Contract analysis

I. PURPOSE This memorandum documents the formal closing of Matter 1021-00003, the insurance-coverage dispute prosecuted by Calderwood & Harkness LLP on behalf of Verimark Hospitality Group Inc. ("VHG" or the "Client") against Ironclad Indemnity Corporation ("Ironclad"), Pinnacle Surplus Lines Inc. ("Pinnacle"), Montclair Assurance Company ("Montclair"), and Sovereign Re Ltd. ("Sovereign Re," and collectively with Iro

II. CLIENT AND PARTY IDENTIFICATION A. Client. Verimark Hospitality Group Inc. ("VHG") is a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK. VHG is headquartered at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. VHG operates in the luxury hospitality and real estate sector, with a portfolio of resort properties concentrated in the coastal regions of Florida and th

1. Ironclad Indemnity Corporation — A Connecticut-domiciled stock insurance company (NAIC No. 20537), with its principal place of business at 55 Constitution Boulevard, Hartford, Connecticut 06103. Ironclad served as the lead primary carrier under Policy No. IIC-PRP-2022-07541, which provided a $25,000,000 primary layer of all-risk property insurance, including business-interruption and extra-expense coverage, subjec

2. Pinnacle Surplus Lines Inc. — A Texas-domiciled surplus-lines insurer (NAIC No. 38214), with its principal place of business at 200 Congress Avenue, Suite 1400, Austin, Texas 78701. Pinnacle provided the first excess layer of $15,000,000 in excess of $25,000,000 under Policy No. PSL-XS1-2022-3390. Pinnacle's policy followed form to the Ironclad primary policy on all material coverage terms and conditions. Pinnacle

3. Montclair Assurance Company — A New York-domiciled admitted carrier (NAIC No. 15692), with its principal place of business at 1 Liberty Plaza, 38th Floor, New York, New York 10006. Montclair provided the second excess layer of $10,000,000 in excess of $40,000,000 under Policy No. MAC-XS2-2022-09817. Montclair reserved its rights but did not issue a formal coverage denial, instead asserting that its layer would not

4. Sovereign Re Ltd. — A Bermuda-domiciled reinsurer and excess carrier, with offices at 14 Front Street, Hamilton HM 11, Bermuda. Sovereign Re provided the third excess layer of $10,000,000 in excess of $50,000,000 under Policy No. SRL-XS3-2022-5102. Like Montclair, Sovereign Re reserved its rights but did not issue a formal denial, taking the position that its attachment point would not be triggered if the windstor

1. Fendowell Rourke & Stanton LLP (Hartford, Connecticut / Tampa, Florida) — Defense counsel for Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc., retained on a joint-defense basis. The lead defense partner was Gregory Stanton, a veteran insurance-coverage litigator based in Fendowell Rourke's Hartford office. Mr. Stanton was supported by Meredith Liang, Senior Associate, and Colin Ashford, Junior Assoc

2. Delvecchio & Kraus LLP (New York, New York) — Defense counsel for Montclair Assurance Company and Sovereign Re Ltd., retained on a joint-representation basis. The lead defense partner was Patricia Kraus, who managed both the Montclair and Sovereign Re defenses from Delvecchio & Kraus's New York office. She was assisted by Raymond Cho, Senior Associate. Delvecchio & Kraus generally aligned with Fendowell Rourke on

1. Tidewater Risk Advisors LLC (Miami, Florida) — VHG's insurance broker of record responsible for the placement and renewal of VHG's property-insurance program. The account executive assigned to the VHG account was Franklin Orde. Mr. Orde's testimony regarding the July 2022 renewal negotiations — and specifically the deletion of the named-windstorm sub-limit in exchange for an increased premium — was central to VHG'

2. Arbor Claims Services LLC (Tampa, Florida) — An independent adjusting firm retained by Ironclad to conduct the initial investigation and adjustment of VHG's claim. The lead adjuster assigned to the VHG claim was Denise Whitford. Ms. Whitford conducted the initial property inspections of all three VHG properties in early October 2022 and prepared the loss analysis that Ironclad relied upon in its reservation of rig

3. Meridian Forensic Economics LLC (Atlanta, Georgia) — Retained by VHG as its forensic accounting and damages expert. The lead expert was Dr. Helen Vasquez, CPA, CFF, a recognized authority in the quantification of business-interruption losses in the hospitality industry. Dr. Vasquez prepared the comprehensive damages report quantifying VHG's aggregate BI and extra-expense losses at $60,000,000 and provided depositi

4. Caldwell Engineering Associates Inc. (Doral, Florida) — Retained by VHG as its forensic engineering and cause-of-loss expert. The lead expert was Jeffrey Caldwell, PE, a licensed professional engineer with extensive experience in wind-damage and storm-surge analysis for hurricane-affected structures. Mr. Caldwell prepared the cause-of-loss report differentiating wind damage from storm-surge damage at each of the t

5. Graystone Consulting Group LLC (Chicago, Illinois) — Retained by the defense as its damages and coverage expert. The lead expert was Dr. Warren Birk, who prepared a rebuttal report challenging VHG's BI-loss quantification, primarily on the basis of the period-of-restoration and failure-to-mitigate defenses.

6. Keystone Dispute Resolution Inc. (Miami, Florida) — The mediation services provider that administered the two-day mediation conducted on December 4–5, 2023. The mediator was the Honorable Richard Mendelson (Ret.), a former judge of the Eleventh Judicial Circuit and a well-regarded mediator with particular expertise in complex insurance-coverage disputes. E. Calderwood & Harkness LLP Engagement Team The Firm's enga

III. INSURANCE PROGRAM OVERVIEW A. Tower Structure VHG's property-insurance program for the relevant policy period consisted of a four-layer insurance tower with an aggregate limit of $60,000,000, subject to a $500,000 deductible on the primary layer. The tower was structured as follows: The total tower limit was $60,000,000 above the $500,000 deductible. All four policies shared a common policy period of July 1, 202

IV. SUMMARY OF LOSS EVENT — HURRICANE CALLISTA Hurricane Callista was named by the National Hurricane Center on September 12, 2022, as a tropical depression that rapidly intensified over the warm waters of the western Caribbean Sea. Over the following six days, the storm strengthened to a major hurricane, tracking northward through the Straits of Florida toward the Florida Keys. Hurricane Callista made landfall on Se

V. PROPERTIES AT ISSUE AND BUSINESS-INTERRUPTION LOSS SUMMARY A. Verimark Grand Key Resort Location: Mile Marker 48, Marathon, Florida 33050 The Verimark Grand Key Resort is a 312-room luxury resort and marina situated on the oceanfront in Marathon, in the Middle Florida Keys. The property is VHG's flagship asset and its largest revenue generator. In the period prior to Hurricane Callista, the resort maintained a pre

VI. CASE HISTORY — CHRONOLOGICAL NARRATIVE A. Pre-Litigation Phase (August 2022 – February 2023) The Firm's engagement on this matter was opened on August 30, 2022, approximately three weeks before Hurricane Callista's landfall, when VHG's General Counsel, Nathaniel Driscoll, contacted Elaine Forsythe to discuss the potential insurance-coverage implications of the approaching hurricane. Given the magnitude of VHG's c

1. Pleadings. March 1, 2023: Calderwood & Harkness filed the Complaint on behalf of VHG in the Eleventh Judicial Circuit of Florida, in and for Miami-Dade County. The case was assigned Case No. 2022-CA-031547 and was assigned to the Honorable Catherine Embry. The Complaint was a multi-count pleading asserting the following causes of action against all four Insurer Defendants: • Count I: Breach of Contract (against al

2. Case Management. May 1, 2023: The Court conducted the initial case management conference before Judge Embry. All parties were represented. Judge Embry entered a case management order establishing the following schedule: • Fact discovery: June 1, 2023 – September 30, 2023 • Expert disclosures and reports: by September 15, 2023 • Expert rebuttal reports: by October 2, 2023 • Expert depositions: by October 31, 2023 •

3. Discovery — Plaintiff's Propounded discovery. June 5, 2023: VHG served its first set of interrogatories (15 interrogatories), first request for production of documents (42 requests), and first request for admissions (28 requests) on Ironclad Indemnity Corporation, targeting Ironclad's claims investigation, coverage analysis, underwriting files, and communications with co-defendants and reinsurers. Simultaneously,

4. Discovery — Responses to Defendants' discovery. July 5, 2023: VHG served its verified responses to Ironclad's first set of interrogatories and its responses and objections to Ironclad's first request for production of documents. The production included financial records, property damage documentation, photographs, correspondence with Tidewater Risk Advisors, mitigation records, contractor communications, and relat

5. Fact Depositions. The following fact depositions were conducted during the discovery period: July 10, 2023 — Victor Haddon (Ironclad SVP Claims): Mr. Haddon was deposed by Calderwood & Harkness over a full day at the offices of Fendowell Rourke & Stanton in Tampa, Florida. Mr. Haddon testified regarding Ironclad's basis for the coverage denial, the claims investigation process, Ironclad's interpretation of the nam

6. Expert Phase. April 20, 2023: Calderwood & Harkness retained Meridian Forensic Economics LLC as VHG's forensic accounting and damages expert. The lead expert was Dr. Helen Vasquez, CPA, CFF, whose billing rate was $625/hr, with supporting analysts billed at $375/hr. Dr. Vasquez was retained to quantify VHG's business-interruption and extra-expense losses across the three affected properties. April 22, 2023: Calder

7. Motions Practice. November 1, 2023: VHG filed a motion for partial summary judgment on the named-windstorm sub-limit issue. The motion was supported by a comprehensive memorandum of law, a statement of undisputed material facts, and three supporting declarations: • Declaration of Sandra Pellegrini (VHG VP Risk Management), attesting to VHG's understanding and intent that the sub-limit was deleted at the July 2022

VII. SETTLEMENT TERMS A. Total Recovery The aggregate settlement amount was $47,300,000, representing approximately 78.83% of VHG's total claimed loss of $60,000,000. This result was achieved through the participation of all four carrier defendants, with each carrier contributing to the settlement in proportion to the negotiated resolution of its respective layer exposure. B. Allocation by Carrier The $47,300,000 agg

VIII. FEES AND EXPENSES A. Fee Arrangement The Firm's fee arrangement with VHG for this matter consisted of two components: (1) a blended hourly rate of $785/hr, reflecting the weighted average of the individual hourly rates of the four attorney team members; and (2) a contingency enhancement equal to 5% of net recovery above $30,000,000. The individual hourly rates were as follows: The contingency enhancement compon