as set forth below) (the “Management Fee Percentage”)  times
(B) their respective Pooling Percentage of the gross written premium of
the Traditional Program Business for such year, net of return premiums and net
of ceded reinsurance premiums for Pool Reinsurance, less (ii) their
Pooling Percentage of (A) ceding commissions set forth in
Article VIII and (B) the shared Management Expenses as set 

 

12

 

forth above and less
(iii) loss adjustment expenses included in the Net Loss Ratio. The
Management Fee Percentage for the Traditional Program Business shall be 30%
(which shall be applied during each year as to premium written during such
year) and be adjusted based on Net Loss Ratio of the pooled business.

 

The
Management Fee Percentage shall, on each six month anniversary of the Effective
Date, increase nine-tenths of a percentage point for every percentage point by
which the Net Loss Ratio is below 63% up to a maximum Management Fee Percentage
of 36%, as follows:

 

	
  Net
  Loss Ratio

  	
   

  	
  Management
  Fee Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  63% or higher

  	
   

  	
  30.0

  	
   

  
	
  62

  	
   

  	
  30.9

  	
   

  
	
  61

  	
   

  	
  31.8

  	
   

  
	
  60

  	
   

  	
  32.7

  	
   

  
	
  59

  	
   

  	
  33.6

  	
   

  
	
  58

  	
   

  	
  34.5

  	
   

  
	
  57

  	
   

  	
  35.4

  	
   

  
	
  56.33 or lower

  	
   

  	
  36.0

  	
   

  

 

Such
Management Fee Percentage shall remain provisional until all losses for a given
year have been settled (or deemed settled as set forth below).  Within
sixty (60) days following the end of each year, TICNY shall calculate the Net
Loss Ratio for each year that remains open and shall forward copies of such
calculations to TNIC and CPIC.  The Participating Companies will settle
amounts due within ten (10) days thereafter.  The Net Loss Ratio for
each year shall be deemed to be finalized six (6) years following the
close of such year or at any time before six (6) years by mutual agreement
of the Participating Companies. However, in recognition that regulatory
authorities may not approve an intercompany transaction containing these
management fees, the participating companies shall use their best good faith
effort to structure 

 

13

 

the transaction for the
Participating Companies in order that the sum of the Net Loss Ratio plus
Management Fees equals 93% for the Traditional Program Business.

 

ARTICLE XV -
Amendments

 

This
Pooling Agreement may be amended only if in writing and signed by each
Participating Company.

 

ARTICLE XVI -
Adjustments to Participation

 

TICNY
may, in its sole discretion, change the Pooling Percentages effective as of the
date that is six (6) months following the Effective Date and, from time to
time, as of any six (6) month anniversary of the Effective Date
thereafter, upon not less ninety (90) days prior written notice to CPIC;
provided, however, that the Pooling Percentage of CPIC shall at all times
during the term of this Pooling Agreement be a minimum of 25% and a maximum of
45%, and provided further, however, that the total gross written premium of
CPIC assumed under this Pooling Agreement shall not exceed $50 million for the
twelve (12) month period ending March 31, 2007, subject to a growth factor
of 25% per each 12 month period thereafter. Each such change shall apply to
Policies issued or renewed after the effective date of such change. 
Exhibit A shall be revised to reflect all such changes and the effective
date of each such change. If the maximum gross written premium after pooling is
attained in any twelve month period ending March 31 as set forth herein,
then the Pooling Percentage, which shall apply to all premiums and losses on a
pro-rated basis for such period, of CPIC shall be decreased for that 12 month
period, even if such Pooling Percentage is below 25%.

 

14

 

ARTICLE XVII
- Investments

 

The
investments of the Participating Companies and any income, gains or losses
derived therefrom and expenses related thereto, are not part of, nor are they
subject to the terms of, this Pooling Agreement.

 

ARTICLE XVIII
- Insolvency

 

A.         
In
the event of the insolvency or the appointment of a liquidator, receiver or
other statutory successor of a Participating Company, any amount due such
Participating Company as a ceding party shall be payable by the accepting party
on the basis of the liability of the ceding party under the Policies reinsured
without diminution because of the insolvency of the ceding party. 
Payments by the accepting party shall be made directly to the ceding party or
to the liquidator, receiver or statutory successor, except (a) where any
Policy specifically provides another payee of such reinsurance in the event of
the insolvency of the ceding party, or (b) where the accepting party, with
the consent of the direct insured or insureds, has assumed such Policy
obligations of the ceding party as direct obligations of the accepting party to
payees under such Policies and in substitution for the obligations of the
ceding party to such payees.

 

B.         
The
liquidator or receiver or statutory successor of the ceding party shall give
written notice to the accepting party of the pendency of any claim against the
insolvent ceding party on the Policies reinsured within a reasonable time after
such claim is filed in the insolvency proceeding.  During the pendency of
such claim, the accepting party may investigate the claim and interpose in the
proceeding where the claim is to be adjudicated, at its own expense, any
defense or defenses which it may deem available to the ceding party or its
liquidator or receiver or statutory successor.  The expenses thus incurred
by the accepting party shall be chargeable, 

 

15

 

subject to court approval, against
the insolvent ceding party solely as a result of the defense undertaken by the
accepting party.

 

ARTICLE XIX -
Arbitration

 

A.         
As
a condition precedent to any right of action hereunder, in the event of any
dispute or difference of opinion hereafter arising with respect to this Pooling
Agreement (except as set forth in Article XIII), it is hereby mutually
agreed that such dispute or difference of opinion shall be submitted to
arbitration.  One Arbiter shall be chosen by each Participating Company
that is a party to such dispute and an Umpire shall be chosen by the Arbiters
before they enter upon arbitration, all of whom shall be active or retired
disinterested executive officers of insurance or reinsurance companies or
Underwriters at Lloyd’s of London.  In the event that a Participating
Company should fail to choose an Arbiter within thirty (30) days following a
written request by another Participating Company to do so, the requesting
Participating Company’s Arbiter shall choose a second arbiter before entering
upon arbitration.  If the two arbitrators are unable to agree upon the
third arbitrator within thirty (30) days of their appointment, the third
arbitrator shall be selected from a list of six individuals (three named by
each arbitrator) by a judge of the United States District Court having
jurisdiction over the geographical area in which the arbitration is to take
place, or if that court declines to act, the state court having general
jurisdiction in such area.

 

B.         
Participating
Companies party to the dispute shall present their case to the Arbiters within
thirty (30) days following the date of appointment of the Umpire.  The
Arbiters shall consider this Pooling Agreement as an honorable engagement
rather than merely as a legal obligation and they are relieved of all judicial
formalities and may abstain from following the

 

16

 

strict rules of law.  The
decision of the Arbiters shall be final and binding on all Participating
Companies; but failing to agree, they shall call in the Umpire and the decision
of the majority shall be final and binding upon all parties.  Judgment
upon the final decision of the Arbiters may be entered in any court of
competent jurisdiction.

 

C.         
Each
Participating Company that is a party to the dispute shall bear the expense of
its own Arbiter, and shall jointly and equally bear with the other the expense
of the Umpire and of the arbitration.  In the event that the two Arbiters
are chosen by the requesting Participating Company, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall be equally
divided between the Participating Companies that are parties to the
arbitration.

 

ARTICLE XX -
Miscellaneous Provisions

 

A.         
Headings
used herein are not a part of this Pooling Agreement and shall not affect the
terms hereof.

 

B.         
All
notices, requests, demands and other communications under this Pooling
Agreement must be in writing and will be deemed to have been duly given or made
as follows:  (a) if sent by registered or certified mail in the
United States return receipt requested, upon receipt; (b) if sent by
reputable overnight air courier, two business days after mailing; (c) if
sent by facsimile transmission, with a copy mailed on the same day in the
manner provided in (a) or (b) above, when transmitted and receipt is confirmed
by telephone; or (d) if otherwise actually personally delivered, when
delivered.

 

C.         
This
Pooling Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, permitted assigns and legal
representatives.  

 

17

 

Neither this Pooling Agreement, nor
any right or obligation hereunder, may be assigned by any party without the
prior written consent of the other party hereto.

 

D.         
This
Pooling Agreement may be executed by the parties hereto in any number of
counterparts, and by each of the parties hereto in separate counterparts, each
of which counterparts, when so executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.

 

E.         
This
Pooling Agreement will be construed, performed and enforced in accordance with
the laws of the State of New York without giving effect to its principles or
rules of conflict of laws thereof to the extent such principles or
rules would require or permit the application of the laws of another
jurisdiction.

 

F.          
This
Pooling Agreement constitutes the entire agreement between the parties hereto
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, statements, representations and
warranties, negotiations and discussions, whether oral or written, of the
parties and there are no general or specific warranties, representations or
other agreements by or among the parties in connection with the entering into
of this Pooling Agreement or the subject matter hereof except as specifically
set forth or contemplated herein.          
If
any provision of this Pooling Agreement is held to be void or unenforceable, in
whole or in part, (i) such holding shall not affect the validity and
enforceability of the remainder of this Pooling Agreement, including any other
provision, paragraph or subparagraph, and (ii) the parties agree to
attempt in good faith to reform such void or unenforceable provision to the
extent necessary to render such provision enforceable and to carry out its
original intent.

 

18

 

G.         
No
consent or waiver, express or implied, by any party to or of any breach or
default by any other party in the performance by such other party of its
obligations hereunder shall be deemed or construed to be a consent or waiver to
or of any other breach or default in the performance of obligations hereunder
by such other party hereunder.  Failure on the part of any party to
complain of any act or failure to act of any other party or to declare any
other party in default, irrespective of how long such failure continues, shall
not constitute a waiver by such first party of any of its rights
hereunder.  The rights and remedies provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at law or
equity.

 

H.         
Except
as expressly provided for in the insolvency provisions above, nothing in this
Pooling Agreement will confer any rights upon any person that is not a party or
a successor or permitted assignee of a party to this Pooling Agreement.

 

I.          
Wherever
the words “include,” “includes” or “including” are used in this Pooling
Agreement, they shall be deemed to be followed by the words “without
limitation.”

 

J.          
This
Article XX shall survive the termination of this Pooling Agreement.

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]

 

19

 

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

 

 

	
   

  	
  TOWER INSURANCE COMPANY
  OF NEW YORK

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  TOWER NATIONAL
  INSURANCE COMPANY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CASTLEPOINT INSURANCE
  COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

20

 

EXHIBIT A

 

POOLING
PERCENTAGES

 

The percentages of participation of
Net Liability of the Pooling Agreement to which this Exhibit A is attached
shall be as indicated below:

 

	
  Company

  	
   

  	
  Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Tower

  	
   

  	
  75

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  CastlePoint Insurance
  Company

  	
   

  	
  25

  	
  %

  

 

21

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