Contract analysis

I. Purpose and Context of This Letter This firm represents Verimark Hospitality Group Inc. ("VHG"), a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK, with its principal offices located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. Our engagement in this matter is identified under Calderwood & Harkness file number 1021-00003. The purpose of this letter is to p

II. Summary of the Claim and Denial History A. The Insured Event — Hurricane Callista Hurricane Callista was designated as a named tropical cyclone by the National Hurricane Center on September 12, 2022, after a tropical depression that had formed in the western Caribbean Sea intensified into a tropical storm and subsequently strengthened into a hurricane. Over the following days, Hurricane Callista tracked northward

1. Verimark Grand Key Resort (Mile Marker 48, Marathon, Florida 33050). Grand Key Resort is VHG's flagship property in the Florida Keys — a 312-room luxury resort and marina situated directly on the waterfront. The property sustained catastrophic wind and water damage from Hurricane Callista, including the destruction of multiple guest-room buildings, the marina facilities, the main restaurant and spa complex, and ex

2. Verimark Harborview Hotel & Conference Center (1400 Estero Boulevard, Fort Myers Beach, Florida 33931). Harborview is a 224-room full-service hotel with a 40,000 square-foot conference and event facility. The property suffered severe wind damage to its exterior envelope and interior spaces, and sustained significant storm-surge flooding on its lower floors and in the conference-center wing. Harborview was closed f

3. Verimark Sunset Shores (7200 Gulf Boulevard, St. Pete Beach, Florida 33706). Sunset Shores is a 186-room boutique resort located on the Gulf of Mexico. The property sustained substantial wind damage to roofing systems, windows, and exterior cladding, as well as interior water damage from wind-driven rain. Sunset Shores was fully closed from September 18 through November 30, 2022, a period of 73 days of complete cl

1. Named Windstorm Sub-Limit of $15,000,000. Ironclad contends that the Policy contains a $15,000,000 sub-limit applicable to named-windstorm business-interruption losses, and that VHG's recovery is therefore capped at $15,000,000 rather than the full $25,000,000 primary layer limit.

2. Period of Restoration Disputes. Ironclad argues that business-interruption coverage terminates when repairs "could have been completed with reasonable speed" and asserts that VHG unreasonably delayed restoration of the affected properties.

3. Concurrent Causation / Flood Exclusion. Ironclad asserts that portions of the damage at Grand Key Resort resulted from storm surge, which Ironclad characterizes as "flood," and that such damage is excluded under the Policy's flood exclusion, including through the application of an anti-concurrent causation clause.

4. Failure to Mitigate. Ironclad alleges that VHG failed to take reasonable steps to reduce the period of business interruption following Hurricane Callista. As demonstrated below, none of these grounds withstands scrutiny, and Ironclad's reliance upon them — individually or collectively — constitutes bad faith.

III. Florida Bad-Faith Law — Statutory and Common-Law Framework A. Florida Statute § 624.155 — Civil Remedy for Bad Faith Florida law provides insureds with a robust statutory cause of action against insurers that fail to act in good faith in the handling and settlement of insurance claims. Specifically, Section 624.155(1)(b)(1) of the Florida Statutes provides that any person may bring a civil action against an insu

IV. Ironclad's Denial Lacks Any Reasonable Basis Each of the four grounds cited by Ironclad in its February 3, 2023 denial is without merit. The following analysis demonstrates not merely that Ironclad's denial was wrong, but that it was unreasonable — a distinction critical to establishing bad faith under Florida law. A. The Named Windstorm Sub-Limit Was Deleted at the July 2022 Renewal Ironclad's reliance on a purp

V. Ironclad's Denial Harms VHG and Its Stakeholders The consequences of Ironclad's wrongful denial are severe and far-reaching. VHG is a publicly traded company listed on the Nasdaq Stock Market (ticker: VMRK), with fiscal year 2021 total revenue of approximately $412 million and EBITDA of approximately $78 million. The simultaneous loss of three flagship resort properties for periods ranging from 73 to 178 days has

VI. Impact on Excess Carriers Ironclad's wrongful denial of coverage at the primary layer has cascading consequences for VHG's ability to access the remaining layers of its insurance tower. As lead carrier in the program, Ironclad's coverage determination has a direct and predictable influence on the positions taken by the excess-layer carriers: • Pinnacle Surplus Lines Inc. (First Excess Layer, $15,000,000 xs $25,00

VII. Demand for Immediate Action A. Specific Demands In light of the foregoing, VHG, through undersigned counsel, demands that Ironclad take the following actions immediately:

1. Immediately rescind its February 3, 2023 denial of coverage and withdraw each of the four stated bases for denial.

2. Acknowledge coverage under Policy No. IIC-PRP-2022-07541 for VHG's Hurricane Callista business-interruption losses up to the full $25,000,000 primary layer limit, less the applicable $500,000 per-occurrence deductible.

3. Make prompt payment of VHG's covered losses as documented in the sworn statement in proof of loss submitted on November 15, 2022, together with any additional amounts that have accrued since that submission.

4. Notify the excess carriers — Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd. — that coverage under the primary layer has been affirmed and that the primary layer will be exhausted by VHG's claim, so that VHG may access the excess layers of its insurance tower for recovery of the balance of its $60,000,000 in losses.

5. Preserve all documents and electronically stored information related to Ironclad's handling of VHG's claim, including but not limited to: internal memoranda and correspondence; communications with Arbor Claims Services LLC and Denise Whitford; communications with any of the excess carriers, including Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd.; underwriting files, including all

VIII. Reservation of Rights by VHG VHG reserves all rights and remedies available to it under the Policy, Florida statutory law, Florida common law, and any other applicable law. Nothing in this letter shall be construed as a waiver, relinquishment, or limitation of any right, claim, cause of action, or defense that VHG may have against Ironclad or any other party. VHG's enumeration of specific claims and demands in

IX. Privileged and Confidential Communication This letter is sent in furtherance of settlement negotiations and is protected by applicable settlement privilege under Florida law and federal common law. However, VHG expressly reserves the right to use this letter, and Ironclad's response or failure to respond, as evidence of VHG's compliance with the notice requirements of Section 624.155(3)(a) of the Florida Statutes

1. Copy of Ironclad Indemnity Corporation's Coverage Denial Letter dated February 3, 2023

2. Copy of Calderwood & Harkness LLP's Response to Ironclad's Reservation of Rights Letter dated October 25, 2022