Contract analysis

From: Elaine Forsythe <eforsythe@calderwoodharkness.com> To: Nathaniel Driscoll <ndriscoll@verimarkgroup.com> Cc: Howard Bellamy <hbellamy@calderwoodharkness.com> Date: Tue, 19 Dec 2023 06:47:00 -0000 Subject: Verimark v. Ironclad Indemnity et al. — Settlement Agreement Executed; Next Steps

**PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION**

I am pleased to confirm that the definitive Settlement Agreement and Mutual Release in *Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al.*, Case No. 2022-CA-031547 (Eleventh Judicial Circuit of Florida, Miami-Dade County), was fully executed by all parties earlier today, December 19, 2023. (Calderwood & Harkness Engagement No. 1021-00003.)

On behalf of our entire Calderwood & Harkness team — Howard, Tiffany, Andrew, and me — I want to express how gratified we are by this outcome. This is a strong result for Verimark, and it has been a privilege to represent VHG throughout this matter.

The settlement provides VHG with a **total aggregate recovery of $47,300,000**, representing approximately **78.83%** of VHG's $60,000,000 claim. The allocation among the four carrier respondents is as follows:

- **Ironclad Indemnity Corporation:** $24,500,000 — effectively the full $25,000,000 primary layer under Policy No. IIC-PRP-2022-07541, less the $500,000 deductible.

- **Pinnacle Surplus Lines Inc.:** $12,200,000 — 81.33% of the $15,000,000 first excess layer under Policy No. PSL-XS1-2022-3390.

- **Montclair Assurance Company:** $6,800,000 — 68.0% of the $10,000,000 second excess layer under Policy No. MAC-XS2-2022-09817.

- **Sovereign Re Ltd.:** $3,800,000 — 38.0% of the $10,000,000 third excess layer under Policy No. SRL-XS3-2022-5102.

As you know, the Ironclad and Pinnacle payments were negotiated through their counsel, Gregory Stanton at Fendowell Rourke & Stanton LLP, and the Montclair and Sovereign Re payments through Patricia Kraus at Delvecchio & Kraus LLP.

For ease of reference, I want to highlight the following material terms:

- **Payment.** All settlement payments are due in a single lump sum within 45 calendar days of execution — i.e., no later than **February 2, 2024**. All payments are to be wired to Calderwood & Harkness LLP's trust account. Wire instructions were transmitted to both defense counsel firms today.

- **Mutual General Release.** The agreement provides a mutual general release of all claims by and among the parties arising from Hurricane Callista losses under the above-referenced policies.

- **No Admission of Liability.** No insurer has made any admission of liability.

- **Confidentiality.** I want to flag an important point for Diane and her team. Under the settlement agreement, **the specific settlement amount is confidential**; however, the **existence** of the settlement may be disclosed. Given VHG's public-company disclosure obligations (Nasdaq: VMRK), I would recommend that Nathaniel coordinate promptly with VHG's securities counsel to evaluate whether an 8-K filing or disclo

1. **Stipulation of Dismissal.** Tiffany Rosenthal will circulate a draft joint stipulation of dismissal with prejudice to Fendowell Rourke & Stanton and Delvecchio & Kraus for their review and execution. Our target is to file the stipulation, together with a proposed order of dismissal, in the Eleventh Judicial Circuit (before the Honorable Catherine Embry) in early January 2024. No action is required from VHG at th

2. **Receipt of Settlement Funds.** We will monitor the receipt of wire transfers from each insurer's counsel into our trust account and will confirm receipt of each payment promptly upon arrival. All payments are expected no later than February 2, 2024.

3. **Fee Reconciliation and Disbursement.** Howard Bellamy will prepare a final billing summary and expense reconciliation for your review. As a reminder, per the terms of our engagement letter, Calderwood & Harkness's fees for this matter consist of:

- Hourly fees at the blended rate of $785/hr (approximately 3,420 hours billed over the engagement), totaling approximately **$2,684,700**; - Contingency enhancement of 5% of net recovery above $30,000,000 — i.e., 5% × $17,300,000 = **$865,000**; - **Total estimated fees: approximately $3,549,700**; and - Reimbursement of expenses advanced of approximately **$412,000** (including expert fees for Meridian Forensic Eco

Net proceeds to VHG will be calculated upon receipt of funds, and a formal disbursement letter with a full accounting will follow at that time.

4. **Document Retention / Litigation Hold Release.** Once the stipulation of dismissal has been filed and entered by the Court, we will issue a formal release of the litigation hold. **In the interim, the litigation hold issued on September 19, 2022 remains in full effect.** Please ensure that all Hurricane Callista–related documents, communications, and electronically stored information continue to be preserved acro

5. **Post-Matter Recommendations.** Following the formal closing of this matter, we intend to provide a brief post-mortem letter with lessons learned and recommendations for VHG's upcoming policy renewals. In particular, we would like to address the named-windstorm sub-limit issue that was central to this dispute, certain flood exclusion language that created unnecessary ambiguity, and broker coordination with Tidewa

This was an excellent result for Verimark. Recovering nearly 79% of the full $60,000,000 claim in a contested coverage dispute — where the carriers raised substantial defenses including the windstorm sub-limit, concurrent causation and flood exclusion arguments, period of restoration limitations, and failure to mitigate — is a significant achievement. The outcome reflects the strength of VHG's claim, but also the con

I want to particularly acknowledge the strong partnership we had with the VHG team. Nathaniel, Sandra Pellegrini, and Diane — your responsiveness, candor, and thorough document preservation throughout this litigation genuinely made the difference. Cases like this are won on the facts, and the facts were available to us because of your diligence.

A few housekeeping notes: the pending cross-motions for partial summary judgment on the windstorm sub-limit issue (filed November 1 and November 15, 2023) will be withdrawn as moot upon filing of the stipulation of dismissal. No further action is needed from VHG on that front. Additionally, the mediation before the Honorable Richard Mendelson (Ret.) at Keystone Dispute Resolution proved to be the right forum for reso

Please also note that the fully executed Settlement Agreement and Mutual Release (with Exhibit A — Payment Allocation Schedule) will be forwarded to you under separate cover via secure file transfer. The wire instruction letters sent to defense counsel today are being documented, and December 20 confirmation letters will follow for the record.

I am available to discuss any questions by phone or in person at your convenience. In the meantime, I hope you can take a moment to appreciate this outcome — your team earned it.

Wishing you and the entire VHG team a wonderful holiday season. Happy holidays.

**Elaine Forsythe** Partner Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, FL 33131 Direct: (305) 555-7200 eforsythe@calderwoodharkness.com

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