Contract analysis

1. Plaintiff Verimark Hospitality Group Inc. ("VHG" or "Plaintiff"), a publicly traded hospitality and real-estate company listed on the Nasdaq Stock Market under the ticker symbol VMRK, by and through its undersigned counsel, brings this action against its property insurers—Ironclad Indemnity Corporation ("Ironclad"), Pinnacle Surplus Lines Inc. ("Pinnacle"), Montclair Assurance Company ("Montclair"), and Sovereign

2. Despite VHG's timely notice of loss, its submission of a sworn proof of loss in the amount of $60,000,000, and its full compliance with each and every condition precedent under the applicable insurance policies, Defendants have wrongfully denied, refused to pay, or otherwise failed to honor VHG's valid claims under an all-risk property and business-interruption insurance program that provides $60,000,000 in aggreg

3. VHG brings this Complaint seeking compensatory damages for breach of contract, declaratory relief establishing Defendants' coverage obligations, and statutory bad-faith damages under Florida Statute § 624.155 against Ironclad and Pinnacle. THE PARTIES A. Plaintiff Verimark Hospitality Group Inc.

4. Plaintiff Verimark Hospitality Group Inc. is a corporation organized and existing under the laws of the State of Delaware. VHG is publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK. VHG's principal place of business and corporate headquarters are located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. VHG's employer identification number is 59-3841276.

5. VHG operates in the hospitality and real-estate industry and owns and operates luxury resort hotels, boutique hotels, and conference centers throughout the State of Florida. VHG's executive leadership includes Marcus Ellsworth, Chief Executive Officer; Diane Calder, Chief Financial Officer; Nathaniel Driscoll, General Counsel; and Sandra Pellegrini, Vice President of Risk Management.

6. For its fiscal year ending December 31, 2021, VHG reported total revenue of approximately $412,000,000 and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $78,000,000. VHG's Florida resort properties represent a substantial portion of the company's revenue and profitability.

7. At all times relevant to this Complaint, VHG was the named insured and policyholder under the insurance policies at issue in this action. B. Defendant Ironclad Indemnity Corporation

8. Defendant Ironclad Indemnity Corporation is a stock insurance company organized and existing under the laws of the State of Connecticut. Ironclad's National Association of Insurance Commissioners ("NAIC") number is 20537. Ironclad's principal office is located at 55 Constitution Boulevard, Hartford, Connecticut 06103.

9. Ironclad is the lead carrier and issuer of VHG's primary property and business-interruption insurance policy, Policy No. IIC-PRP-2022-07541, which provides a per-occurrence limit of $25,000,000 for business-interruption losses, subject to a $500,000 per-occurrence deductible. Victor Haddon serves as Ironclad's Senior Vice President of Claims.

10. Upon information and belief, Ironclad is authorized to transact insurance business in the State of Florida, maintains agents and representatives in Florida, and does substantial and continuous business within the State of Florida, including the issuance of property and casualty insurance policies covering properties and risks located in Florida. C. Defendant Pinnacle Surplus Lines Inc.

11. Defendant Pinnacle Surplus Lines Inc. is a surplus-lines insurer organized and existing under the laws of the State of Texas. Pinnacle's NAIC number is 38214. Pinnacle's principal office is located at 200 Congress Avenue, Suite 1400, Austin, Texas 78701.

12. Pinnacle is the issuer of VHG's first excess layer property and business-interruption insurance policy, Policy No. PSL-XS1-2022-3390, which provides $15,000,000 in coverage in excess of the first $25,000,000, attaching above the Ironclad primary layer. The Pinnacle first excess policy is a "follow-form" policy that follows the terms, conditions, and exclusions of the Ironclad primary policy, unless otherwise stat

13. Defendant Montclair Assurance Company is an admitted insurance carrier organized and existing under the laws of the State of New York. Montclair's NAIC number is 15692. Montclair's principal office is located at 1 Liberty Plaza, 38th Floor, New York, New York 10006.

14. Montclair is the issuer of VHG's second excess layer property and business-interruption insurance policy, Policy No. MAC-XS2-2022-09817, which provides $10,000,000 in coverage in excess of $40,000,000, attaching above the combined limits of the Ironclad primary layer and the Pinnacle first excess layer. E. Defendant Sovereign Re Ltd.

15. Defendant Sovereign Re Ltd. is a reinsurer and excess insurance carrier organized and existing under the laws of Bermuda. Sovereign Re's principal office is located at 14 Front Street, Hamilton HM 11, Bermuda.

16. Sovereign Re is the issuer of VHG's third excess layer property and business-interruption insurance policy, Policy No. SRL-XS3-2022-5102, which provides $10,000,000 in coverage in excess of $50,000,000, attaching above the combined limits of the Ironclad primary layer, the Pinnacle first excess layer, and the Montclair second excess layer. JURISDICTION AND VENUE

17. This Court has subject matter jurisdiction over this action pursuant to Article V, Section 5 of the Florida Constitution and Florida Statutes § 26.012. The amount in controversy exceeds $30,000, exclusive of interest, costs, and attorneys' fees. This is an action for breach of contract, declaratory judgment, and statutory bad faith arising under Florida law and involving insurance policies that insure properties

18. This Court has personal jurisdiction over each Defendant. Specifically: (a) Ironclad Indemnity Corporation is authorized to transact insurance business in the State of Florida; issued a property insurance policy covering properties located in Florida; negotiated and delivered the policy in Miami-Dade County, Florida; and engaged in sufficient minimum contacts with the State of Florida to satisfy due process requi

19. Venue is proper in Miami-Dade County pursuant to Florida Statutes §§ 47.011 and 47.051 because VHG's principal place of business is located in Miami-Dade County; the insurance policies at issue were negotiated and delivered in Miami-Dade County; and a substantial part of the events and omissions giving rise to VHG's claims occurred in the State of Florida.

20. The governing law for all four policies at issue is the law of the State of Florida, as specified by the choice-of-law provisions contained in the policies and/or as determined by applicable conflict-of-laws principles. GENERAL ALLEGATIONS A. VHG's Insured Properties

21. VHG owns and operates the Verimark Grand Key Resort (the "Grand Key Resort"), a luxury resort and marina located at Mile Marker 48, Marathon, Florida 33050. The Grand Key Resort is situated in the heart of the Florida Keys and is one of VHG's premier hospitality properties.

22. The Grand Key Resort is a full-service luxury resort comprising 312 guest rooms, along with a deep-water marina, multiple food and beverage outlets, a full-service spa, swimming pools, and associated recreational amenities. The property generates substantial revenue from its ancillary operations, including marina berth rentals, food and beverage sales, spa services, and event hosting.

23. Prior to Hurricane Callista, the Grand Key Resort maintained a pre-loss average daily rate ("ADR") of $389 per room and an average occupancy rate of 82%. These figures reflect the property's status as a premier destination in the Florida Keys and its strong market position among luxury resort properties in the region.

24. The Grand Key Resort has been recognized by leading travel publications and industry organizations as one of the top luxury resorts in the Florida Keys and has been a consistent driver of VHG's revenue and profitability.

2. Verimark Harborview Hotel & Conference Center.

25. VHG owns and operates the Verimark Harborview Hotel & Conference Center (the "Harborview"), located at 1400 Estero Boulevard, Fort Myers Beach, Florida 33931. The Harborview is a full-service hotel and conference center situated along the Gulf Coast of Florida.

26. The Harborview comprises 224 guest rooms and a 40,000-square-foot conference and event facility, which hosts corporate meetings, conventions, weddings, and other events throughout the year. The conference facility is a significant revenue driver for the property, generating substantial income in addition to the hotel's room revenue.

27. Prior to Hurricane Callista, the Harborview maintained a pre-loss ADR of $295 per room and an average occupancy rate of 74%. The property's conference and event business contributed additional significant revenue beyond room sales.

28. VHG owns and operates the Verimark Sunset Shores (the "Sunset Shores"), a boutique resort located at 7200 Gulf Boulevard, St. Pete Beach, Florida 33706.

29. The Sunset Shores is a 186-room boutique resort property situated on the Gulf Coast. Prior to Hurricane Callista, the Sunset Shores maintained a pre-loss ADR of $342 per room and an average occupancy rate of 79%.

30. While the smallest of VHG's three affected properties by room count, the Sunset Shores commands a premium ADR reflective of its boutique positioning and beachfront location and is an important component of VHG's Florida resort portfolio. B. VHG's Property Insurance Program

31. At all times relevant to this Complaint, VHG maintained a comprehensive all-risk property and business-interruption insurance program for the policy period July 1, 2022 through July 1, 2023. The insurance program was structured as a four-layer tower of insurance with aggregate limits of $60,000,000 above a $500,000 per-occurrence deductible.

32. The insurance program was placed through VHG's insurance broker of record, Tidewater Risk Advisors LLC ("Tidewater"), through its account executive Franklin Orde. Mr. Orde coordinated the placement of all four layers of coverage and served as the intermediary between VHG and each of the carrier Defendants during the underwriting, negotiation, and renewal process.

33. The total annual premium for the four-layer insurance program for the 2022-2023 policy year was $1,840,000, which VHG paid in full and on time. The structure of VHG's insurance tower is as follows:

34. All four policies in the insurance tower are "all-risk" policies that cover physical loss or damage from any cause not specifically excluded, including coverage for business interruption and extra expense resulting from direct physical loss or damage to covered property caused by a covered peril.

35. The Pinnacle first excess policy, Policy No. PSL-XS1-2022-3390, is a "follow-form" policy that follows the terms, conditions, and exclusions of the Ironclad primary policy, Policy No. IIC-PRP-2022-07541, except as otherwise specifically stated in the Pinnacle policy.

36. VHG purchased this comprehensive insurance program to protect itself against precisely the type of catastrophic loss that occurred when Hurricane Callista struck its Florida resort properties on September 18, 2022.

37. The Ironclad primary policy provides business-interruption coverage for the "actual loss of business income" sustained by the insured during the "period of restoration" resulting from the necessary suspension of operations caused by direct physical loss or damage to covered property at a covered location, provided the loss or damage is caused by a covered peril.

38. The "period of restoration" is defined in the Ironclad primary policy as the period of time that begins when operations are necessarily suspended as a result of direct physical loss or damage caused by a covered peril and ends on the date when the property should be repaired, rebuilt, or replaced with reasonable speed and similar quality.

39. As an "all-risk" policy, the Ironclad primary policy covers all risks of direct physical loss or damage to covered property unless specifically excluded. Windstorm is not an excluded peril under the policy. Accordingly, direct physical loss or damage caused by windstorm, including a named hurricane, is a covered peril under the policy.

40. VHG paid substantial premiums—totaling $1,840,000 for the full tower—for this comprehensive all-risk coverage, and at all times complied with all conditions precedent required under each of the four policies.

3. The Windstorm Sub-Limit Deletion.

41. In prior policy years, including the 2021-2022 policy period, the Ironclad primary policy contained a named-windstorm sub-limit of $15,000,000 for business-interruption losses arising from named windstorm events. This sub-limit had the effect of capping business-interruption coverage for named-windstorm losses at $15,000,000, rather than the full $25,000,000 per-occurrence limit available for other covered perils

42. During the renewal negotiations for the 2022-2023 policy period, which took place in or about June and July 2022, VHG's insurance broker Franklin Orde of Tidewater Risk Advisors negotiated with Ironclad's underwriting department to delete the named-windstorm sub-limit from the Ironclad primary policy. Mr. Orde, on behalf of VHG, specifically requested the removal of the $15,000,000 named-windstorm sub-limit so th

43. Ironclad's underwriting department agreed to delete the named-windstorm sub-limit in exchange for an increased premium. VHG agreed to and paid the increased premium of $980,000 for the 2022-2023 policy period—a significant increase over the prior year's premium—with the express understanding and agreement that the named-windstorm sub-limit had been removed and that the full $25,000,000 per-occurrence limit would

44. Hurricane Callista was a powerful Category 4 hurricane that struck the Florida Keys and Gulf Coast of Florida on September 18, 2022. Hurricane Callista was first identified and named by the National Hurricane Center on September 12, 2022, as a tropical storm in the Caribbean Sea. The storm rapidly intensified over the warm waters of the Straits of Florida and was upgraded to a Category 4 hurricane on the Saffir-V

45. Hurricane Callista made landfall as a Category 4 hurricane on September 18, 2022, at approximately 1:30 PM Eastern Daylight Time, in the Lower Florida Keys near Big Pine Key, Monroe County, Florida. At landfall, Hurricane Callista had sustained winds of approximately 145 miles per hour, with higher gusts reported throughout the affected area.

46. Hurricane Callista generated devastating storm surge in the Florida Keys and along the Gulf Coast. Storm surge heights reached an estimated 8 to 14 feet in Monroe County and 6 to 10 feet in Lee County, causing widespread coastal flooding and catastrophic damage to coastal structures and infrastructure.

47. In anticipation of Hurricane Callista's landfall, Monroe County issued a mandatory evacuation order on September 16, 2022, and Lee County issued a mandatory evacuation order on September 17, 2022. VHG evacuated all guests and staff from all three affected resort properties in compliance with these evacuation orders and suspended all operations at each property prior to the hurricane's arrival.

48. All three of VHG's insured resort properties—the Grand Key Resort in Marathon (Monroe County), the Harborview in Fort Myers Beach (Lee County), and the Sunset Shores in St. Pete Beach (Pinellas County)—were located in the direct path of Hurricane Callista and were subject to mandatory evacuation orders. Each of the three properties sustained significant direct physical loss or damage as a result of Hurricane Call

49. The Grand Key Resort sustained catastrophic wind damage and storm-surge damage from Hurricane Callista. Located at Mile Marker 48 in Marathon, the Grand Key Resort was in the direct path of the hurricane's eye wall and experienced the full force of the storm's sustained winds of approximately 145 miles per hour, as well as devastating storm surge.

50. The structural damage to the Grand Key Resort was extensive and severe. The storm caused widespread roof destruction, including the complete loss of roofing systems on multiple guest-room buildings and the main resort building. Windows throughout the property suffered catastrophic failures, resulting in massive water intrusion to guest rooms, common areas, and back-of-house facilities. The property's deep-water m

51. As a result of the catastrophic damage inflicted by Hurricane Callista, the Grand Key Resort was closed from September 18, 2022 through March 15, 2023—a total period of 178 days. During this entire period, the resort was unable to operate, accept guests, or generate revenue from any of its operations, including guest rooms, marina, food and beverage outlets, spa, and event spaces.

52. The restoration of the Grand Key Resort required extensive structural repairs, roof replacement, window replacement, remediation of water damage, reconstruction of interior finishes, replacement of mechanical systems, and reconstruction of the marina facilities. The timeline for restoration was affected by the catastrophic nature of the damage, the remote location of the Florida Keys, the widespread devastation t

53. VHG's estimated business-interruption loss for the Grand Key Resort is $31,400,000. This figure is calculated based on the property's pre-loss operating performance of 312 rooms at an ADR of $389 and an occupancy rate of 82% over the 178-day closure period, adjusted to include ancillary revenue streams from the marina, food and beverage operations, spa services, and event hosting, and further adjusted for saved e