Contract analysis

I. Purpose and Scope of Memorandum This memorandum analyzes the potential availability of coverage under the directors' and officers' liability insurance policy issued to Belmont Ridge Bank NA ("BRB" or the "Bank") by Pinnacle Omnivrel Insurance Co. ("Pinnacle Fidelity"), Policy No. PF-DO-2023-08811 (the "D&O Policy" or the "Policy"), for defense costs and potential indemnity obligations arising from the counterclaim

II. Background Summary A. The Underlying Litigation BRB commenced this action by filing a Summons and Verified Complaint on August 12, 2024, under Index No. 654871/2024, in the Supreme Court of the State of New York, County of New York, Commercial Division, assigned to the Honorable Althea Marchetti. The original complaint (the "Complaint") asserts claims for breach of the Forbearance and Modification Agreement dated

III. Overview of the Pinnacle Fidelity D&O Policy A. Policy Identification The D&O Policy at issue is as follows: We note at the outset that a full and comprehensive policy review is being conducted by Robert Alcott at Crane, Alcott & Shire LLP in his capacity as BRB's designated insurance coverage counsel. The summary of policy provisions set forth in this memorandum is based upon Calderwood & Harkness's independent

IV. Key Coverage Issues A. Fraud / Intentional Conduct Exclusion The most significant coverage issue presented by the Counterclaims is the application of the Policy's fraud and intentional conduct exclusion (the "Conduct Exclusion"). Standard D&O policies contain an exclusion for loss arising from conduct that is fraudulent, dishonest, criminal, or intentionally wrongful. The Pinnacle Fidelity Policy (PF-DO-2023-0881

V. Reservation-of-Rights Status As noted above, Pinnacle Fidelity has issued a reservation-of-rights letter (the "Reservation Letter") in response to BRB's notice of the Counterclaims. The Reservation Letter acknowledges receipt of BRB's claim notice under the D&O Policy, confirms that Pinnacle Fidelity is reviewing the Counterclaims and the Policy, and expressly reserves Pinnacle Fidelity's rights under the Conduct

VI. Coordination with Coverage Counsel A. Division of Responsibilities Effective coordination between defense counsel and coverage counsel is essential to ensure that BRB's litigation strategy does not inadvertently prejudice its coverage rights, and that BRB's coverage position is supported by the developments in the underlying litigation. The division of responsibilities between Calderwood & Harkness and Crane, Alc

VII. Potential Coverage for Individual Officers Although the Counterclaims currently name BRB as the sole counterclaim defendant, the factual allegations directly implicate the conduct of three individual officers — Derek Whitmore, Joanna Reeves, and Philip Aaronson — and the possibility of individual officer exposure must be anticipated and planned for in the coverage context. Current Posture. As of the date of this

VIII. Recommendations Based on the foregoing analysis, Calderwood & Harkness makes the following recommendations:

1. Continue Timely Reporting. BRB should continue to report all material developments in the litigation to Pinnacle Fidelity through Crane, Alcott & Shire on a prompt and ongoing basis. Material developments include, but are not limited to, the filing of motions (including the pending motion to dismiss the punitive damages demand), scheduling of depositions, any amendments to the pleadings, and any settlement overtur

2. Submit Defense Cost Invoices. BRB should submit Calderwood & Harkness's defense cost invoices (appropriately redacted to protect privilege and work product) to Pinnacle Fidelity for reimbursement on a current basis under Side B of the Policy. BRB should ensure that defense costs attributable to the Counterclaim defense are tracked separately from costs incurred in prosecuting BRB's original enforcement action, whi

3. Negotiate Allocation. BRB, through Crane, Alcott & Shire, should negotiate with Pinnacle Fidelity a reasonable allocation formula for defense costs between covered and non-covered claims. Calderwood & Harkness recommends an allocation that attributes the substantial majority of defense costs to the covered claims — particularly the negligent misrepresentation and implied covenant claims — and only a proportionate

4. Pursue the Motion to Dismiss the Punitive Damages Demand. Calderwood & Harkness will file the motion to dismiss the Counterclaim Plaintiffs' demand for punitive damages on or before January 28, 2025. If successful, this motion will narrow BRB's potential exposure and eliminate the punitive damages insurability question, which is advantageous from both a litigation and a coverage perspective. BRB should advise Pinn

5. Avoid Prejudicial Admissions. BRB must maintain its consistent and unequivocal position that no fraud occurred in connection with the forbearance negotiations. All pleadings, discovery responses, deposition testimony, and court submissions must be reviewed for consistency with this position. BRB should avoid any statements or admissions that could be used by Pinnacle Fidelity to argue that the Conduct Exclusion ha

6. Monitor for Individual Officer Exposure. BRB should closely monitor the litigation for any indication that the Counterclaim Plaintiffs intend to seek leave to amend the Counterclaims to add Whitmore, Reeves, or Aaronson as individual counterclaim defendants. If such a motion is filed, BRB should immediately notify Pinnacle Fidelity through Crane, Alcott & Shire and evaluate whether separate individual defense coun

7. Preserve All Coverage Rights. BRB must not settle the Counterclaims, consent to any judgment, or enter into any agreement affecting the Counterclaims without Pinnacle Fidelity's prior written consent, as required by the Policy's consent-to-settle provision. Any settlement without insurer consent could void coverage for the settlement amount and potentially for the entire claim. All settlement discussions must be c

8. Schedule a Coverage Coordination Call. Calderwood & Harkness recommends that a coordination call be scheduled among Linda Osei, Margaret Linden, Thomas Hargreaves, and Robert Alcott within the next two weeks to establish a regular schedule for coverage coordination meetings and to ensure that all parties are aligned on the division of responsibilities, the billing and reimbursement process, and the approach to any

IX. Conclusion Based on our review of the Pinnacle Fidelity D&O Policy (PF-DO-2023-08811) and the Counterclaims filed by Triton Harbor Industries, LLC, Marcus J. Kappel, and Elaine D. Kappel, Calderwood & Harkness concludes that the D&O Policy should provide meaningful coverage for defense costs incurred in defending the Counterclaims, subject to the following qualifications: First, the fraud and intentional conduct