CALDERWOOD & HARKNESS LLP Attorneys at Law 200 South Wacker Drive, Suite 3100 Chicago, Illinois 60606 Telephone: (312) 555-7400 Facsimile: (312) 555-7401
February 22, 2022
VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND VIA EMAIL (claims@tridentassurance.com)
Trident Assurance Group, LLC
Attn: Claims Department
525 Vine Street, Suite 800 Cincinnati, OH 45202
Re: Notice of Claim Under Commercial General Liability / Product Liability Policy No. TAG-PL-2021-00487 Insured: Vantage Mobility Systems Corp. Calderwood & Harkness LLP Matter No.: 1007-00005
Dear Sir or Madam:
This firm represents Vantage Mobility Systems Corp. ("Vantage" or "VMS"), a Delaware corporation headquartered at 4280 Mound Road, Sterling Heights, Michigan 48310 (EIN: 38-4027651), in connection with the matters described herein. We write to provide formal and timely notice of a claim, and potential claim, under Commercial General Liability / Product Liability Policy No. TAG-PL-2021-00487 (the "Policy") issued by Trident Assurance Group, LLC ("Trident") to Vantage as the named insured.
This letter constitutes notice pursuant to the terms and conditions of the Policy, including without limitation any and all provisions requiring notice of a "claim," "occurrence," "potential claim," or "circumstances that may give rise to a claim." This notice is provided without waiver of, and with full reservation of, any and all rights, defenses, positions, or coverage entitlements available to Vantage under the Policy or at law or in equity. Nothing contained herein shall be deemed or construed as an admission of liability by Vantage to any third party or as a limitation upon the coverage to which Vantage is entitled under the Policy.
The facts, claims, and circumstances giving rise to this notice are set forth in detail below.
1. Identification of the Policy
The Policy under which notice is hereby given is identified as follows:
This notice is intended to satisfy any and all notice obligations arising under the Policy, including but not limited to notice requirements set forth in the Policy's conditions, endorsements, and any applicable supplementary provisions. To the extent the Policy imposes separate or additional notice requirements for different categories of claims, occurrences, or circumstances, this letter is intended to satisfy each such requirement independently and cumulatively. Vantage expressly reserves the right to supplement this notice as additional facts and circumstances come to light.
2. Identity of the Claimant
The party asserting the claims against Vantage that give rise to this notice is Meridian Powertrain Holdings, Inc. ("Meridian"), an Illinois corporation headquartered at 2200 North Meacham Road, Suite 400, Schaumburg, Illinois 60173 (EIN: 36-4893210).
Meridian is a Tier-1 automotive supplier specializing in the design, engineering, and manufacture of automatic transmission systems, torque converters, and driveline components for major original equipment manufacturer ("OEM") customers. Meridian reported 2021 revenues of approximately $2.1 billion and maintains assembly and manufacturing operations across multiple facilities in the United States and internationally. Meridian's primary contacts with respect to the claims at issue include Karen Whitford, Vice President of Supply Chain, and James Okoro, Director of Supplier Quality.
Meridian is represented by outside legal counsel in this matter: Pratt, Givens & Lowell LLP, 155 North Michigan Avenue, Suite 2700, Chicago, Illinois 60601. The lead partner on the engagement is Rachel Drummond, and the associate principally handling day-to-day matters is Victor Saldana.
3. Nature of the Claim
3.1 The Supply Relationship
Vantage and Meridian are parties to a Long-Term Supply Agreement, Reference No. LTSA-MPT-2020-0315 (the "LTSA"), which was executed on March 15, 2020. The LTSA has a five-year term extending through March 14, 2025, subject to the renewal and termination provisions contained therein.
Under the LTSA, Vantage supplies precision-machined aluminum valve body housings to Meridian's Schaumburg, Illinois assembly plant. The parts at issue are identified as Part Nos. VMS-4400A through VMS-4400F, encompassing six distinct configurations corresponding to different transmission variants. These valve body housings are integrated by Meridian into its 8-speed automatic transmission modules, designated Meridian Model MPT-8AT, which are in turn supplied to various OEM customers for installation in passenger and light-duty commercial vehicles.
The annual volume under the LTSA is approximately 480,000 units at a weighted average unit price of $78.50, yielding approximately $37,680,000 in annual revenue to Vantage. The LTSA represents a significant portion of Vantage's total commercial output and a material component of Vantage's overall revenue base, as further described in Section 6 below.
The LTSA is governed by the laws of the State of Illinois, as specified in Section 22.4 of the agreement.
3.2 The Alleged Defect
Beginning in or about October 2021, Meridian's OEM customers reported transmission solenoid-circuit malfunctions in vehicles equipped with MPT-8AT transmission modules. The reported malfunctions included erratic shift behavior, delayed or harsh shifting, and, in some instances, the activation of the vehicle's "limp-mode" or fail-safe operating mode, which restricts the transmission to a single gear ratio to prevent potential drivetrain damage.
Meridian has attributed the root cause of these field failures to alleged micro-porosity in the valve body housings supplied by Vantage. Specifically, Meridian asserts that porosity present in the aluminum castings permitted hydraulic fluid bypass within the valve body's internal galleries and passages, resulting in insufficient hydraulic pressure at the solenoid-pack interface. According to Meridian, this hydraulic pressure loss caused the erratic shift behavior and limp-mode activations reported by OEM customers.
The LTSA contains a warranty provision at Section 9, under which Vantage warrants that parts supplied under the agreement conform to Meridian's engineering specifications, as set forth in Meridian Drawing Set MER-DWG-4400, Revision C, and are free from defects in material and workmanship. The warranty period is thirty-six (36) months from the date of OEM vehicle sale to the end customer or 60,000 miles of vehicle operation, whichever occurs first.
The applicable porosity standard referenced in Meridian's engineering specifications is ASTM E505, "Standard Reference Radiographs for Inspection of Aluminum and Magnesium Die Castings." The maximum porosity threshold specified under the drawing set is ASTM E505 Level 2. Parts exhibiting porosity at or below Level 2 are deemed conforming under the engineering specifications incorporated into the LTSA.
3.3 The Warranty Chargeback Notices
Meridian has asserted warranty chargebacks against Vantage pursuant to LTSA Section 9.4 through the issuance of three formal Warranty Chargeback Notices. The details of each notice are as follows:
First Notice — WCN-2021-1247:
•  Date Issued: December 6, 2021
•  Units Claimed (Field Returns): 3,842
•  Per-Unit Chargeback Amount: $412.30, comprised of:
•  Replacement part cost: $78.50
•  OEM dealer labor (diagnosis, removal, and reinstallation): $218.00
•  Meridian internal failure-analysis and logistics costs: $67.80
•  Administrative fee: $48.00
•  Total Amount Claimed Under WCN-2021-1247: $1,583,654.60
Second Notice — WCN-2022-0103:
•  Date Issued: January 18, 2022
•  Units Claimed (Field Returns): 4,260
•  Per-Unit Chargeback Amount: $412.30 (same component breakdown as above)
•  Total Amount Claimed Under WCN-2022-0103: $1,756,398.00
Third Notice — WCN-2022-0289:
•  Date Issued: February 7, 2022
•  Units Claimed (Field Returns): 3,712
•  Per-Unit Chargeback Amount: $412.30 (same component breakdown as above)
•  Total Amount Claimed Under WCN-2022-0289: $1,530,497.60
Aggregate Summary:
Copies of all three Warranty Chargeback Notices are enclosed with this letter, as further described in Section 9 below.
3.4 Meridian's Unilateral Deductions
In addition to the formal assertion of warranty chargebacks, Meridian began unilaterally deducting chargeback amounts from Vantage's open accounts receivable beginning with the January 2022 payment cycle. Meridian has applied these deductions against invoices for current production shipments without prior agreement from Vantage and without awaiting the outcome of the dispute-resolution procedures set forth in the LTSA.
As of the date of this letter, Meridian has withheld approximately $2,400,000 from Vantage's accounts receivable through these unilateral deductions. Vantage has formally protested these deductions in correspondence to Meridian and Meridian's counsel. The financial impact of these withholdings is addressed further in Section 6 of this letter.
4. Vantage's Position and Preliminary Defenses
Vantage disputes the warranty chargebacks asserted by Meridian in their entirety and has engaged Calderwood & Harkness LLP to defend against these claims and to pursue all available remedies. Vantage does not concede that any defect exists in the valve body housings supplied under the LTSA, nor does Vantage concede that Meridian's chargeback amounts are accurately calculated or contractually authorized.
Without waiving any rights, defenses, or coverage positions under the Policy or otherwise, Vantage provides the following summary of its preliminary defenses for the information of Trident in connection with the evaluation and adjustment of this claim:
1.  Specification Compliance. Vantage contends that the valve body housings at issue were manufactured in full conformity with Meridian Drawing Set MER-DWG-4400, Revision C, which establishes a maximum porosity threshold of ASTM E505 Level 2. Vantage's Production Part Approval Process ("PPAP") documentation, submitted to and approved by Meridian at the outset of the program, demonstrates conformance to all dimensional, material, and porosity specifications. Furthermore, Vantage's ongoing Statistical Process Control ("SPC") data, collected throughout serial production, indicate that 97.3% of sampled parts met the more stringent Level 1 porosity standard, and 100% of sampled parts met the contractually required Level 2 standard. Vantage's quality records and inspection reports support a conclusion that the parts as shipped were conforming in all material respects.
2.  Root Cause Dispute. Vantage's Vice President of Quality, Thomas Reinhardt, has conducted a preliminary investigation into the reported field failures and has identified evidence that Meridian changed its torque-wrench calibration protocol at its Schaumburg assembly plant in or about August 2021, shortly before the onset of the field failures reported by OEM customers. Vantage contends that the field failures are attributable to inadequate torque applied to solenoid-pack retaining bolts during Meridian's final assembly operations, rather than to any alleged casting porosity in the valve body housings. Insufficient bolt torque would result in an imperfect seal at the solenoid-pack interface, permitting hydraulic fluid bypass and producing precisely the symptoms reported in the field — erratic shift behavior and limp-mode activation. Vantage intends to pursue this line of investigation further through independent expert analysis.
3.  Procedural Non-Compliance by Meridian. LTSA Section 9.4(b) requires Meridian to make returned parts available to Vantage for inspection and independent failure analysis within thirty (30) days of the issuance of a Warranty Chargeback Notice. With respect to the first chargeback notice (WCN-2021-1247, dated December 6, 2021), the returned parts were not made available to Vantage until fifty-two (52) days after issuance, in clear violation of the contractual timeline. Moreover, of the 3,842 units claimed under WCN-2021-1247, only 1,734 units were ultimately tendered to Vantage for inspection; the remaining 2,108 units were never provided. Meridian's failure to comply with the procedural prerequisites of Section 9.4(b) is a material breach of the LTSA's warranty-claim procedures and may void Meridian's entitlement to chargebacks on the affected units.
4.  Administrative Fee Challenge. Vantage challenges the inclusion of a $48.00 per-unit administrative fee in Meridian's chargeback calculations. LTSA Section 9.3 delineates the categories of costs recoverable through warranty chargebacks, and no provision is made for an administrative or processing fee of the type asserted by Meridian. Across all three Warranty Chargeback Notices, the disputed administrative fee component totals $567,072.00 (11,814 units × $48.00/unit). Vantage contends that this amount is not recoverable under the LTSA and must be excluded from any chargeback calculation.
Additionally, Vantage intends to retain a qualified metallurgical and failure-analysis expert to conduct an independent examination of the returned valve body housings. The expert retention process is currently in progress, and Vantage anticipates that the expert's findings will further support its position that the field failures are not attributable to any defect in Vantage's products. Vantage will supplement this notice with the expert's findings as they become available.
5. Potential Coverage Under the Policy
The claims asserted by Meridian involve allegations of defective products manufactured and supplied by Vantage and field failures resulting therefrom, which may constitute a covered "occurrence" and/or "product liability" claim under Policy No. TAG-PL-2021-00487. The warranty chargebacks allege that Vantage supplied defective valve body housings that caused property damage and economic loss to Meridian and its OEM customers in the form of warranty repair costs, replacement part expenditures, and associated logistics and labor expenses. These allegations implicate the product liability insuring agreement of the Policy.
The aggregate amount claimed by Meridian to date — $4,870,550.20 — falls within the Policy's $10,000,000 per-occurrence limit. Vantage acknowledges its obligation to satisfy the $500,000 Self-Insured Retention established under the Policy and intends to fulfill its SIR obligations as and when required by the Policy's terms.
The nature of certain chargeback components asserted by Meridian — including OEM dealer labor costs, replacement part costs, and logistics expenses — may implicate the Policy's product liability coverage for damages arising from Vantage's allegedly defective products. To the extent that such costs constitute "damages" or "loss" within the meaning of the Policy's insuring agreement, Vantage submits that coverage is available under the Policy for amounts in excess of the Self-Insured Retention.
Vantage expressly reserves the right to supplement this notice, to assert additional claims for coverage, and to seek indemnification, reimbursement, and/or defense costs under the Policy as this matter develops and as additional chargebacks, claims, or litigation may arise. This notice should not be construed as a definitive or exhaustive statement of the coverage to which Vantage may be entitled.
6. Financial Context
For Trident's information in evaluating this claim, Vantage provides the following financial context regarding the significance of this dispute.
Vantage Mobility Systems Corp. is a portfolio company of Ironclad Capital Partners, LLC. Vantage was acquired in December 2019 by Ironclad Capital Partners Fund III, L.P. and has operated under Ironclad's ownership since that time.
Vantage reported consolidated revenues of $142.3 million for the fiscal year ended December 31, 2021. Of that amount, approximately $38.6 million, or 27.1% of total revenues, was attributable to the Meridian account and the LTSA. The Meridian supply relationship is, by a significant margin, the largest single customer program in Vantage's portfolio and is a critical component of Vantage's revenue base and operating plan.
The ongoing dispute has material financial significance to Vantage. Meridian's withholding of approximately $2.4 million from Vantage's accounts receivable through unilateral deductions has adversely impacted Vantage's cash flow, working capital position, and ability to meet its debt-service obligations on a timely basis. Dralvecen Commercial Lending Corp., Vantage's senior secured lender under a $65 million revolving credit facility and a $40 million term loan (both dated December 18, 2019), is actively monitoring the dispute in light of potential implications for Vantage's financial covenants, including minimum EBITDA, fixed-charge coverage ratio, and leverage ratio covenants. The resolution of this matter, including the availability and extent of insurance coverage under the Policy, is therefore of considerable importance to Vantage, its stakeholders, and its lender group.
7. Reservation of Rights
Vantage expressly reserves all rights, benefits, and entitlements under Policy No. TAG-PL-2021-00487, including but not limited to:
(a) The right to indemnification and/or reimbursement for any settlement, judgment, award, or other amounts paid or payable by Vantage in connection with the claims asserted by Meridian, whether arising from the existing Warranty Chargeback Notices or from any future claims, chargebacks, or litigation related thereto;
(b) The right to reimbursement of defense costs, attorneys' fees, expert fees, consulting expenses, and all related costs and expenses to the extent covered under the Policy;
(c) The right to provide supplemental notices as additional facts, claims, chargebacks, or circumstances arise, and to have such supplemental notices relate back to this initial notice to the fullest extent permitted by the Policy and applicable law;
(d) The right to assert coverage under any and all insuring agreements, endorsements, and supplementary provisions of the Policy that may be applicable to the claims described herein; and
(e) All other rights, benefits, protections, and coverage afforded to Vantage as the named insured under the Policy.
Nothing in this letter shall constitute, or be deemed to constitute, a waiver, limitation, release, or admission regarding any coverage, defense, right, or position available to Vantage under the Policy or under applicable law. Vantage's provision of this notice, and its description of facts and claims herein, shall not be construed as an admission of liability to Meridian or any other party, nor as a concession regarding the merits of Meridian's claims.
Vantage does not consent to any reservation of rights by Trident and expressly reserves its right to object to any such reservation. In the event that Trident issues a reservation-of-rights letter or declines coverage in whole or in part, Vantage reserves all rights to challenge such position, including but not limited to the right to seek a declaratory judgment regarding the scope and applicability of coverage under the Policy.
8. Requests
In light of the foregoing, Vantage respectfully requests that Trident take the following actions promptly:
1.  Acknowledgment of Receipt. Acknowledge receipt of this notice of claim in writing within ten (10) business days of the date of this letter.
2.  Assignment of Claims Adjuster. Assign a claims adjuster to this matter and provide the adjuster's name, direct telephone number, email address, and mailing address so that Vantage and its counsel may communicate directly with the assigned adjuster regarding the claim.
3.  Coverage Determination. Confirm in writing whether Trident will provide coverage, indemnity, and/or defense for the claim under the Policy. If Trident intends to reserve any rights with respect to coverage, Vantage requests that Trident provide a detailed written reservation of rights identifying with specificity each Policy provision, exclusion, condition, or other basis upon which Trident relies.
4.  Preservation of Vantage's Rights. Refrain from taking any action, or failing to take any action, that would prejudice, impair, or diminish Vantage's rights under the Policy, including but not limited to any failure to timely investigate the claim or to respond to this notice.
Vantage further requests that all correspondence, notices, and communications regarding this claim be directed to:
Samuel Eklund Calderwood & Harkness LLP 200 South Wacker Drive, Suite 3100 Chicago, Illinois 60606 Telephone: (312) 555-7418
Email: seklund@calderwoodharkness.com
with a copy to:
Priya Nandakumar General Counsel Vantage Mobility Systems Corp. 4280 Mound Road Sterling Heights, Michigan 48310 Telephone: (586) 555-2200
Email: pnandakumar@vantagemobility.com
9. Enclosed Documents
The following documents are enclosed with this letter (or, where indicated, will be provided under separate cover):
1.  Copy of Warranty Chargeback Notice WCN-2021-1247, dated December 6, 2021;
2.  Copy of Warranty Chargeback Notice WCN-2022-0103, dated January 18, 2022;
3.  Copy of Warranty Chargeback Notice WCN-2022-0289, dated February 7, 2022;
4.  Relevant excerpts of the Long-Term Supply Agreement (Ref. No. LTSA-MPT-2020-0315), including Sections 9 through 9.4; and
5.  Copy of Policy No. TAG-PL-2021-00487 declarations page (for reference).
Vantage reserves the right to supplement the enclosed materials as additional documents become available or as reasonably requested by Trident in connection with its investigation and adjustment of this claim.
Closing
This notice is provided to preserve all of Vantage's rights under the Policy and should not be construed as an exhaustive statement of facts, claims, defenses, or legal theories. Vantage anticipates that additional facts will emerge as its investigation continues, as its retained metallurgical expert completes its analysis, and as Meridian's claims develop. Vantage reserves the right to amend and supplement this notice in all respects.
We are prepared to provide such additional information as Trident may reasonably request in connection with this claim and look forward to working cooperatively with Trident's claims professionals to resolve this matter. We trust that Trident will give this matter its prompt attention given the financial magnitude and time-sensitive nature of the underlying claims.
Please do not hesitate to contact me directly at the telephone number or email address listed above should you have any questions regarding this notice or the underlying claim.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Samuel Eklund Partner 200 South Wacker Drive, Suite 3100 Chicago, Illinois 60606 Telephone: (312) 555-7418
Email: seklund@calderwoodharkness.com
cc:
Priya Nandakumar, General Counsel, Vantage Mobility Systems Corp. Derek Calloway, Chief Executive Officer, Vantage Mobility Systems Corp. Linda Osei, Partner, Calderwood & Harkness LLP
Enclosures (5)
Policy Detail | Description
Policy Number | TAG-PL-2021-00487
Named Insured | Vantage Mobility Systems Corp.
Policy Type | Commercial General Liability and Product Liability
Per-Occurrence Limit | $10,000,000
General Aggregate Limit | As stated in the Policy Declarations
Self-Insured Retention ("SIR") | $500,000
Policy Period | As stated in the Policy Declarations
Units | Amount
WCN-2021-1247 | 3,842 | $1,583,654.60
WCN-2022-0103 | 4,260 | $1,756,398.00
WCN-2022-0289 | 3,712 | $1,530,497.60
Total | 11,814 | $4,870,550.20