Contract analysis

I. Introduction and Purpose Calderwood & Harkness LLP represents Verimark Hospitality Group Inc. ("VHG"), a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK, with its principal executive offices located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129, in an insurance-coverage dispute arising from the damage caused by Hurricane Callista in September 2022. The dispu

II. Background on the Dispute A. The Insured and Properties VHG is a publicly traded hospitality and real-estate company with a diversified portfolio of resort and hotel properties concentrated primarily in the southeastern United States, the Caribbean, and select international markets. For the fiscal year ended December 31, 2021, VHG reported consolidated revenue of approximately $412 million and EBITDA of approxima

1. Concurrent Causation / Flood Exclusion. Ironclad asserts that significant portions of the damage at the Grand Key Resort in Marathon — and potentially at the Harborview Hotel & Conference Center in Fort Myers Beach — resulted from storm surge, which Ironclad characterizes as "flood" within the meaning of the policy's flood exclusion. The Ironclad primary policy contains an anti-concurrent causation clause that pro

2. Period of Restoration / Failure to Mitigate. Ironclad further argues that VHG unreasonably delayed the restoration of its properties following Hurricane Callista and that the business-interruption coverage terminates when the damaged property "could have been completed with reasonable speed and similar quality." Ironclad and Arbor Claims Services contend that the actual closure periods at the three properties — 17

III. Properties at Issue — Detailed Descriptions The following provides detailed descriptions of each of the three VHG resort properties at issue in this litigation, including relevant operational metrics, closure periods, estimated business-interruption losses, damage profiles, and the key engineering questions to be addressed at each property. A. Verimark Grand Key Resort — Marathon, Florida Address: Mile Marker 48

IV. Specific Scope of Engineering Analysis The following sections describe in detail the specific areas of forensic engineering analysis that we are requesting Mr. Caldwell to undertake. Each area of analysis is intended to support VHG's coverage position and to rebut the specific defenses raised by the insurer defendants. A. Cause-of-Loss Differentiation (Wind vs. Storm Surge/Flood) The central technical issue in th

1. Wind Damage. This category includes all damage resulting from the direct and indirect effects of hurricane-force winds, including but not limited to: structural wind loading and resulting failures (roof uplift, wall collapse, truss displacement); pressure differential effects on building envelopes (window and door failure from positive and negative wind pressure); impact damage from wind-borne debris (projectile i

2. Storm Surge / Flood Damage. This category includes all damage resulting from the rise of water above normally dry ground caused by the storm's meteorological effects, including: hydrostatic pressure from rising floodwater on structural elements (walls, foundations, slabs); wave action and associated dynamic loading; waterborne debris impact; and saturation and contamination of materials, systems, and contents by f

3. Combined/Concurrent Damage. In certain areas of each property, it is likely that wind and storm surge acted together — either simultaneously or in sequence — to cause damage. For example, wind may have breached the building envelope, and storm surge may have subsequently inundated the same area through a different pathway. Mr. Caldwell should identify areas where wind and surge both contributed to the damage and s

V. Materials to Be Provided Calderwood & Harkness will provide or make available to Mr. Caldwell the following documents, data, and materials in connection with this engagement. These materials will be transmitted on a rolling basis as they become available, with the first production anticipated within ten business days of the date of this memorandum:

1. Insurance Policies. Complete copies of the Ironclad Indemnity Corporation primary policy (Policy No. IIC-PRP-2022-07541) and the three excess policies (Pinnacle Surplus Lines Inc., Policy No. PSL-XS1-2022-3390; Montclair Assurance Company, Policy No. MAC-XS2-2022-09817; Sovereign Re Ltd., Policy No. SRL-XS3-2022-5102), with particular emphasis on the flood exclusion language, the anti-concurrent causation clause,

2. VHG Property-Level Damage Documentation. Photographs, videos, and internal damage assessments taken by VHG personnel and contractors in the days and weeks following Hurricane Callista's landfall. This documentation is expected to include hundreds of photographs from each property, as well as video walk-throughs of damaged areas.

3. Arbor Claims Services Reports. Property inspection reports and damage assessments prepared by Arbor Claims Services LLC and its lead adjuster, Denise Whitford, based on the October 5, 2022, inspection of the three VHG properties. These materials will be provided as soon as they are produced in discovery or otherwise obtained.

4. Meteorological Data. National Hurricane Center advisories, wind-speed data (including sustained winds and peak gusts at relevant monitoring stations), storm-surge observations and tide gauge data, rainfall accumulation data, barometric pressure readings, and any other meteorological data relevant to Hurricane Callista's impact on the three property locations.

5. Engineering Plans and Drawings. Engineering plans, architectural blueprints, structural drawings, and as-built drawings for each of the three properties, to the extent available from VHG's files.

6. Repair and Restoration Documents. Repair contracts, contractor proposals, invoices, change orders, and restoration timeline documents for each property, including progress reports and punch lists.

7. Contractor Correspondence. Correspondence between VHG and its restoration contractors regarding scheduling, delays, material procurement, labor availability, and other factors affecting the restoration timeline.

8. Evacuation Orders. Copies of the Monroe County mandatory evacuation order issued September 16, 2022, and the Lee County mandatory evacuation order issued September 17, 2022.

9. Building Permits and Inspection Records. Building permits, applications, inspection reports, and certificates of occupancy related to the post-storm repair work at each property.

10. Pre-Storm Condition Surveys. Any pre-storm property condition surveys, engineering inspection reports, or capital expenditure assessments for the three properties, which may be relevant to establishing the baseline condition of the structures prior to Hurricane Callista.

11. FEMA Flood Zone Maps and Elevation Certificates. Federal Emergency Management Agency flood zone maps and any available elevation certificates for each property, which are relevant to understanding the storm-surge exposure and flood risk at each location.

12. Deposition Transcripts. Transcripts of depositions taken during the fact-discovery period (June 1 – September 30, 2023) will be provided to Mr. Caldwell on a rolling basis as they become available. Depositions of particular relevance may include those of VHG personnel (Sandra Pellegrini, Nathaniel Driscoll), Ironclad claims personnel, and Denise Whitford of Arbor Claims Services.

13. Satellite and Aerial Imagery. Pre-storm and post-storm satellite imagery and aerial photographs for each property location, obtained from commercial satellite imagery providers and any available governmental or emergency management sources. Mr. Caldwell should advise Calderwood & Harkness promptly if additional data, documents, or site access is needed to conduct the analysis described in this memorandum. We will

VI. Site Inspections Mr. Caldwell should conduct on-site forensic inspections of all three VHG properties as soon as practicable following receipt of this memorandum and the initial set of materials described above. VHG's General Counsel, Nathaniel Driscoll, and Vice President of Risk Management, Sandra Pellegrini, will coordinate site access and arrange for VHG facilities personnel to be available during the inspect

VII. Deliverables and Timeline The following deliverables are requested from Mr. Caldwell in connection with this engagement, subject to the court-ordered discovery schedule described above: A. Preliminary Findings Memorandum Due Date: Approximately July 15, 2023 Mr. Caldwell should prepare an informal memorandum addressed to Calderwood & Harkness summarizing his preliminary conclusions on the cause-of-loss different

VIII. Coordination with Other Experts Mr. Caldwell's forensic engineering analysis should be coordinated with the forensic economics and damages analysis being conducted by Dr. Helen Vasquez of Meridian Forensic Economics LLC, located at 1201 Peachtree Street NE, Suite 1000, Atlanta, Georgia 30361. Dr. Vasquez has been separately retained by Calderwood & Harkness as VHG's forensic economics expert to quantify VHG's b

1. Cause of Physical Damage. Dr. Vasquez's damages model will need to account for Mr. Caldwell's conclusions regarding the percentage of physical damage attributable to wind versus storm surge/flood at each property. If Mr. Caldwell determines that all or substantially all of the damage was caused by wind, Dr. Vasquez's damages calculation will reflect the full loss. If Mr. Caldwell identifies damage attributable to

2. Reasonable Period of Restoration. Dr. Vasquez's calculation of business-interruption losses is based on the period during which each property was closed or operating at reduced capacity. Mr. Caldwell's opinion on the reasonable period of restoration at each property will establish the factual foundation for the duration of the loss period in Dr. Vasquez's damages model. To facilitate coordination between the two e

IX. Billing and Administrative Matters The terms governing Mr. Caldwell's fees, hourly rates, and expense reimbursement are set forth in the retention letter dated April 22, 2023, and are incorporated by reference. All invoices submitted by Caldwell Engineering Associates Inc. in connection with this engagement should reference the engagement number 1021-00003 and should be submitted on a monthly basis to the attenti

X. Confidentiality and Privilege All work performed by Mr. Caldwell and Caldwell Engineering Associates Inc. in connection with this engagement is undertaken at the direction of counsel in anticipation of and in connection with pending litigation, and is protected by the attorney work-product doctrine and, to the extent applicable, the attorney-client privilege. These protections are essential to the integrity of VHG

XI. Point of Contact The primary point of contact at Calderwood & Harkness LLP for this engagement is the undersigned, Andrew Fitzpatrick. Andrew Fitzpatrick Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, FL 33131 Telephone: (305) 555-7214 Email: afitzpatrick@calderwoodharkness.com Tiffany Rosenthal, Lead Associate, and Elaine Forsythe, Responsible Partner, should be copied on all substantive correspo

XII. Closing We respectfully request that Mr. Caldwell confirm receipt of this memorandum at his earliest convenience and contact Andrew Fitzpatrick with any questions regarding the scope of the engagement, the materials to be provided, or any aspect of the analysis described herein. We would also welcome the opportunity to discuss scheduling of the on-site inspections of the three VHG properties at Mr. Caldwell's ea