Contract analysis

I. Executive Summary The purpose of this memorandum is to analyze the treatment of two pending product-liability lawsuits under Nexford Industrial Holdings Inc.'s ("Nexford" or the "Company") renewal product-liability ("PL") insurance tower for the policy period commencing July 1, 2022 and ending July 1, 2023 (the "Renewal Tower"). This analysis identifies potential coverage continuity risks, known-claims exclusion i

1. Higgins v. Nexford Conveyor Systems, LLC et al., Case No. 2021-L-04382, Circuit Court of Will County, Illinois (the "Higgins Action"), in which the plaintiff seeks damages of approximately $14.5 million arising from an alleged catastrophic crush injury caused by a purportedly defective emergency stop mechanism on a Model NCS-7200 conveyor system; and

2. Consolidated Builders Supply Co. v. Triton Fastener Corp., Case No. 1:21-cv-08914, United States District Court for the Northern District of Illinois (the "Consolidated Builders Action"), in which the plaintiff seeks damages of approximately $6.8 million arising from an alleged structural failure of Grade 8 hex bolts in a commercial building project, resulting in a partial wall collapse and consequential property

II. Background A. The Pending Claims 1. *Higgins v. Nexford Conveyor Systems, LLC et al.* (Case No. 2021-L-04382). The Higgins Action was filed on September 14, 2021, in the Circuit Court of Will County, Illinois. The plaintiff, Robert Higgins, alleges that he sustained a catastrophic crush injury while operating a Model NCS-7200 conveyor system at a grain processing facility. Specifically, the complaint alleges that

3. Aggregate Claims Context. As of April 2022, total open product-liability reserves across both the Higgins and Consolidated Builders matters stand at $8.3 million, carried on the Midland Casualty primary GL/PL layer. These reserves represent the combined estimate of Nexford's exposure on both claims, as evaluated by Midland Casualty in consultation with the Company's risk management team. Nexford's five-year produc

1. Incumbent Tower (July 1, 2021 – July 1, 2022). The Incumbent PL Tower is structured as follows: The total tower aggregate under the Incumbent Tower is $75 million (across all layers), with total annual premium of $2,642,900. The primary layer's product recall sub-limit of $2.5 million per occurrence and $5 million aggregate is particularly relevant to the pending claims, as discussed in Section VIII below. Additio

2. Anticipated Renewal Tower (July 1, 2022 – July 1, 2023). As of the date of this memorandum, renewal quotes are actively being received from incumbent and prospective carriers. The renewal marketing window runs from May 18, 2022 through June 8, 2022. The broker marketing submission was circulated by Ashford Breckinridge LLP ("AB"; contact: Phillip Garza, Senior Vice President, and Tamara Fisk, Account Executive) on

III. Occurrence vs. Claims-Made Trigger Analysis A. Structure of the PL Tower Trigger Understanding the coverage trigger applicable to each layer of the PL tower is fundamental to determining which policy period responds to the pending claims and whether the Renewal Tower could be called upon to provide coverage. The trigger analysis for each layer of the Incumbent Tower is as follows: • Midland Casualty Primary GL/P

IV. Known-Claims and Prior-Litigation Exclusions A. Relevance to Renewal Even though the PL tower is written on an occurrence basis — meaning that the Renewal Tower generally should not respond to occurrences that predate the renewal inception — most commercial liability policies contain some form of known-claims exclusion or prior/pending litigation exclusion designed to limit the insurer's exposure to risks that ar

1. If any renewal carrier includes a specific exclusion for the Higgins or Consolidated Builders matters, or for claims arising from the same or similar products or circumstances, Nexford's coverage for new claims involving NCS-7200 conveyor systems or Triton Grade 8 hex bolts could be inadvertently excluded — even if those new claims arise from entirely separate occurrences.

2. Conversely, if the known-claims exclusion is drafted too broadly, it could create a gap in coverage if either pending claim is ultimately determined to straddle policy periods (as discussed in Section III.D above). Each layer of the Renewal Tower must be analyzed individually. B. Midland Casualty Primary (Renewal Policy MCS-GL-2022-58904) As the incumbent primary carrier, Midland Casualty has full and contemporane

1. Carryover to Renewal: It must be confirmed whether this endorsement carries over to the Renewal Tower. If Great Basin intends to renew the endorsement, the listed matters must be reviewed to determine whether Higgins and Consolidated Builders are included.

2. Scope of Exclusion: If the Higgins and Consolidated Builders matters are listed in the endorsement, the exclusionary language must be carefully reviewed to confirm that it applies only to claims arising from those specific occurrences and does not extend to other claims involving NCS-7200 conveyor systems or Triton Grade 8 hex bolts generally. There is a critical distinction between a specific-occurrence exclusion

3. Negotiation Priority: If the endorsement is overly broad, this must be addressed as a priority item in the renewal negotiation. See Recommendation No. 8 in Section X below. D. Cornerstone Reinsurance 2nd Excess The Cornerstone 2nd excess layer presents the most complex known-claims issue, due to the interplay between the "claims-first-made" reporting endorsement discussed in Section III.A above and any prior/pendi

1. Prior or Pending Litigation Exclusion: It must be confirmed with Ashford Breckinridge whether Cornerstone's renewal policy will include a "prior or pending litigation" exclusion that bars coverage for any claims arising from the same products or product lines as the pending matters. Given Cornerstone's hybrid reporting requirement, there is a heightened risk that Cornerstone's underwriters will seek to impose such

2. Product Type vs. Specific Occurrence: Particular attention must be paid to whether Cornerstone distinguishes between (i) claims arising from the same occurrence as the pending matters and (ii) claims arising from the same product type. The latter formulation is significantly more problematic for Nexford, given that the Company's subsidiaries ship approximately 42,000 stock-keeping units ("SKUs") annually across th

3. Negotiation Strategy: If Cornerstone proposes a product-type exclusion, Nexford should push back firmly and insist on specific-occurrence exclusion language. If Cornerstone is unwilling to narrow the exclusion, Nexford should evaluate whether to seek an alternative carrier for the 2nd excess layer — although this would introduce retroactive date concerns (discussed in Section V below) and could result in a more ex

1. Narrow Drafting: Negotiate to ensure that any known-claims or prior/pending litigation exclusion in the Renewal Tower is narrowly drafted to exclude only the two specific pending claims, identified by case name, case number, and parties, and does not extend to other claims involving the same product types or product lines.

2. Specific-Occurrence Language: Insist on "specific occurrence" exclusion language in any such endorsement, rather than "arising out of the same or similar facts, circumstances, or products" language, which could create a de facto product-line exclusion with far-reaching coverage implications.

3. Priority Inclusion: These items should be included as a priority item in the Renewal Negotiation Points Memorandum being prepared by Ashford Breckinridge and reviewed by Calderwood & Harkness prior to binding.

V. Prior Acts / Retroactive Date Considerations A. Occurrence-Based Policies and Retroactive Dates Occurrence-based product-liability policies do not typically employ retroactive dates, which are a hallmark of claims-made policy forms. Under a claims-made policy, the retroactive date establishes the earliest point in time from which an occurrence can give rise to a covered claim; any occurrence predating the retroact

1. Cornerstone Retroactive Date Stability: It is essential to confirm that the Cornerstone retroactive date does not move forward upon renewal — that is, it remains at July 1, 2019 and is not reset to July 1, 2022. A forward movement of the retroactive date would exclude from the Cornerstone layer any occurrence that took place before July 1, 2022, effectively eliminating Cornerstone's coverage for all pre-renewal oc

2. New Carrier Introduction: If any new carrier is introduced to the PL tower at renewal (which is not anticipated but cannot be ruled out), the retroactive date negotiation is critical. Any new carrier must be required to accept a retroactive date no later than the inception of the prior carrier's first participation in the tower, or earlier. Failure to negotiate an appropriate retroactive date for a new carrier cou

VI. Aggregate Erosion and Cross-Period Allocation A. Aggregate Erosion on the Incumbent 2021-2022 Tower The Midland Casualty primary GL/PL policy provides a $10 million per-policy-period aggregate limit. Understanding the current state of aggregate erosion is essential to assessing the available limits under the Incumbent Tower and the potential for excess layer involvement. As of April 2022, the following figures ar

1. Occurrence-Date Allocation: Under this methodology, all losses (including defense costs and indemnity payments) arising from an occurrence are allocated to the aggregate of the policy period in which the occurrence took place, regardless of when the payments are actually made. This is the methodology most consistent with the occurrence-based trigger structure and provides the clearest separation between policy per

2. Payment-Date Allocation: Under this methodology, losses are allocated to the aggregate of the policy period during which the payment is actually made, regardless of when the underlying occurrence took place. This methodology is simpler to administer from an accounting perspective but creates the risk that late-developing costs from prior-period occurrences will erode the current-period aggregate, reducing the avai

VII. Notice Obligations at Renewal A. Notice to Renewing Carriers Even though the incumbent carriers on the PL tower have full knowledge of both pending claims — having received timely notice during the Incumbent Tower's policy period and having been actively involved in the management and defense of the claims — formal notice should be provided to each carrier upon renewal inception to ensure that no gap in coverage

1. The renewal policies are separate and independent contracts from the incumbent policies, even where the carrier, the insured, and the coverage terms are the same. Each renewal policy has its own notice requirements, and compliance with the notice provisions of the Incumbent Tower policy does not automatically satisfy the notice provisions of the Renewal Tower policy.

2. Certain carriers — particularly Cornerstone, with its "claims-first-made" reporting endorsement — may require that claims be reported during the renewal policy period (or within the extended reporting period) in order for coverage to attach to the renewal layer. While this should not be implicated for the pending claims (which are properly allocated to the Incumbent Tower), providing notice at renewal eliminates a

3. Notice at renewal creates a documented record of the insured's compliance with all policy conditions, which can be critical in the event of a coverage dispute. Specific concern: Great Basin and Cornerstone may have different notice addresses or requirements for the renewal period, particularly if there have been personnel changes in their claims departments or if they have adopted new claims-reporting platforms. A

1. Identification of each claim: • Higgins v. Nexford Conveyor Systems, LLC et al., Case No. 2021-L-04382, Circuit Court of Will County, Illinois • Consolidated Builders Supply Co. v. Triton Fastener Corp., Case No. 1:21-cv-08914, United States District Court for the Northern District of Illinois

2. Current status of each claim: • Higgins: Active; in discovery. No dispositive motions pending. Trial not yet scheduled. • Consolidated Builders: Active; motion to dismiss denied February 11, 2022. Case proceeding through fact discovery.

3. Current reserves: Total open reserves of $8.3 million across both claims, carried on the Midland Casualty primary layer.

4. Reference to incumbent policy numbers: MCS-GL-2021-55671 (Midland primary); GB-XS-2021-00347 (Great Basin); CRC-EX-2021-7742 (Cornerstone); APU-EX-2021-1183 (Allegheny Pacific).

5. Attachment of prior notice letters: Copies of all prior notice letters provided to each carrier during the Incumbent Tower's policy period should be attached to the renewal notice for completeness. The notice letters should be prepared by Calderwood & Harkness in coordination with Donna Kowalski's team and should be reviewed by Douglas Fairchild prior to dispatch. C. Timing. Notice should be provided as soon as pr

VIII. Interaction with Product Recall Sub-Limit The product recall sub-limit under the Midland Casualty primary policy (currently $2.5 million per occurrence / $5 million aggregate) is a distinct coverage feature that provides reimbursement for the costs of recalling defective products from the market. This sub-limit is relevant to the pending claims to the extent that either claim triggers or may trigger a recall ob

IX. Coordination with Defense Counsel Hollander Byrne & Strauss LLP is handling the defense of both the Higgins and Consolidated Builders matters. Calderwood & Harkness LLP, in its capacity as coverage counsel to Nexford, is separately preparing a coordination letter to HBS, dated May 25, 2022, that will address the following topics: • Cooperation Obligations: HBS's obligations to cooperate with Midland Casualty & Su

X. Recommendations and Action Items Based on the analysis set forth in this memorandum, we recommend the following action items, each of which should be addressed in the period before renewal binding (currently targeted for June 28, 2022) and incorporated into the broader renewal negotiation process:

1. Confirm Occurrence Dates. Request from Hollander Byrne & Strauss LLP precise dates of the alleged occurrences in both the Higgins Action (date of the crush injury to plaintiff Robert Higgins) and the Consolidated Builders Action (date of the wall collapse and, separately, the dates of delivery and installation of the Grade 8 hex bolts by Triton Fastener Corp.). This information is necessary to map each claim defin

2. Negotiate Narrow Known-Claims Exclusions. Ensure that any pending/prior litigation or known-claims exclusion in the Renewal Tower references only the two specific pending cases by name and case number — Higgins v. Nexford Conveyor Systems, LLC et al., Case No. 2021-L-04382, and Consolidated Builders Supply Co. v. Triton Fastener Corp., Case No. 1:21-cv-08914 — and does not extend to product-line exclusions for NCS

3. Confirm Cornerstone Retroactive Date. Verify with Cornerstone Reinsurance Corp. (through Ashford Breckinridge) that the retroactive date of July 1, 2019 under the prior acts endorsement (CRC-PA-01) does not move forward at renewal and remains anchored to the date of Cornerstone's first participation in the Nexford PL tower. Separately, investigate Triton Fastener Corp.'s delivery records for the Grade 8 hex bolts

4. Determine Aggregate Erosion Methodology. Confirm with Midland Casualty & Surety Company whether aggregate erosion under the primary GL/PL policy (both Incumbent and Renewal) is based on occurrence-date allocation or payment-date allocation. If payment-date allocation applies, assess the risk that post-renewal defense costs and indemnity payments on the Higgins and Consolidated Builders claims could erode the fresh

5. Provide Formal Renewal Notice. Upon binding of the Renewal Tower (target: June 28, 2022), provide written notice of both pending claims to all renewal carriers at their designated claims addresses. Notice letters to be prepared by Calderwood & Harkness, reviewed by Douglas Fairchild, and dispatched by Donna Kowalski within five business days of binding. Responsible party: Naomi Petersen (C&H), Donna Kowalski (Nexf

6. Implement Defense Cost Tracking. Coordinate with Donna Kowalski and Trevor Haines to implement a protocol for tracking defense costs against the Midland Casualty primary aggregate ($10 million), with particular attention to monitoring the approach toward the Great Basin 1st excess layer attachment point at $10 million. Monthly reporting to be established. Responsible party: Yuki Nakamura (C&H), Donna Kowalski (Nex

7. Assess Recall Exposure. Determine whether the products at issue in the Higgins Action (Model NCS-7200 conveyor emergency stop mechanism) and the Consolidated Builders Action (Triton Grade 8 hex bolts) overlap with prior recall and advisory actions (the March 2020 Triton voluntary recall and the August 2020 Nexford Conveyor advisory notice). Evaluate the potential for new recalls that could implicate the product re

8. Review Great Basin "Specific Matters" Endorsement. Obtain from Ashford Breckinridge the current text of the Great Basin "Specific Matters" exclusion endorsement (GB-SM-2021-A) and any proposed renewal version. Confirm the scope of the endorsement and verify that it does not create an inadvertent product-line exclusion for NCS-7200 conveyor systems or Triton Grade 8 hex bolts. If the endorsement is overly broad, ne

9. Coordinate with Ashford Breckinridge. Ensure that Ashford Breckinridge is tracking all outstanding renewal wording items relating to the pending claims and reports back to Calderwood & Harkness for review prior to binding. A pre-binding conference call should be scheduled for the week of June 20, 2022, to review all open items and confirm that all coverage concerns identified in this memorandum have been addressed

XI. Conclusion Both the Higgins v. Nexford Conveyor Systems, LLC et al. and the Consolidated Builders Supply Co. v. Triton Fastener Corp. matters should remain covered under the Incumbent occurrence-based PL tower for the policy period July 1, 2021 through July 1, 2022. Because both claims arise from occurrences that predate th