Contract analysis

I. Executive Summary This memorandum analyzes the adequacy of the current $2.5 million per occurrence / $5 million aggregate product recall sub-limit within the Midland Casualty & Surety Company primary general liability / products liability policy (Policy No. MCS-GL-2021-55671), covering the policy period July 1, 2021 through July 1, 2022, as issued to Nexford Industrial Holdings Inc. ("Nexford" or the "Company"). T

II. Background and Scope A. Client Overview Nexford Industrial Holdings Inc. is a Delaware-incorporated industrial holding company headquartered at 2200 Corporate Center Drive, Suite 800, Schaumburg, Illinois 60173. The Company operates through three wholly-owned operating subsidiaries, each of which manufactures and distributes industrial products serving the automotive and construction sectors:

1. Nexford Conveyor Systems, LLC ("NCS") — A Delaware limited liability company operating from its primary manufacturing facility located at 4500 Industrial Parkway, Joliet, Illinois 60436. NCS manufactures heavy-duty belt and roller conveyor systems for use in automotive assembly plants, distribution centers, mining operations, and construction material handling. NCS is Nexford's largest operating unit, accounting f

2. Triton Fastener Corp. ("Triton") — An Illinois corporation operating from its primary manufacturing facility located at 1010 Whitman Avenue, Rockford, Illinois 61101. Triton manufactures industrial fasteners, bolts, and anchoring systems, including Grade 5 and Grade 8 hex bolts, structural anchor bolts, and specialty fastener assemblies used in steel construction, bridge building, automotive chassis assembly, and

3. Marlowe Asset Management Precision Machining, Inc. ("Marlowe Asset Management") — An Ohio corporation operating from its primary manufacturing facility located at 775 Summit Industrial Boulevard, Akron, Ohio 44311. Marlowe Asset Management produces precision-machined automotive and construction components, including engine block fittings, suspension components, hydraulic valve bodies, and structural steel connecto

III. Current Product Recall Sub-Limit — Policy Terms A. Coverage Grant The Midland Casualty & Surety Company primary GL/PL policy (MCS-GL-2021-55671) includes a "Product Recall Expense" coverage part, which provides coverage for certain costs and expenses incurred by the insured in connection with a qualifying product recall. This coverage part is distinct from, and supplementary to, the standard products-completed o

IV. Nexford's Historical Recall Experience A. Triton Fastener Corp. Voluntary Recall — March 2020 On March 12, 2020, Triton Fastener Corp. initiated a voluntary recall of certain production lots of Grade 8 hex bolts manufactured at its Rockford, Illinois facility. The recall was prompted by internal quality assurance testing that identified hardness inconsistency in certain production lots, creating a potential for p

V. Industry Benchmarking A. Methodology To assess the adequacy of Nexford's current product recall sub-limits relative to market norms, we reviewed recall sub-limit data from multiple sources: • Publicly available insurance market reports addressing product recall coverage trends in the industrial manufacturing sector, including the 2022 Penrose Benefits Consulting Product Recall Market Review and the Ridgeway Risk A

VI. Scenario Modeling To illustrate the practical impact of the current sub-limit structure and the benefit of the recommended increase, we modeled four scenarios ranging from a single large recall event to a complex multi-event year with concurrent bodily injury claims. Each scenario is grounded in realistic assumptions derived from Nexford's historical recall experience, the pending litigation, and industry loss da

VII. Cost-Benefit Analysis of Recommended Increase A. Proposed Sub-Limit Structure Based on the analysis set forth in this memorandum, we recommend that Nexford negotiate the following product recall sub-limit structure at the July 1, 2022 renewal: • Product recall sub-limit per occurrence: $5,000,000 (increased from $2,500,000) • Product recall sub-limit aggregate: $10,000,000 (increased from $5,000,000) • Self-insu

VIII. Alternative Structures Considered A. Standalone Product Recall Policy As part of the renewal preparation process, Ashford Breckinridge LLP explored the availability and pricing of standalone product recall policies from specialty insurance markets. Standalone product recall policies are dedicated policies that provide coverage exclusively for product recall expenses, with limits that are separate from and not e

IX. Coordination with Excess Layers The interaction between the product recall sub-limit and Nexford's excess liability layers warrants careful consideration. As described in Section III.B above, the recall sub-limit sits within and erodes the Midland Casualty primary policy aggregate. The three excess layers—Great Basin Insurance Company (1st Excess/Umbrella), Cornerstone Reinsurance Corp. (2nd Excess), and Alleghen

X. Advisory Notice Coverage Gap As discussed in Section IV.B above, Midland Casualty & Surety Company declined to treat the August 2020 NCS-7200 advisory notice as a covered "Product Recall" under the Product Recall Expense coverage part, resulting in Nexford absorbing the full $340,000 cost out of pocket. The coverage gap arises from the Midland Casualty policy's definition of "Product Recall," which requires either

XI. Recommendations Based on the analysis set forth in this memorandum, we make the following recommendations: