Contract analysis

I. Introduction and Purpose of Letter Calderwood & Harkness LLP has now completed its comprehensive analysis of Verimark Hospitality Group Inc.'s ("VHG") insurance coverage position arising from the losses sustained in connection with Hurricane Callista, which made landfall as a Category 4 hurricane on September 18, 2022, in the Lower Florida Keys. This letter summarizes the firm's coverage analysis across VHG's four

II. Summary of the Claim and Insurance Program A. The Insured Loss Hurricane Callista was designated as a named storm by the National Hurricane Center ("NHC") on September 12, 2022. The storm rapidly intensified over the warm waters of the Caribbean and the Straits of Florida, ultimately reaching Category 4 intensity on the Saffir-Veltason Hurricane Wind Scale prior to landfall. Callista made landfall in the Big Pine

1. Verimark Grand Key Resort — Marathon, Florida The Verimark Grand Key Resort is located at Mile Marker 48, Marathon, Florida 33050. It is a 312-room luxury resort and marina facility that represents VHG's flagship Keys property. Prior to Hurricane Callista, the Grand Key Resort operated at a pre-loss average daily rate ("ADR") of $389 and an occupancy rate of 82%, reflecting its status as one of the premier hospita

2. Verimark Harborview Hotel & Conference Center — Fort Myers Beach, Florida The Verimark Harborview Hotel & Conference Center is located at 1400 Estero Boulevard, Fort Myers Beach, Florida 33931. The property comprises a 224-room hotel and a 40,000-square-foot conference and events facility, which serves as a significant revenue driver through corporate meetings, conventions, and social events. Prior to Hurricane Ca

3. Verimark Sunset Shores — St. Pete Beach, Florida The Verimark Sunset Shores is a 186-room boutique resort located at 7200 Gulf Boulevard, St. Pete Beach, Florida 33706. The property operated at a pre-loss ADR of $342 and an occupancy rate of 79%. Sunset Shores experienced a partial closure beginning September 18, 2022, with a full-closure period of 73 days followed by a period of reduced capacity that extended thr

4. Total Claimed Business-Interruption Loss For context, VHG's consolidated pre-loss financial performance reflects a robust and profitable enterprise. In fiscal year 2021, VHG reported total revenue of approximately $412 million and EBITDA of approximately $78 million. The $60 million business-interruption claim therefore represents a significant but proportionate loss relative to VHG's overall operations, and the l

III. Insurer Coverage Positions and Their Weaknesses A. Ironclad Indemnity Corporation — Primary Layer Ironclad issued a reservation of rights to VHG on October 12, 2022, authored by Victor Haddon, Senior Vice President of Claims. The reservation of rights identified four bases on which Ironclad asserted potential coverage defenses. Calderwood & Harkness responded to the reservation of rights on behalf of VHG on Octo

1. Named Windstorm Sub-Limit ($15M) Ironclad's Position. Ironclad contends that the primary policy contains a named-windstorm sub-limit of $15,000,000 applicable to business-interruption losses. Under this interpretation, VHG's recovery for business-interruption losses under the primary layer would be capped at $15 million rather than the full $25 million policy limit. This is the single most impactful coverage issue

2. Period of Restoration Dispute Ironclad's Position. Ironclad contends that VHG's business-interruption coverage terminates when repairs "could have been completed with reasonable speed," and asserts that VHG unreasonably delayed restoration at all three properties. Ironclad has focused in particular on the 178-day closure period at the Grand Key Resort and the 135-day closure period at the Harborview, both of which

3. Concurrent Causation / Flood Exclusion Ironclad's Position. Ironclad contends that portions of the damage at the Grand Key Resort resulted from storm surge — which Ironclad characterizes as "flood" — and that such damage is excluded under the flood exclusion in the primary policy. Additionally, Ironclad invokes the anti-concurrent causation ("ACC") clause in the policy, arguing that where wind and storm surge (flo

4. Failure to Mitigate Ironclad's Position. Ironclad contends that VHG failed to take reasonable steps to reduce the period of business interruption, thereby increasing VHG's losses beyond what would have occurred had VHG acted diligently. VHG's Position and Strength of Argument. This defense is the weakest of the four raised by Ironclad. VHG took extensive and well-documented mitigation measures following Hurricane

IV. Overall Assessment of VHG's Coverage Position Based on the analysis set forth above and in the enclosed Strategic Assessment and Litigation Recommendation Memorandum, Calderwood & Harkness's overall assessment of VHG's coverage position is as follows: VHG has strong to very strong coverage arguments on all four contested issues raised by Ironclad. The quality of VHG's position varies across the four issues, but i

V. Pre-Suit Negotiation Status Calderwood & Harkness sent pre-suit demand letters to all four carriers in VHG's insurance tower on November 20–21, 2022. These demand letters set forth VHG's coverage position in detail, including the factual and legal bases for VHG's claim, and demanded that each carrier honor its obligations under the applicable policy. No substantive response has been received from any carrier as of

VI. Recommended Next Steps A. Filing Litigation Calderwood & Harkness recommends that VHG authorize the filing of a civil complaint if pre-suit negotiations do not produce a meaningful settlement offer within the next two to three weeks. We recommend a target filing date of on or before March 1, 2023. The complaint would be filed in the Eleventh Judicial Circuit of Florida, Miami-Dade County, which has personal juris

1. Breach of contract against all four carriers for failure to pay VHG's business-interruption claim in accordance with the terms of the respective policies;

2. Declaratory judgment seeking a judicial determination that the named-windstorm sub-limit was deleted from the Ironclad primary policy, that the anti-concurrent causation clause does not bar coverage for VHG's wind-driven losses, and that VHG's period of restoration and mitigation efforts were reasonable; and

3. Bad faith against Ironclad under Florida Statutes § 624.155, based on Ironclad's unreasonable denial of VHG's claim in the face of overwhelming evidence supporting coverage. Filing promptly will preserve VHG's ability to assert statutory bad-faith claims against Ironclad once the formal denial is issued. Additionally, the filing of litigation will signal to all four carriers — and particularly to the excess carrie

VII. Request for Client Authorization Based on the foregoing analysis and recommendations, Calderwood & Harkness respectfully requests the following authorizations from VHG:

1. Authorization to File Litigation. We request that Nathaniel Driscoll, in coordination with Marcus Ellsworth (CEO) and VHG's Board of Directors, authorize Calderwood & Harkness to file a civil complaint in the Eleventh Judicial Circuit of Florida, Miami-Dade County, if pre-suit negotiations do not yield a meaningful settlement offer by mid-February 2023. As noted above, our target filing date is on or before March

2. Authorization to Retain Experts. We request authorization to retain Meridian Forensic Economics LLC (Dr. Helen Vasquez) as VHG's forensic accounting/damages expert and Caldwell Engineering Associates Inc. (Jeffrey Caldwell, PE) as VHG's forensic engineering expert. Both engagements are critical to the prosecution of VHG's claim and should proceed promptly.

3. Strategy Meeting. We request that a meeting be scheduled with VHG's senior leadership — including Marcus Ellsworth (CEO), Diane Calder (CFO), Sandra Pellegrini (VP of Risk Management), and Nathaniel Driscoll (General Counsel) — to discuss the litigation strategy, timeline, and budget in greater detail prior to any filing. Calderwood & Harkness is available to travel to VHG's offices or to host this meeting at our

VIII. Closing Calderwood & Harkness remains confident in VHG's insurance coverage position. The firm's analysis — spanning the multiple memoranda issued since September 2022 and the comprehensive Strategic Assessment and Litigation Recommendation Memorandum enclosed herewith — supports the conclusion that VHG is entitled to recover the full amount of its business-interruption losses across the four-layer insurance to