Contract analysis

I. INTRODUCTION AND SUMMARY OF DISPUTE Stonefield Logistics Group Inc. ("SLG" or the "Company") respectfully submits this Confidential Mediation Position Statement to Hon. Margaret Colquitt (Ret.) in advance of the mediation session scheduled for June 20, 2024, at JAMS Houston. SLG approaches this mediation in good faith and with a genuine desire to resolve this dispute, but is simultaneously prepared to pursue its c

II. THE PARTIES A. Stonefield Logistics Group Inc. Stonefield Logistics Group Inc. is a Texas corporation with Federal Employer Identification Number 84-3291057. Its principal office and headquarters are located at 2900 Petroleum Tower Boulevard, Suite 400, Midland, TX 79701. The Company's registered agent is CT Statutory Services, Inc., 1999 Bryan Street, Suite 900, Dallas, TX 75201. SLG was founded in 1987 and has

III. THE LOSS EVENT — NOVEMBER 17, 2023 FIRE A. Factual Summary On November 17, 2023, at approximately 2:14 a.m. CST, a fire broke out in Warehouse Building C at SLG's Midland Facility, located at 4501 East County Road 130, Midland, TX 79706. Warehouse Building C is a 42,000-square-foot steel-frame warehouse facility used by SLG for the storage of customer freight, including casing pipe, completion chemicals, downhol

1. Fire Origin and Cause. The fire originated in the Square D Model QED-2 main electrical distribution panel located in Warehouse Building C. The cause of the fire was electrical arcing within the panel. The arcing was attributable to age-related degradation of internal bus bar connections and was not caused by any external factor, act, or omission of SLG.

2. No Causal Relationship to Storage Practices or Sprinkler Maintenance. The fire was not caused by any act or omission of SLG related to cargo storage practices or sprinkler system maintenance. The fire originated in the electrical panel, not in any stored cargo or fire-suppression component. SLG's storage practices and sprinkler maintenance status were irrelevant to the fire's origin.

3. Municipal Water-Supply Pressure Deficit. Even a fully code-compliant sprinkler system operating at its design pressure of 52 psi would not have prevented the loss, given the documented municipal water-supply pressure deficit on the night of the fire. The actual municipal water-supply pressure feeding the Warehouse Building C sprinkler system was only 36 psi — a 31% deficit from the system's design parameter. This

4. Cargo Segregation Confirmed. Post-fire forensic mapping of the warehouse debris field confirmed that SLG's cargo segregation layout, as documented in SLG's Warehouse Layout Plan Rev. 7 (dated June 2023), was maintained at the time of the fire. Specifically, pipe storage was confined to Bays 1 through 4, chemical pallets were confined to Bays 9 through 12, and a 40-foot buffer zone consisting of Bays 5 through 8 (u

IV. CARGO LOSS AND QUANTIFICATION A. Destroyed Cargo — Itemized The fire at Warehouse Building C destroyed customer freight belonging to multiple shippers. The following table sets forth the itemized cargo losses, each of which has been documented and verified through SLG's warehouse management system records, bills of lading, shipper invoices, and the sworn proof of loss prepared by Whitlock & Associates, Certified

V. THE MERIDIAN POLICY — COVERAGE GRANT AND KEY TERMS A. Policy Identification The key terms of the Meridian Policy are set forth below for the Mediator's reference: The Policy was placed by SLG's insurance broker, Calvert & Strauss Insurance Brokers, Inc. (Account Executive: Jason Muñoz), and was bound effective April 1, 2023. The Policy has been continuously in force throughout the policy period, and all premiums h

VI. MERIDIAN'S DENIAL AND ITS DEFICIENCIES A. Procedural History of the Claim The procedural history of Meridian's handling of this claim is both illuminating and troubling. The key dates are as follows: • November 17, 2023: The fire occurs at Warehouse Building C. SLG provides prompt notice to Meridian through its broker, Calvert & Strauss. • December 4, 2023: Meridian issues a Reservation of Rights letter, seventee

1. SLG's Maintenance Record Demonstrates Diligent Compliance. SLG maintained the Warehouse Building C sprinkler system diligently and in substantial compliance with NFPA 25. SLG conducted all required quarterly visual inspections of the sprinkler system in accordance with NFPA 25 § 5.2.1. The quarterly inspections were performed on the following dates: • December 15, 2022 • March 20, 2023 • June 12, 2023 • September

2. No Causal Nexus Between the Alleged Maintenance Gap and the Loss. Even if SLG's annual full-flow inspection gap could be characterized as a "failure to maintain" within the meaning of Exclusion 4(k) — which SLG denies — the exclusion would still not apply because Meridian cannot establish the required causal nexus. The text of Exclusion 4(k) is critical. It does not exclude all losses that occur in a facility with

3. Legal Standard — The Insurer Bears the Burden of Proving Exclusion Applicability. The Texas Supreme Court has established a clear burden-of-proof framework for insurance coverage disputes. Under Northgate Indemnity Co. v. Hudson Energy Co., 811 S.W.2d 552 (Tex. 1991), the burden of proving the applicability of a policy exclusion rests squarely on the insurer. The insured bears only the initial burden of demonstrat

VII. MERIDIAN'S EXPOSURE UNDER THE TEXAS INSURANCE CODE Meridian's wrongful denial of SLG's claim does not merely entitle SLG to the indemnity amount due under the Policy. It also exposes Meridian to substantial statutory liability under the Texas Insurance Code, which provides powerful remedies for policyholders whose claims are wrongfully denied or unreasonably delayed. SLG's statutory claims significantly amplify

VIII. HISTORY OF SETTLEMENT NEGOTIATIONS The parties have engaged in the following pre-mediation settlement communications: April 12, 2024: Calderwood & Harkness, on behalf of SLG, sent a formal demand letter to Meridian (addressed to Patricia Ng, Vice President of Claims), with a copy to Kessler, Brandt & Howe LLP. The demand letter sought payment of $4,530,000, representing the full indemnity amount net of the SIR,

IX. SLG'S SETTLEMENT DEMAND SLG demands payment of $4,530,000, representing the full indemnity amount due under Policy No. IML-TX-0039821-2023, calculated as the total documented cargo loss of $4,780,000, less the $250,000 per-occurrence self-insured retention. In addition to the indemnity amount, SLG seeks reimbursement of all accrued penalty interest under Texas Insurance Code Chapter 542, § 542.060, calculated at

X. CONCLUSION The facts and law in this matter strongly favor Stonefield Logistics Group Inc. The core elements of this dispute can be summarized as follows: The November 17, 2023 fire at Warehouse Building C was an accidental, electrical-origin event — a fortuitous loss that falls squarely within the broad all-risk coverage grant of SLG's Inland Marine Cargo Legal Liability Policy. The fire destroyed $4,780,000 in c