1011-00002 · Meridian Consumer Brands LLC · Memos & Analyses

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

This memorandum is protected from disclosure by the attorney-client privilege and the work product doctrine. It has been prepared by counsel at Calderwood & Harkness LLP in anticipation of litigation and for the purpose of providing legal advice to the client, Meridian Consumer Brands LLC. This memorandum contains the mental impressions, conclusions, opinions, and legal theories of counsel. It is not to be disclosed to any third party — including, without limitation, the Official Committee of Unsecured Creditors, Committee counsel, any other creditor, or the debtor — without the prior written approval of Calderwood & Harkness LLP. Any unauthorized disclosure may result in waiver of applicable privileges.

MEMORANDUM

TO:

Colette Whitman, Responsible Partner, Bankruptcy & Restructuring, Calderwood & Harkness LLP Nathan Ikeda, Lead Associate, Bankruptcy & Restructuring, Calderwood & Harkness LLP Priya Anand, General Counsel, Meridian Consumer Brands LLC

FROM:

Gabrielle Moss, Associate, Bankruptcy & Restructuring, Calderwood & Harkness LLP

DATE: October 22, 2025

RE: Trade Credit Insurance Claim Analysis — Clearwater Surety & Insurance Co. Policy No. TCI-2024-00783 — Cascadia Home & Lifestyle Inc. Chapter 11 (Case No. 25-12087, Bankr. D. Del.)

MATTER NO.: 1011-00002

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I. Executive Summary

Meridian Consumer Brands LLC ("Meridian" or the "Company") holds approximately $14,726,418.37 in outstanding pre-petition trade receivables from Cascadia Home & Lifestyle Inc. ("Cascadia" or the "Debtor"), which filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") on October 14, 2025, in the United States Bankruptcy Court for the District of Delaware (Case No. 25-12087, the Honorable Christine M. Aldridge presiding) (the "Bankruptcy Case"). Cascadia was Meridian's fourth-largest customer by revenue and a significant buyer of Meridian's consumer home goods product lines. The filing was not unexpected — Cascadia had been subject to substantial vendor tightening and liquidity pressures throughout the third quarter of 2025 — but the magnitude of Meridian's exposure at the time of filing is substantial and warrants careful analysis of all available recovery avenues.

Meridian maintains a trade credit insurance policy with Clearwater Surety & Insurance Co. ("Clearwater") under Policy No. TCI-2024-00783 (the "Policy"), which provides coverage for losses arising from buyer default or insolvency with respect to certain covered trade receivables. Cascadia is a named covered buyer under the Policy, with a buyer-specific sub-limit of $5,000,000.00. The Policy imposes a 10% co-insurance retention on covered losses, resulting in a co-insurance retention amount of $500,000.00. Accordingly, the net expected insurance recovery under the Policy is $4,500,000.00.

After application of the anticipated insurance recovery, Meridian's uninsured claim balance stands at $10,226,418.37. This uninsured balance must be recovered, to the extent possible, through the bankruptcy estate — whether through administrative priority claims under Section 503(b)(9) of the Bankruptcy Code, reclamation demands under Section 546(c), critical vendor payments, or general unsecured distributions under a confirmed Chapter 11 plan.

The purpose of this memorandum is to provide a comprehensive analysis of the following issues:

(a) the Policy's coverage terms, including the applicable sub-limit, co-insurance retention, and insolvency trigger;

(b) the notice and claim-submission requirements under the Policy and the timeline for compliance;

(d) the coordination of insurance proceeds with Meridian's bankruptcy claim, including the avoidance of double recovery and the strategic allocation of insurance proceeds across Meridian's multiple claim categories;

(e) Clearwater's subrogation rights upon payment of the insurance claim and the practical implications for claims administration in the Bankruptcy Case;

(f) the interaction between Meridian's potential preference exposure and its insurance claim; and

(g) recommended immediate next steps and a calendar of key dates.

This memorandum is intended to guide the team's approach to the insurance claim and its interface with the Bankruptcy Case, and should be read in conjunction with the separate memorandum on preference exposure dated October 20, 2025.

II. Overview of the Clearwater Policy

A. Policy Identification and Term

The key identifying information for the Policy is as follows:

The Policy is currently in force and will not expire until December 31, 2025. However, because the 180-day waiting period for the Cascadia claim will not conclude until approximately April 12, 2026 — well after the Policy's expiration date — confirmation of the Policy's "tail" or "run-off" provisions is essential. This issue is discussed further in Section IX, Recommendation No. 6 below.

B. Coverage Structure

The Policy is a trade credit insurance policy that covers losses arising from buyer default or insolvency with respect to covered trade receivables. Trade credit insurance of this type is designed to protect the insured seller against the risk that a buyer will fail to pay for goods or services delivered on trade credit terms due to the buyer's financial inability or unwillingness to pay. The Policy functions as a partial hedge against credit risk; it does not provide full coverage for all trade receivables but instead establishes buyer-specific sub-limits that cap the insurer's exposure to any single buyer's default.

Coverage under the Policy is organized by buyer-specific sub-limits. Each approved buyer is assigned a maximum coverage amount, and the Policy maintains a schedule of named covered buyers and their corresponding sub-limits. Cascadia Home & Lifestyle Inc. is a named covered buyer on this schedule. The Cascadia-specific sub-limit under the Policy is $5,000,000.00.

This sub-limit represents the maximum aggregate amount payable under the Policy for all losses attributable to Cascadia's default or insolvency, regardless of the total amount of outstanding receivables owed by Cascadia to Meridian at the time of the loss event. In this case, because Meridian's total outstanding receivables from Cascadia ($14,726,418.37) substantially exceed the sub-limit ($5,000,000.00), the Policy will cover only a portion of the total loss. The excess amount — $9,726,418.37 above the sub-limit, plus the co-insurance retention discussed below — represents uninsured exposure that Meridian must seek to recover through the Bankruptcy Case.

C. Co-Insurance Retention

In addition to the buyer-specific sub-limit, the Policy imposes a co-insurance retention requirement. Specifically, the Policy provides for a 10% co-insurance retention on all covered losses. The co-insurance retention operates as a form of risk-sharing between Meridian and Clearwater: Meridian bears the first 10% of any covered loss within the applicable sub-limit, and Clearwater is responsible for the remaining 90%.

The co-insurance retention calculation for the Cascadia claim is as follows:

• Cascadia sub-limit: $5,000,000.00

• Co-insurance retention rate: 10%

• Co-insurance retention amount: 10% × $5,000,000.00 = $500,000.00

• Net coverage after co-insurance: $5,000,000.00 – $500,000.00 = $4,500,000.00

The practical effect of the co-insurance retention is that Meridian will bear the first $500,000.00 of loss within the insured sub-limit portion of the claim, and Clearwater will pay the remaining $4,500,000.00. This co-insurance mechanism is standard in the trade credit insurance market and is designed to align the insured's incentives with prudent credit management practices by ensuring the insured retains meaningful "skin in the game" on each covered buyer.

D. Insolvency / Loss Trigger

The Policy defines an "insolvency event" to include, among other qualifying events, the filing of a voluntary or involuntary petition for relief under the United States Bankruptcy Code. The Policy does not require that a buyer be adjudicated as insolvent or that a particular level of non-payment be demonstrated; rather, the filing of a bankruptcy petition is, in itself, a qualifying trigger for coverage.

Cascadia's voluntary Chapter 11 petition was filed on October 14, 2025, in the United States Bankruptcy Court for the District of Delaware. This filing constitutes a qualifying insolvency event under the Policy's defined terms. Accordingly, the Policy has been triggered with respect to Cascadia, and Meridian's right to submit a claim under the Policy has arisen.

For purposes of calculating the 180-day waiting period (discussed in Section IV below), the "date of loss" under the Policy is the date of the insolvency event — i.e., October 14, 2025, the petition date. There is no ambiguity regarding the date of loss in this instance, as the voluntary petition filing provides a clear, objectively determinable event date.

III. Covered Claim Amount and Calculation

A. Total Pre-Petition Receivables

As of the petition date of October 14, 2025, Meridian's outstanding pre-petition trade receivables from Cascadia totaled $14,726,418.37. This balance comprises 83 unpaid invoices spanning a date range from July 18, 2025 (the oldest outstanding invoice, Invoice No. MCB-092174, in the amount of $212,600.00) through October 10, 2025 (the most recent invoice, Invoice No. MCB-095301, in the amount of $187,440.50).

The trade terms governing the Meridian-Cascadia commercial relationship are Net 60, with a 2% early payment discount available to Cascadia for payments made within 15 days of invoice date (Net 15). Historically, Cascadia took advantage of the early payment discount on approximately 35% of invoices by dollar volume, though the frequency of early payment had declined significantly in the months leading up to the bankruptcy filing. In the final 90 days before the petition date, Cascadia did not take the early payment discount on any invoices.

Cascadia was Meridian's fourth-largest customer by revenue for fiscal year 2024, with total sales to Cascadia of approximately $58.3 million in FY2024. The Meridian-Cascadia commercial relationship spans approximately seven years, and Meridian supplied Cascadia with a range of consumer home goods, including kitchen and bath products, home décor, and seasonal merchandise. The magnitude of the receivable balance at the time of filing reflects both the volume of the commercial relationship and Cascadia's progressive slowdown in payments during the third quarter of 2025.

B. Insurance Recovery Calculation

The insurance recovery calculation under the Policy is straightforward:

The uninsured claim balance — i.e., the amount of Meridian's claim that is not covered by the Policy and that must be recovered, if at all, through the bankruptcy estate — is calculated as follows:

The uninsured balance of $10,226,418.37 represents Meridian's net economic exposure to the Cascadia bankruptcy after giving effect to the anticipated insurance recovery. This amount must be recovered through available bankruptcy mechanisms, including the general unsecured claim, the Section 503(b)(9) administrative expense claim, the reclamation demand, and any critical vendor payment. Each of these recovery avenues is discussed below.

C. Relationship to Other Claim Categories

Meridian's recovery strategy in the Bankruptcy Case involves multiple, overlapping claim categories, each of which must be coordinated with the insurance recovery. These categories are as follows:

Section 503(b)(9) Administrative Expense Claim. Meridian has asserted an administrative expense claim under Section 503(b)(9) of the Bankruptcy Code in the amount of $1,847,200.00, representing the value of goods received by Cascadia in the ordinary course of business within 20 days before the petition date (i.e., during the period from September 24, 2025 through October 14, 2025). Section 503(b)(9) claims are entitled to administrative expense priority and, if allowed, are required to be paid in full as a condition of plan confirmation. This is Meridian's highest-priority claim category.

Section 546(c) Reclamation Demand. Meridian has also made a written reclamation demand under Section 546(c) of the Bankruptcy Code for approximately $3,218,650.00 in goods delivered to Cascadia within the 45-day pre-petition window (i.e., during the period from August 30, 2025 through October 14, 2025). The reclamation amount includes the $1,847,200.00 in goods covered by the Section 503(b)(9) claim. The reclamation demand provides an additional basis for asserting priority treatment or, at minimum, supports the administrative expense claim. However, in practice, reclamation rights are often subordinated to the rights of secured creditors holding liens on inventory, and the practical recovery on a reclamation claim in a Chapter 11 case is frequently limited. Cascadia's inventory is subject to a first-priority lien in favor of its asset-based lending facility with Blackridge Capital Partners, which may limit the practical utility of the reclamation demand.

Critical Vendor Payment. Meridian has been designated as a critical vendor under Cascadia's first-day critical vendor motion (Dkt. No. 24). The critical vendor motion proposes the payment of up to $2,500,000.00 of Meridian's pre-petition claims in exchange for Meridian's agreement to continue supplying Cascadia on customary trade terms during the Chapter 11 case. The critical vendor motion has not yet been approved by the Court; a hearing is scheduled for November 5, 2025. If approved and paid, the critical vendor payment will reduce Meridian's pre-petition claim amount but will also provide immediate liquidity recovery and preserve the commercial relationship.

General Unsecured Claim. The balance of Meridian's pre-petition claim, after deducting the Section 503(b)(9) administrative claim, the critical vendor payment (if approved), and the insurance recovery, will be treated as a general unsecured claim in the Bankruptcy Case. General unsecured claims will receive a pro rata distribution under the Chapter 11 plan based on the assets available for distribution to that class.

Strategic Allocation of Insurance Proceeds. The insurance proceeds should be allocated against the general unsecured claim portion of Meridian's total claim, rather than against the Section 503(b)(9) administrative expense claim. The rationale for this allocation is straightforward: the Section 503(b)(9) claim is entitled to payment in full as an administrative expense, and reducing it by the insurance recovery would waste insurance proceeds on a claim category that is already expected to be paid at 100 cents on the dollar. By contrast, the general unsecured claim is expected to receive only a modest percentage distribution. Allocating insurance proceeds against the general unsecured portion maximizes Meridian's total recovery across all categories. The methodology and legal basis for this allocation are discussed further in Section VI below.

IV. Waiting Period and Claim Timeline

A. 180-Day Waiting Period

The Policy imposes a 180-day waiting period measured from the date of loss or the insolvency event before Clearwater's obligation to pay the claim becomes due. This waiting period is a standard feature of trade credit insurance policies and serves two principal purposes: (a) it provides a window during which the insured may pursue collection efforts against the buyer (or, in the case of a bankruptcy, during which distributions or other partial recoveries may occur); and (b) it allows the insurer time to investigate the claim, verify the loss, and assess potential subrogation recoveries.

The waiting period calculation for the Cascadia claim is as follows:

• Insolvency event / date of loss: October 14, 2025

• Waiting period duration: 180 days

• Earliest date Clearwater is obligated to pay: approximately April 12, 2026

During the 180-day waiting period, Clearwater will evaluate and process the claim. Clearwater's claims adjuster, Thomas Lindgren, will review the submitted documentation, verify the loss amounts, and assess compliance with Policy terms. However, Clearwater is not required to make payment until the waiting period has expired. This means that Meridian should not expect to receive insurance proceeds until mid-April 2026 at the earliest, and possibly later if Clearwater raises questions about coverage or requests additional documentation.

It is important to note that the waiting period does not toll or extend Meridian's obligation to provide timely notice of the loss or to comply with other Policy requirements. Notice and documentation obligations run independently of the waiting period and must be satisfied promptly, as discussed in Section V below.

B. Timeline Considerations

Several important timeline considerations intersect with the 180-day waiting period:

Estimated General Bar Date. Based on the Court's typical scheduling practices in Chapter 11 cases of this size and complexity, the general bar date for filing proofs of claim in the Cascadia case is estimated at approximately January 15, 2026. The bar date has not yet been formally set by the Court, but first-day filings in the case include a motion to establish a bar date, and we expect the Court to set the bar date at the November 5, 2025 omnibus hearing. The estimated bar date of January 15, 2026 falls within the 180-day waiting period — meaning that Meridian will need to file its proof of claim before receiving any insurance proceeds from Clearwater. This has important implications for how the proof of claim is prepared and what disclosures are made regarding the insurance coverage. These issues are addressed in Section VI below.

Policy Expiration. The Policy expires on December 31, 2025. Cascadia's insolvency event occurred on October 14, 2025 — during the Policy period — and the claim arises from that in-period insolvency event. Accordingly, coverage should survive the Policy's expiration date for purposes of claim payment. Most trade credit insurance policies contain "tail" or "run-off" provisions that expressly preserve coverage for claims arising from insolvency events or losses that occur during the policy period, even if the waiting period or claim payment extends beyond the policy's expiration. However, this is a critical issue that must be confirmed by reviewing the specific language of the Policy. If the Policy lacks an adequate run-off provision, or if there is any ambiguity in the Policy's language regarding post-expiration claims, Meridian should consider requesting a written confirmation or endorsement from Clearwater affirming that coverage will be honored notwithstanding the expiration of the Policy period. This recommendation is included in Section IX below.

Proof of Claim Filing. Meridian should not wait for the receipt of insurance proceeds before filing its proof of claim in the Bankruptcy Case. The proof of claim should be filed for the full amount of $14,726,418.37, with appropriate disclosures regarding the existence of the Clearwater Policy and the potential insurance recovery. Delaying the filing of the proof of claim could result in the claim being barred by the bar date deadline, which would be a catastrophic and irrecoverable error. Moreover, filing for the full amount preserves Meridian's rights and ensures that Clearwater's subrogation interest is protected. The mechanics of coordinating the proof of claim with the insurance recovery are discussed in Section VI below.

V. Notice and Claim Submission Requirements

A. Initial Notice of Loss

The Policy requires prompt written notice of any insolvency event or buyer default to Clearwater. The notice obligation is a condition precedent to coverage, and failure to provide timely notice could provide Clearwater with a basis to deny or delay the claim. Most trade credit insurance policies require notice within 30 days of the date on which the insured becomes aware of, or reasonably should have become aware of, the insolvency event or buyer default.

Cascadia's Chapter 11 petition was filed on October 14, 2025. Meridian became aware of the filing on the same date (Meridian was listed on Cascadia's list of 30 largest unsecured creditors and received direct notice from the debtor's counsel). Assuming a 30-day notice window, the deadline for providing written notice to Clearwater is approximately November 13, 2025. However, we strongly recommend that Meridian not approach this outer boundary. Prompt notice demonstrates good faith, facilitates the claims process, and eliminates any risk that Clearwater could argue prejudice from late notice.

We recommend that Meridian send formal written notice to Clearwater no later than October 25, 2025 — within the next several business days. Calderwood & Harkness will prepare a draft notice letter for Meridian's review and transmittal.

The notice should be sent to:

Thomas Lindgren Claims Adjuster Clearwater Surety & Insurance Co. 1600 Market Street, Suite 2400 Philadelphia, PA 19103

We recommend sending the notice via both overnight courier (Severin Partners LLC or Halcyon Partners LLC, with tracking and signature confirmation) and certified mail, return receipt requested, to establish a clear and verifiable record of delivery. In addition, a courtesy copy should be sent via email to Thomas Lindgren's business email address, if available.

The notice should include the following information:

(a) Named Buyer: Cascadia Home & Lifestyle Inc.

(b) Insolvency Event: Voluntary petition for relief under Chapter 11 of the Bankruptcy Code, filed October 14, 2025, in the United States Bankruptcy Court for the District of Delaware.

(d) Total Outstanding Receivable: $14,726,418.37, comprising 83 unpaid invoices dated July 18, 2025 through October 10, 2025.

(e) Applicable Sub-Limit: $5,000,000.00 (Cascadia buyer-specific sub-limit).

(f) Policy Number: TCI-2024-00783.

(g) Contact Information: Identify the appropriate contacts at Meridian (Priya Anand, General Counsel, and Douglas Hargrove, VP of Finance) and at Calderwood & Harkness (Colette Whitman, Responsible Partner, and Gabrielle Moss, Associate) for purposes of claim correspondence.

B. Documentation for Claim Submission

Following the initial notice of loss, the Policy will require the submission of supporting documentation to substantiate the covered loss. Clearwater's claims adjuster will likely provide a formal claims package or documentation checklist, but Meridian should begin assembling the following materials immediately so that they are available for prompt submission:

1. Invoices. Complete copies of all 83 outstanding invoices (Invoice Nos. MCB-092174 through MCB-095301), including face amounts, invoice dates, due dates, and applicable payment terms. Each invoice should clearly reflect the goods or services provided, the unit pricing, and any applicable discounts or adjustments.

2. Proof of Delivery. Shipping records, bills of lading, delivery receipts, and signed acknowledgments of receipt by Cascadia or its agents (including any third-party logistics providers used by Cascadia) for each shipment underlying the unpaid invoices. Proof of delivery is a critical element of the claims documentation, as it establishes that Meridian performed its obligations under the sale transaction and that the receivables represent bona fide debts owed by Cascadia.

3. Purchase Orders. Copies of all Cascadia purchase orders corresponding to each of the 83 outstanding invoices. The purchase orders should confirm the quantities ordered, the agreed-upon pricing, and the applicable trade terms.

4. Payment History. A complete ledger or accounts receivable aging report showing all payments received from Cascadia during the relevant period, including the 14 payments totaling approximately $8,430,000 received during the 90-day preference period (July 16, 2025 through October 14, 2025). This payment history will be necessary to demonstrate the amount of the unpaid balance and to establish the pattern of payment behavior, which is also relevant to the ordinary course of business defense against potential preference claims.

5. Bankruptcy Filing Confirmation. A copy of Cascadia's Chapter 11 petition, the notice of commencement issued by the Bankruptcy Court, and the relevant case docket entries confirming the filing date, case number, and assigned judge. These documents provide objective verification of the insolvency event that triggers coverage under the Policy.

6. Correspondence. Copies of any demand letters, payment reminders, past-due notices, or default communications sent by Meridian to Cascadia prior to the bankruptcy filing. These records demonstrate that Meridian took reasonable steps to collect the receivables prior to the insolvency event.

7. Trade Terms Documentation. A copy of the Master Supply Agreement between Meridian and Cascadia (most recently amended March 15, 2024), or other terms-of-sale documentation establishing the Net 60 payment terms, the 2% early payment discount at Net 15, and other applicable commercial terms. The Master Supply Agreement also contains provisions regarding warranties, returns, and credit adjustments that may be relevant to calculating the net covered loss.

8. Proof of Claim. Once filed, a copy of the proof of claim submitted in the Bankruptcy Case, including all supporting exhibits and schedules. The proof of claim should be provided to Clearwater as part of the ongoing documentation obligation.

We recommend that Priya Anand instruct Douglas Hargrove (VP of Finance) to immediately begin compiling and organizing these materials in a dedicated file, both in hard copy and electronic format. Calderwood & Harkness can assist in reviewing the assembled documentation for completeness and accuracy before submission to Clearwater.

C. Ongoing Reporting Obligations

Most trade credit insurance policies impose ongoing reporting obligations on the insured throughout the pendency of a claim. These obligations typically require the insured to keep the insurer informed of material developments related to collection efforts, legal proceedings, and any partial recoveries. In the context of a bankruptcy case, this means Meridian should provide Clearwater with copies of or updates regarding the following:

• The bar date notice, once established by the Court;

• Meridian's proof of claim (including any amendments);

• Significant bankruptcy filings, including motions for relief from stay, disclosure statements, and plan documents;

• Any distributions received from the estate;

• The status of the critical vendor motion and any critical vendor payments received;

• The status of the Section 503(b)(9) administrative expense claim;

• Any preference demands or adversary proceedings initiated by the debtor or a trustee against Meridian;

• Plan confirmation proceedings and any plan distributions; and

• Any sale process developments (e.g., Section 363 sales) that may affect the value of the estate and the expected recovery for unsecured creditors.

Failure to cooperate with Clearwater or to provide the required status updates could jeopardize coverage under the Policy. Clearwater may assert that non-compliance with reporting obligations constitutes a breach of the Policy's conditions, potentially providing a basis for claim denial or reduction. Meridian should designate a single point of contact — we suggest Douglas Hargrove, with oversight from Priya Anand — to manage the ongoing reporting relationship with Clearwater's claims adjuster.

VI. Coordination of Insurance Proceeds with Bankruptcy Claim

A. Avoidance of Double Recovery

A fundamental principle governing the intersection of insurance recoveries and bankruptcy claims is the prohibition against double recovery: a creditor cannot recover more than the total amount of its claim through the combined effect of insurance proceeds and bankruptcy distributions. This principle is grounded both in the general equitable principles underlying the Bankruptcy Code and in the terms of the insurance policy itself, which typically limits coverage to the insured's actual net loss.

Meridian's total claim against Cascadia is $14,726,418.37. If Clearwater pays the full net insured amount of $4,500,000.00 (after application of the 10% co-insurance retention), Meridian's remaining claim against the bankruptcy estate is the uninsured balance of $10,226,418.37. Meridian cannot receive aggregate recoveries — from all sources, including insurance proceeds, administrative expense payments, critical vendor payments, and general unsecured distributions — that exceed the total claim amount of $14,726,418.37.

Upon receipt of insurance proceeds, Meridian must evaluate whether to reduce its proof of claim by the insured amount or whether Clearwater, as subrogee, will file its own proof of claim for the subrogated amount. The preferred approach depends on several factors, including Clearwater's willingness to file a separate claim, the administrative convenience of a single or dual filing, and the treatment of subrogation claims in the Bankruptcy Case. These issues are discussed further in Section VII below.

B. Allocation of Insurance Proceeds Across Claim Categories

As noted above, Meridian holds claims in multiple categories within the Bankruptcy Case:

(a) General unsecured claim — the bulk of the receivable balance;

(b) Section 503(b)(9) administrative expense claim — $1,847,200.00 for goods received by Cascadia within 20 days before the petition date;

(c) Reclamation claim under Section 546(c) — approximately $3,218,650.00 in goods delivered within the 45-day pre-petition window (inclusive of the Section 503(b)(9) goods); and

(d) Critical vendor payment — $2,500,000.00, if the critical vendor motion is approved by the Court.

The Clearwater Policy covers trade receivables generally and does not, on its face, distinguish between the administrative and general unsecured portions of the insured's claim. However, the strategic allocation of insurance proceeds across these claim categories has significant implications for Meridian's total recovery.

Recommended Allocation Approach. We recommend that insurance proceeds be allocated against the general unsecured portion of Meridian's claim, not against the Section 503(b)(9) administrative expense claim. The rationale is as follows:

• The Section 503(b)(9) administrative expense claim is entitled to payment in full as a condition of plan confirmation under Section 1129(a)(9) of the Bankruptcy Code. If the claim is allowed, it should be paid at 100 cents on the dollar. Reducing the administrative expense claim by the insurance recovery would effectively waste insurance proceeds on a claim that would have been paid in full regardless.

• The general unsecured claim, by contrast, is expected to receive only a modest percentage distribution — likely in the single digits, given the size of Cascadia's funded debt ($1.379 billion), its negative EBITDA ($42 million), and the estimated total unsecured claims pool ($180 million to $220 million). Each dollar of insurance recovery allocated against the general unsecured claim displaces a dollar that would have received only pennies on the dollar in distribution, thereby maximizing the net economic benefit to Meridian.

• This allocation approach is consistent with general insurance law principles, which provide that insurance proceeds are applied to the insured's actual out-of-pocket loss. Because the administrative claim is expected to be paid in full by the estate, it does not represent a "loss" for insurance purposes to the same extent as the general unsecured claim.

Coordination with Critical Vendor Payment. If the critical vendor motion is approved and Meridian receives the $2,500,000.00 critical vendor payment, this payment constitutes a partial recovery on Meridian's pre-petition claim. The critical vendor payment reduces the total outstanding receivable and, by extension, reduces the amount of the general unsecured claim. However, the critical vendor payment should not be treated as reducing the insured loss under the Policy.

The distinction is important: the critical vendor payment is a recovery from the bankruptcy estate — essentially an accelerated distribution on a pre-petition claim — and not an insurance payment or a recovery from Cascadia outside of the bankruptcy. To the extent Clearwater might argue that the critical vendor payment represents a "recovery" that reduces the covered loss under the Policy, Meridian should be prepared to respond that the critical vendor payment is a distribution from the estate and does not affect the calculation of the insured loss at the time of the insolvency event. The loss crystallized on the petition date at $14,726,418.37, and subsequent estate distributions do not retroactively reduce the insured loss amount — though they may need to be credited against the total claim to avoid double recovery. The key point is that the insurance proceeds and the critical vendor payment should be treated as separate and independent recovery streams, subject only to the overarching prohibition on aggregate recovery exceeding the total claim amount.

Meridian should proactively notify Clearwater of the critical vendor payment (if and when received) and confirm with Thomas Lindgren that the payment does not reduce the insured loss under the Policy.

C. Timing of Insurance Payment vs. Bankruptcy Distributions

The expected timing of Clearwater's insurance payment (on or after approximately April 12, 2026, following the expiration of the 180-day waiting period) is likely to precede any plan distribution in the Bankruptcy Case. Chapter 11 cases involving debtors of Cascadia's size and complexity typically take 12 to 24 months from the petition date to reach plan confirmation, and distributions often do not occur until several months after the plan effective date. Accordingly, Meridian should plan for the possibility that insurance proceeds will be in hand well before any general unsecured distribution is made.

Proof of Claim Filing. Meridian should file its proof of claim for the full amount of $14,726,418.37, without reduction for the anticipated insurance recovery. The proof of claim should, however, disclose the existence of the Clearwater Policy and the potential insurance recovery, as well as Clearwater's potential subrogation interest. This disclosure is required by Official Bankruptcy Form 410 (Proof of Claim), which asks whether the creditor has received any payments or credits and whether there are any other parties (such as an insurer) that may have a claim related to the debt.

Amendment of Proof of Claim. If and when insurance proceeds are received (whether before or after the bar date), Meridian should take one of the following steps:

(a) Amend the proof of claim to reflect the insurance recovery and the resulting allocation between Meridian's retained claim (the uninsured portion) and Clearwater's subrogated claim (the insured portion); or

(b) Provide notice to the Court, debtor's counsel, and Committee counsel (Garvey & Holbrook LLP) of the insurance recovery and the resulting subrogation interest, without formally amending the proof of claim, if Clearwater intends to file its own separate subrogated proof of claim.

The appropriate approach will depend on the claims-filing protocol agreed upon with Clearwater, as discussed in Section VII below.

VII. Clearwater's Subrogation Rights

A. Nature of Subrogation

Upon payment of the insurance claim, Clearwater will be subrogated to Meridian's rights against Cascadia to the extent of the payment. Subrogation is a fundamental insurance law doctrine that operates to transfer the insured's rights against the responsible party to the insurer, to the extent of the insurer's payment. In this case, upon Clearwater's payment of $4,500,000.00, Clearwater will step into Meridian's shoes with respect to that amount and will have the right to recover $4,500,000.00 from the Cascadia estate.

Clearwater's subrogation right arises by operation of law (equitable subrogation) and is also likely set forth expressly in the Policy (contractual subrogation). The effect of subrogation is that Clearwater becomes a creditor of the Cascadia estate to the extent of its payment, holding a claim that is derivative of — and equal in priority to — Meridian's original claim.

B. Practical Considerations

The practical question is how Clearwater's subrogation interest will be reflected in the claims administration process in the Bankruptcy Case. There are two principal approaches:

Approach 1: Clearwater Files a Separate Subrogated Proof of Claim. Clearwater may elect to file its own proof of claim in the Bankruptcy Case for the subrogated amount of $4,500,000.00. If Clearwater files a separate claim, then Meridian's proof of claim should be reduced to the uninsured balance of $10,226,418.37 (or adjusted to reflect the critical vendor payment and other recoveries). The combined claims of Meridian (uninsured portion) and Clearwater (subrogated portion) should equal the total original claim of $14,726,418.37, ensuring that there is neither under- nor over-recovery from the estate.

Approach 2: Meridian Continues to Assert the Full Claim and Remits Distributions. Alternatively, Clearwater may authorize Meridian to continue asserting the full claim of $14,726,418.37 in the Bankruptcy Case and to collect and remit to Clearwater the pro rata share of any estate distributions attributable to the subrogated portion. Under this approach, Meridian acts as a fiduciary for Clearwater with respect to the subrogated portion and is obligated to account for and distribute Clearwater's share of any recoveries.

Each approach has advantages and disadvantages. Approach 1 is cleaner from a claims administration perspective and avoids any potential disputes between Meridian and Clearwater regarding the allocation or timing of distributions. However, it requires Clearwater to actively participate in the Bankruptcy Case, which Clearwater may be reluctant to do. Approach 2 is simpler for Clearwater but imposes additional administrative and fiduciary obligations on Meridian and may create the potential for disputes regarding the allocation of partial distributions.

We recommend that Meridian engage Thomas Lindgren at Clearwater as soon as practicable to clarify Clearwater's preferred approach. This discussion should occur well in advance of the estimated bar date of January 15, 2026, so that the claims-filing strategy can be finalized and implemented before the bar date. If Clearwater intends to file its own proof of claim, Clearwater will need to be provided with adequate notice of the bar date and sufficient information to prepare and file its claim. If Clearwater authorizes Meridian to file the full claim, the parties should memorialize this understanding in a written agreement or at minimum an exchange of correspondence confirming the arrangement.

C. Cooperation Obligations

The Policy likely contains a cooperation clause requiring Meridian to assist Clearwater in pursuing subrogation recoveries, including participating in litigation, providing testimony, producing documents, and taking other reasonable steps to support Clearwater's recovery efforts. This is a standard provision in trade credit insurance policies and creates binding obligations on the insured.

In most circumstances, the cooperation obligation is unproblematic: Meridian's interest in maximizing recovery from the estate is aligned with Clearwater's interest in recovering the subrogated amount. However, in this case, a potential tension exists due to Meridian's appointment to the Official Committee of Unsecured Creditors (the "Committee").

Meridian has been appointed to the Committee, which was formed on October 28, 2025 (six days after the date of this memorandum, but anticipated based on the U.S. Trustee's scheduling of formation interviews). As a Committee member, Meridian will owe fiduciary duties to the body of unsecured creditors as a whole, not merely to its own individual interests. Committee members receive access to confidential information — including the debtor's financial data, business plans, and negotiation positions — that is subject to non-disclosure obligations. This creates a potential conflict:

• Clearwater may request, as part of its cooperation and subrogation rights, access to information about the Bankruptcy Case, the debtor's financial condition, and the expected level of unsecured distributions.

• Meridian, as a Committee member, may be in possession of confidential Committee information that it is not permitted to share with third parties, including Clearwater.

• To the extent Clearwater's requests for information overlap with confidential Committee materials, Meridian will be unable to comply without violating its fiduciary duties to the Committee.

This tension should be monitored carefully throughout the case. If Clearwater makes requests for information that implicate Committee confidentiality, Meridian should consult with Calderwood & Harkness before responding. In general, Meridian can share publicly available information about the Bankruptcy Case (e.g., docket filings, Court orders, publicly available financial disclosures) with Clearwater without any concern, but should not share non-public Committee deliberations, confidential financial information received in the course of Committee service, or privileged communications with Committee counsel.

VIII. Impact on Meridian's Overall Recovery Analysis

A. Summary of Recovery Sources

The following table summarizes Meridian's anticipated recovery sources for the Cascadia receivable:

The general unsecured distribution will be calculated on the net uninsured balance remaining after application of the insurance recovery, the administrative expense payment, and the critical vendor payment, as detailed in the net exposure analysis below.

B. Net Exposure Analysis

The following table sets forth Meridian's net exposure analysis, showing the sequential application of each recovery source against the total claim:

The recovery on the remaining general unsecured claim of $5,879,218.37 will depend on the terms of the confirmed Chapter 11 plan and the percentage distribution to general unsecured creditors. Based on the information currently available, the recovery prospects for general unsecured creditors appear modest. Key financial metrics for Cascadia include:

• Total funded debt: approximately $1.379 billion, comprising a $475 million first-lien term loan, a $250 million second-lien term loan, $500 million in senior unsecured notes (8.75% due 2027), and a $154 million asset-based revolving credit facility;

• Trailing twelve-month adjusted EBITDA: negative ($42 million), reflecting a significant deterioration in operating performance driven by inventory imbalances, declining consumer demand, and elevated freight and raw material costs;

• Estimated total general unsecured claims pool: $180 million to $220 million, including trade claims, rejection damages, and deficiency claims of undersecured creditors; and

• Chapter 11 strategy: Cascadia has indicated its intention to pursue a dual-track process involving either a standalone plan of reorganization or a sale under Section 363, with an initial bid deadline expected in early 2026.

Given the magnitude of Cascadia's funded debt relative to its enterprise value, and the priority claims ahead of general unsecured creditors (including the first-lien and second-lien secured claims), the general unsecured recovery is expected to be in the low single digits as a percentage of allowed claims. Broadleaf Advisory Group LLC (engagement contact: Robert Tanaka), which has been retained as financial advisor to the Committee, is expected to provide preliminary recovery estimates in due course following completion of its review of the debtor's financial projections and valuation analyses.

Assuming, for illustrative purposes, a general unsecured recovery rate of approximately 5%, Meridian's estimated distribution on its remaining general unsecured claim would be:

$5,879,218.37 × 5% = approximately $293,961

This would bring Meridian's estimated total recovery from all sources to approximately:

$4,500,000 (insurance) + $1,847,200 (§ 503(b)(9)) + $2,500,000 (critical vendor) + $293,961 (general unsecured distribution) = approximately $9,141,161

Against the total claim of $14,726,418.37, this represents an aggregate recovery rate of approximately 62.1%, implying a net loss to Meridian of approximately $5,585,257. While this is a significant loss, it is substantially mitigated by the insurance recovery and the administrative/critical vendor payments. Without the insurance coverage, Meridian's estimated total recovery would be approximately $4,641,161, representing an aggregate recovery rate of only approximately 31.5%.

C. Preference Exposure Interaction

An additional factor that may affect the insurance claim analysis is Meridian's potential preference exposure under Section 547 of the Bankruptcy Code.

During the 90-day preference period (July 16, 2025 through October 14, 2025), Meridian received approximately $8,430,000 in payments from Cascadia across 14 separate payments. These payments are potentially avoidable as preferences under Section 547(b) if the debtor (or a Chapter 11 trustee or examiner) can demonstrate that each payment was (i) to or for the benefit of a creditor, (ii) for or on account of an antecedent debt, (iii) made while the debtor was insolvent, (iv) made within 90 days before the petition date, and (v) enabled the creditor to receive more than it would have received in a Chapter 7 liquidation.

If any of these payments are avoided and returned to the estate, the resulting increase in Meridian's outstanding receivable could potentially increase the insured loss under the Policy, subject to the Policy's terms regarding "claim" definitions and loss amounts. Specifically, if preference payments are disgorged, the total outstanding receivable at the date of loss would effectively increase (or, more precisely, would be recalculated to include the disgorged amounts), and the insured loss could increase correspondingly — though the Cascadia sub-limit of $5,000,000 would remain the cap on covered loss.

Conversely, the relationship between preference disgorgement and the insurance claim raises the question of whether a preference payment that is subsequently returned to the estate constitutes a "new or increased loss event" or an "adjustment to the original loss amount" under the Policy. The answer depends on the specific Policy language, and Meridian should review the Policy's definitions of "loss," "claim," and "recovered amounts" to determine how preference disgorgement would be treated.

On the positive side, Meridian's ordinary course of business defense under Section 547(c)(2) appears strong. A preliminary analysis of Cascadia's payment patterns indicates that the historical average payment period was approximately Net 53 (compared to Net 60 contractual terms), while the average payment period during the preference period was approximately Net 58. The modest increase in days-to-pay during the preference period is within the range of normal variation and should support the argument that the preference-period payments were made according to ordinary business terms. A detailed analysis of preference exposure and available defenses is set forth in a separate memorandum dated October 20, 2025, which should be reviewed in conjunction with this memorandum.

IX. Recommendations and Immediate Action Items

Based on the foregoing analysis, we recommend the following immediate action items:

1. Send Immediate Written Notice to Clearwater. Draft and send a formal notice of loss/insolvency event to Thomas Lindgren, Claims Adjuster, at Clearwater Surety & Insurance Co., 1600 Market Street, Suite 2400, Philadelphia, PA 19103, no later than October 25, 2025. The notice should identify the debtor (Cascadia Home & Lifestyle Inc.), the insolvency event (voluntary Chapter 11 petition filed October 14, 2025), the case number (25-12087, Bankr. D. Del.), the total outstanding receivable ($14,726,418.37, comprising 83 unpaid invoices), and the applicable buyer-specific sub-limit ($5,000,000.00). The notice should be sent via overnight courier with tracking and signature confirmation, and via certified mail, return receipt requested. Calderwood & Harkness will prepare a draft notice for Meridian's review and transmittal by no later than October 24, 2025.

2. Preserve and Organize Supporting Documentation. Instruct Douglas Hargrove, VP of Finance, to immediately compile and preserve all documentation necessary to substantiate the insurance claim and the proof of claim in the Bankruptcy Case. This includes: (a) complete copies of all 83 outstanding invoices (MCB-092174 through MCB-095301); (b) proof of delivery for each shipment (shipping records, bills of lading, delivery receipts, and signed acknowledgments); (c) purchase orders corresponding to each invoice; (d) complete accounts receivable aging reports and payment history for the Cascadia account; (e) the Chapter 11 petition, notice of commencement, and case docket; (f) all demand letters, payment reminders, and default notices sent to Cascadia; and (g) the Master Supply Agreement and any amendments establishing trade terms. These materials should be organized in a dedicated file and preserved in both hard copy and electronic format.

3. Clarify Subrogation and Claims-Filing Protocol. Engage Thomas Lindgren at Clearwater to determine whether Clearwater intends to file its own subrogated proof of claim in the Bankruptcy Case or will authorize Meridian to file the full claim amount and remit subrogated distributions to Clearwater from any estate recoveries. This discussion should be initiated promptly and concluded well in advance of the estimated bar date of January 15, 2026. If Clearwater elects to file a separate claim, Clearwater will need adequate notice of the bar date and sufficient documentation to prepare its filing. If Clearwater authorizes Meridian to continue asserting the full claim, the parties should memorialize the arrangement in a written agreement.

4. File Proof of Claim for Full Amount. Prepare and file the proof of claim in the Bankruptcy Case for the full amount of $14,726,418.37, disclosing the existence of the Clearwater Policy (Policy No. TCI-2024-00783), the potential insurance recovery (net $4,500,000.00), and Clearwater's potential subrogation interest. The proof of claim should not be reduced by the anticipated insurance recovery at the time of filing. Rather, the proof of claim should note the insurance coverage and subrogation interest so that the debtor, the Committee, and the Court are aware of the potential reduction once insurance proceeds are received. The proof of claim must be filed on or before the bar date (estimated January 15, 2026).

5. Coordinate Insurance Proceeds with Bankruptcy Recoveries. Upon receipt of insurance proceeds from Clearwater (expected on or after approximately April 12, 2026), take appropriate steps to reflect the insurance recovery in the Bankruptcy Case. This may include amending the proof of claim, filing a notice with the Court, and/or providing written notification to debtor's counsel and Committee counsel (Garvey & Holbrook LLP). Ensure that the insurance proceeds are allocated against the general unsecured portion of the claim, not against the Section 503(b)(9) administrative expense claim, to maximize total recovery.

6. Review Policy "Tail" Provisions. Review the Policy's provisions regarding coverage for claims arising from insolvency events that occur during the policy period but for which the waiting period or claim payment extends beyond the policy expiration date of December 31, 2025. Confirm that the Policy provides adequate "tail" or "run-off" coverage. If there is any ambiguity in the Policy's language, or if the Policy lacks an explicit run-off provision, consider requesting a written confirmation or endorsement from Clearwater affirming that coverage for the Cascadia claim will be honored notwithstanding the expiration of the Policy period.

7. Monitor Critical Vendor Payment and Coordinate with Insurance Claim. If the critical vendor motion is approved by the Court (hearing scheduled November 5, 2025) and Meridian receives the $2,500,000.00 critical vendor payment, promptly notify Clearwater and confirm in writing that the critical vendor payment does not reduce the insured loss under the Policy. The critical vendor payment represents a partial recovery on the pre-petition claim from the bankruptcy estate, not an insurance payment, and should not be credited against the insured loss for purposes of the insurance claim calculation.

8. Calendar Key Dates. The following dates should be calendared and monitored:

X. Conclusion

Meridian's trade credit insurance with Clearwater Surety & Insurance Co. provides meaningful but partial mitigation of Meridian's exposure to the Cascadia bankruptcy. The Policy's Cascadia-specific sub-limit of $5,000,000.00, net of the 10% co-insurance retention of $500,000.00, yields an expected net insurance recovery of $4,500,000.00 — approximately 30.6% of Meridian's total pre-petition claim of $14,726,418.37. After application of the insurance recovery, the remaining uninsured balance of $10,226,418.37 must be pursued through the bankruptcy estate via administrative expense claims, critical vendor payments, and general unsecured distributions.

Prompt and careful coordination between the insurance claim and the bankruptcy proceedings is essential to maximize total recovery and to avoid jeopardizing either the insurance claim or the bankruptcy distribution. Key priorities include: (a) sending timely notice to Clearwater by October 25, 2025; (b) assembling and preserving comprehensive supporting documentation; (c) clarifying the subrogation and claims-filing protocol with Clearwater before the estimated bar date; (d) filing the proof of claim for the full amount with appropriate disclosures; and (e) strategically allocating insurance proceeds against the general unsecured portion of the claim to maximize the aggregate recovery.

Calderwood & Harkness will prepare the notice to Clearwater and coordinate with Meridian's finance team on documentation assembly. We will also engage Thomas Lindgren at Clearwater to initiate the claims-filing discussion and will monitor all key dates and developments in the Bankruptcy Case.

This memorandum should be treated as privileged and confidential. It should not be shared with the Official Committee of Unsecured Creditors, Committee counsel (Garvey & Holbrook LLP), the debtor, or any other party without prior consultation with Calderwood & Harkness LLP. The analysis and recommendations set forth herein are based on the information currently available and are subject to revision as additional facts and developments emerge in the Bankruptcy Case and the insurance claims process.

Please do not hesitate to contact me with any questions or if you would like to discuss any of the foregoing in further detail.

Gabrielle Moss Associate, Bankruptcy & Restructuring Calderwood & Harkness LLP One Liberty Plaza, 47th Floor New York, NY 10006 Tel: (212) 558-4000

Email: gabrielle.moss@calderwoodharkness.com

cc: File (Matter No. 1011-00002)

Item	Detail
Insurer	Clearwater Surety & Insurance Co.
Insurer Address	1600 Market Street, Suite 2400, Philadelphia, PA 19103
Policy Number	TCI-2024-00783
Policy Period	January 1, 2025 through December 31, 2025
Named Insured	Meridian Consumer Brands LLC (EIN: 83-2947156)
Insured Address	575 Lexington Avenue, 22nd Floor, New York, NY 10022
Assigned Claims Adjuster	Thomas Lindgren, Clearwater Surety & Insurance Co.
Line Item	Amount
Cascadia buyer-specific sub-limit	$5,000,000.00
Less: Co-insurance retention (10%)	($500,000.00)
Net expected insurance recovery	$4,500,000.00
Line Item	Amount
Total pre-petition receivables	$14,726,418.37
Less: Net insurance recovery	($4,500,000.00)
Uninsured claim balance	$10,226,418.37
Recovery Source	Estimated Amount	Timing / Status
Clearwater insurance (net of co-insurance)	$4,500,000.00	After 180-day waiting period (~April 12, 2026)
§ 503(b)(9) administrative expense claim	$1,847,200.00	To be paid in full upon plan effective date or as ordered by the Court
Critical vendor payment (if approved)	$2,500,000.00	Pending approval of critical vendor motion (hearing Nov. 5, 2025)
General unsecured distribution	TBD	Subject to plan confirmation; estimated unsecured claims pool $180M–$220M
Line Item	Amount
Total pre-petition claim	$14,726,418.37
Less: Insurance recovery (net of co-insurance)	($4,500,000.00)
Less: § 503(b)(9) administrative expense claim (if allowed and paid in full)	($1,847,200.00)

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
This memorandum is protected from disclosure by the attorney-client privilege and the work product doctrine. It has been prepared by counsel at Calderwood & Harkness LLP in anticipation of litigation and for the purpose of providing legal advice to the client, Meridian Consumer Brands LLC. This memorandum contains the mental impressions, conclusions, opinions, and legal theories of counsel. It is not to be disclosed to any third party — including, without limitation, the Official Committee of Unsecured Creditors, Committee counsel, any other creditor, or the debtor — without the prior written approval of Calderwood & Harkness LLP. Any unauthorized disclosure may result in waiver of applicable privileges.
MEMORANDUM
TO:
Colette Whitman, Responsible Partner, Bankruptcy & Restructuring, Calderwood & Harkness LLP Nathan Ikeda, Lead Associate, Bankruptcy & Restructuring, Calderwood & Harkness LLP Priya Anand, General Counsel, Meridian Consumer Brands LLC
FROM:
Gabrielle Moss, Associate, Bankruptcy & Restructuring, Calderwood & Harkness LLP
DATE: October 22, 2025
RE: Trade Credit Insurance Claim Analysis — Clearwater Surety & Insurance Co. Policy No. TCI-2024-00783 — Cascadia Home & Lifestyle Inc. Chapter 11 (Case No. 25-12087, Bankr. D. Del.)
MATTER NO.: 1011-00002
Right-click to update Table of Contents
I. Executive Summary
Meridian Consumer Brands LLC ("Meridian" or the "Company") holds approximately $14,726,418.37 in outstanding pre-petition trade receivables from Cascadia Home & Lifestyle Inc. ("Cascadia" or the "Debtor"), which filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") on October 14, 2025, in the United States Bankruptcy Court for the District of Delaware (Case No. 25-12087, the Honorable Christine M. Aldridge presiding) (the "Bankruptcy Case"). Cascadia was Meridian's fourth-largest customer by revenue and a significant buyer of Meridian's consumer home goods product lines. The filing was not unexpected — Cascadia had been subject to substantial vendor tightening and liquidity pressures throughout the third quarter of 2025 — but the magnitude of Meridian's exposure at the time of filing is substantial and warrants careful analysis of all available recovery avenues.
Meridian maintains a trade credit insurance policy with Clearwater Surety & Insurance Co. ("Clearwater") under Policy No. TCI-2024-00783 (the "Policy"), which provides coverage for losses arising from buyer default or insolvency with respect to certain covered trade receivables. Cascadia is a named covered buyer under the Policy, with a buyer-specific sub-limit of $5,000,000.00. The Policy imposes a 10% co-insurance retention on covered losses, resulting in a co-insurance retention amount of $500,000.00. Accordingly, the net expected insurance recovery under the Policy is $4,500,000.00.
After application of the anticipated insurance recovery, Meridian's uninsured claim balance stands at $10,226,418.37. This uninsured balance must be recovered, to the extent possible, through the bankruptcy estate — whether through administrative priority claims under Section 503(b)(9) of the Bankruptcy Code, reclamation demands under Section 546(c), critical vendor payments, or general unsecured distributions under a confirmed Chapter 11 plan.
The purpose of this memorandum is to provide a comprehensive analysis of the following issues:
(a) the Policy's coverage terms, including the applicable sub-limit, co-insurance retention, and insolvency trigger;
(b) the notice and claim-submission requirements under the Policy and the timeline for compliance;
(c) the 180-day waiting period before Clearwater's payment obligation matures;
(d) the coordination of insurance proceeds with Meridian's bankruptcy claim, including the avoidance of double recovery and the strategic allocation of insurance proceeds across Meridian's multiple claim categories;
(e) Clearwater's subrogation rights upon payment of the insurance claim and the practical implications for claims administration in the Bankruptcy Case;
(f) the interaction between Meridian's potential preference exposure and its insurance claim; and
(g) recommended immediate next steps and a calendar of key dates.
This memorandum is intended to guide the team's approach to the insurance claim and its interface with the Bankruptcy Case, and should be read in conjunction with the separate memorandum on preference exposure dated October 20, 2025.
II. Overview of the Clearwater Policy
A. Policy Identification and Term
The key identifying information for the Policy is as follows:
The Policy is currently in force and will not expire until December 31, 2025. However, because the 180-day waiting period for the Cascadia claim will not conclude until approximately April 12, 2026 — well after the Policy's expiration date — confirmation of the Policy's "tail" or "run-off" provisions is essential. This issue is discussed further in Section IX, Recommendation No. 6 below.
B. Coverage Structure
The Policy is a trade credit insurance policy that covers losses arising from buyer default or insolvency with respect to covered trade receivables. Trade credit insurance of this type is designed to protect the insured seller against the risk that a buyer will fail to pay for goods or services delivered on trade credit terms due to the buyer's financial inability or unwillingness to pay. The Policy functions as a partial hedge against credit risk; it does not provide full coverage for all trade receivables but instead establishes buyer-specific sub-limits that cap the insurer's exposure to any single buyer's default.
Coverage under the Policy is organized by buyer-specific sub-limits. Each approved buyer is assigned a maximum coverage amount, and the Policy maintains a schedule of named covered buyers and their corresponding sub-limits. Cascadia Home & Lifestyle Inc. is a named covered buyer on this schedule. The Cascadia-specific sub-limit under the Policy is $5,000,000.00.
This sub-limit represents the maximum aggregate amount payable under the Policy for all losses attributable to Cascadia's default or insolvency, regardless of the total amount of outstanding receivables owed by Cascadia to Meridian at the time of the loss event. In this case, because Meridian's total outstanding receivables from Cascadia ($14,726,418.37) substantially exceed the sub-limit ($5,000,000.00), the Policy will cover only a portion of the total loss. The excess amount — $9,726,418.37 above the sub-limit, plus the co-insurance retention discussed below — represents uninsured exposure that Meridian must seek to recover through the Bankruptcy Case.
C. Co-Insurance Retention
In addition to the buyer-specific sub-limit, the Policy imposes a co-insurance retention requirement. Specifically, the Policy provides for a 10% co-insurance retention on all covered losses. The co-insurance retention operates as a form of risk-sharing between Meridian and Clearwater: Meridian bears the first 10% of any covered loss within the applicable sub-limit, and Clearwater is responsible for the remaining 90%.
The co-insurance retention calculation for the Cascadia claim is as follows:
• Cascadia sub-limit: $5,000,000.00
• Co-insurance retention rate: 10%
• Co-insurance retention amount: 10% × $5,000,000.00 = $500,000.00
• Net coverage after co-insurance: $5,000,000.00 – $500,000.00 = $4,500,000.00
The practical effect of the co-insurance retention is that Meridian will bear the first $500,000.00 of loss within the insured sub-limit portion of the claim, and Clearwater will pay the remaining $4,500,000.00. This co-insurance mechanism is standard in the trade credit insurance market and is designed to align the insured's incentives with prudent credit management practices by ensuring the insured retains meaningful "skin in the game" on each covered buyer.
D. Insolvency / Loss Trigger
The Policy defines an "insolvency event" to include, among other qualifying events, the filing of a voluntary or involuntary petition for relief under the United States Bankruptcy Code. The Policy does not require that a buyer be adjudicated as insolvent or that a particular level of non-payment be demonstrated; rather, the filing of a bankruptcy petition is, in itself, a qualifying trigger for coverage.
Cascadia's voluntary Chapter 11 petition was filed on October 14, 2025, in the United States Bankruptcy Court for the District of Delaware. This filing constitutes a qualifying insolvency event under the Policy's defined terms. Accordingly, the Policy has been triggered with respect to Cascadia, and Meridian's right to submit a claim under the Policy has arisen.
For purposes of calculating the 180-day waiting period (discussed in Section IV below), the "date of loss" under the Policy is the date of the insolvency event — i.e., October 14, 2025, the petition date. There is no ambiguity regarding the date of loss in this instance, as the voluntary petition filing provides a clear, objectively determinable event date.
III. Covered Claim Amount and Calculation
A. Total Pre-Petition Receivables
As of the petition date of October 14, 2025, Meridian's outstanding pre-petition trade receivables from Cascadia totaled $14,726,418.37. This balance comprises 83 unpaid invoices spanning a date range from July 18, 2025 (the oldest outstanding invoice, Invoice No. MCB-092174, in the amount of $212,600.00) through October 10, 2025 (the most recent invoice, Invoice No. MCB-095301, in the amount of $187,440.50).
The trade terms governing the Meridian-Cascadia commercial relationship are Net 60, with a 2% early payment discount available to Cascadia for payments made within 15 days of invoice date (Net 15). Historically, Cascadia took advantage of the early payment discount on approximately 35% of invoices by dollar volume, though the frequency of early payment had declined significantly in the months leading up to the bankruptcy filing. In the final 90 days before the petition date, Cascadia did not take the early payment discount on any invoices.
Cascadia was Meridian's fourth-largest customer by revenue for fiscal year 2024, with total sales to Cascadia of approximately $58.3 million in FY2024. The Meridian-Cascadia commercial relationship spans approximately seven years, and Meridian supplied Cascadia with a range of consumer home goods, including kitchen and bath products, home décor, and seasonal merchandise. The magnitude of the receivable balance at the time of filing reflects both the volume of the commercial relationship and Cascadia's progressive slowdown in payments during the third quarter of 2025.
B. Insurance Recovery Calculation
The insurance recovery calculation under the Policy is straightforward:
The uninsured claim balance — i.e., the amount of Meridian's claim that is not covered by the Policy and that must be recovered, if at all, through the bankruptcy estate — is calculated as follows:
The uninsured balance of $10,226,418.37 represents Meridian's net economic exposure to the Cascadia bankruptcy after giving effect to the anticipated insurance recovery. This amount must be recovered through available bankruptcy mechanisms, including the general unsecured claim, the Section 503(b)(9) administrative expense claim, the reclamation demand, and any critical vendor payment. Each of these recovery avenues is discussed below.
C. Relationship to Other Claim Categories
Meridian's recovery strategy in the Bankruptcy Case involves multiple, overlapping claim categories, each of which must be coordinated with the insurance recovery. These categories are as follows:
Section 503(b)(9) Administrative Expense Claim. Meridian has asserted an administrative expense claim under Section 503(b)(9) of the Bankruptcy Code in the amount of $1,847,200.00, representing the value of goods received by Cascadia in the ordinary course of business within 20 days before the petition date (i.e., during the period from September 24, 2025 through October 14, 2025). Section 503(b)(9) claims are entitled to administrative expense priority and, if allowed, are required to be paid in full as a condition of plan confirmation. This is Meridian's highest-priority claim category.
Section 546(c) Reclamation Demand. Meridian has also made a written reclamation demand under Section 546(c) of the Bankruptcy Code for approximately $3,218,650.00 in goods delivered to Cascadia within the 45-day pre-petition window (i.e., during the period from August 30, 2025 through October 14, 2025). The reclamation amount includes the $1,847,200.00 in goods covered by the Section 503(b)(9) claim. The reclamation demand provides an additional basis for asserting priority treatment or, at minimum, supports the administrative expense claim. However, in practice, reclamation rights are often subordinated to the rights of secured creditors holding liens on inventory, and the practical recovery on a reclamation claim in a Chapter 11 case is frequently limited. Cascadia's inventory is subject to a first-priority lien in favor of its asset-based lending facility with Blackridge Capital Partners, which may limit the practical utility of the reclamation demand.
Critical Vendor Payment. Meridian has been designated as a critical vendor under Cascadia's first-day critical vendor motion (Dkt. No. 24). The critical vendor motion proposes the payment of up to $2,500,000.00 of Meridian's pre-petition claims in exchange for Meridian's agreement to continue supplying Cascadia on customary trade terms during the Chapter 11 case. The critical vendor motion has not yet been approved by the Court; a hearing is scheduled for November 5, 2025. If approved and paid, the critical vendor payment will reduce Meridian's pre-petition claim amount but will also provide immediate liquidity recovery and preserve the commercial relationship.
General Unsecured Claim. The balance of Meridian's pre-petition claim, after deducting the Section 503(b)(9) administrative claim, the critical vendor payment (if approved), and the insurance recovery, will be treated as a general unsecured claim in the Bankruptcy Case. General unsecured claims will receive a pro rata distribution under the Chapter 11 plan based on the assets available for distribution to that class.
Strategic Allocation of Insurance Proceeds. The insurance proceeds should be allocated against the general unsecured claim portion of Meridian's total claim, rather than against the Section 503(b)(9) administrative expense claim. The rationale for this allocation is straightforward: the Section 503(b)(9) claim is entitled to payment in full as an administrative expense, and reducing it by the insurance recovery would waste insurance proceeds on a claim category that is already expected to be paid at 100 cents on the dollar. By contrast, the general unsecured claim is expected to receive only a modest percentage distribution. Allocating insurance proceeds against the general unsecured portion maximizes Meridian's total recovery across all categories. The methodology and legal basis for this allocation are discussed further in Section VI below.
IV. Waiting Period and Claim Timeline
A. 180-Day Waiting Period
The Policy imposes a 180-day waiting period measured from the date of loss or the insolvency event before Clearwater's obligation to pay the claim becomes due. This waiting period is a standard feature of trade credit insurance policies and serves two principal purposes: (a) it provides a window during which the insured may pursue collection efforts against the buyer (or, in the case of a bankruptcy, during which distributions or other partial recoveries may occur); and (b) it allows the insurer time to investigate the claim, verify the loss, and assess potential subrogation recoveries.
The waiting period calculation for the Cascadia claim is as follows:
• Insolvency event / date of loss: October 14, 2025
• Waiting period duration: 180 days
• Earliest date Clearwater is obligated to pay: approximately April 12, 2026
During the 180-day waiting period, Clearwater will evaluate and process the claim. Clearwater's claims adjuster, Thomas Lindgren, will review the submitted documentation, verify the loss amounts, and assess compliance with Policy terms. However, Clearwater is not required to make payment until the waiting period has expired. This means that Meridian should not expect to receive insurance proceeds until mid-April 2026 at the earliest, and possibly later if Clearwater raises questions about coverage or requests additional documentation.
It is important to note that the waiting period does not toll or extend Meridian's obligation to provide timely notice of the loss or to comply with other Policy requirements. Notice and documentation obligations run independently of the waiting period and must be satisfied promptly, as discussed in Section V below.
B. Timeline Considerations
Several important timeline considerations intersect with the 180-day waiting period:
Estimated General Bar Date. Based on the Court's typical scheduling practices in Chapter 11 cases of this size and complexity, the general bar date for filing proofs of claim in the Cascadia case is estimated at approximately January 15, 2026. The bar date has not yet been formally set by the Court, but first-day filings in the case include a motion to establish a bar date, and we expect the Court to set the bar date at the November 5, 2025 omnibus hearing. The estimated bar date of January 15, 2026 falls within the 180-day waiting period — meaning that Meridian will need to file its proof of claim before receiving any insurance proceeds from Clearwater. This has important implications for how the proof of claim is prepared and what disclosures are made regarding the insurance coverage. These issues are addressed in Section VI below.
Policy Expiration. The Policy expires on December 31, 2025. Cascadia's insolvency event occurred on October 14, 2025 — during the Policy period — and the claim arises from that in-period insolvency event. Accordingly, coverage should survive the Policy's expiration date for purposes of claim payment. Most trade credit insurance policies contain "tail" or "run-off" provisions that expressly preserve coverage for claims arising from insolvency events or losses that occur during the policy period, even if the waiting period or claim payment extends beyond the policy's expiration. However, this is a critical issue that must be confirmed by reviewing the specific language of the Policy. If the Policy lacks an adequate run-off provision, or if there is any ambiguity in the Policy's language regarding post-expiration claims, Meridian should consider requesting a written confirmation or endorsement from Clearwater affirming that coverage will be honored notwithstanding the expiration of the Policy period. This recommendation is included in Section IX below.
Proof of Claim Filing. Meridian should not wait for the receipt of insurance proceeds before filing its proof of claim in the Bankruptcy Case. The proof of claim should be filed for the full amount of $14,726,418.37, with appropriate disclosures regarding the existence of the Clearwater Policy and the potential insurance recovery. Delaying the filing of the proof of claim could result in the claim being barred by the bar date deadline, which would be a catastrophic and irrecoverable error. Moreover, filing for the full amount preserves Meridian's rights and ensures that Clearwater's subrogation interest is protected. The mechanics of coordinating the proof of claim with the insurance recovery are discussed in Section VI below.
V. Notice and Claim Submission Requirements
A. Initial Notice of Loss
The Policy requires prompt written notice of any insolvency event or buyer default to Clearwater. The notice obligation is a condition precedent to coverage, and failure to provide timely notice could provide Clearwater with a basis to deny or delay the claim. Most trade credit insurance policies require notice within 30 days of the date on which the insured becomes aware of, or reasonably should have become aware of, the insolvency event or buyer default.
Cascadia's Chapter 11 petition was filed on October 14, 2025. Meridian became aware of the filing on the same date (Meridian was listed on Cascadia's list of 30 largest unsecured creditors and received direct notice from the debtor's counsel). Assuming a 30-day notice window, the deadline for providing written notice to Clearwater is approximately November 13, 2025. However, we strongly recommend that Meridian not approach this outer boundary. Prompt notice demonstrates good faith, facilitates the claims process, and eliminates any risk that Clearwater could argue prejudice from late notice.
We recommend that Meridian send formal written notice to Clearwater no later than October 25, 2025 — within the next several business days. Calderwood & Harkness will prepare a draft notice letter for Meridian's review and transmittal.
The notice should be sent to:
Thomas Lindgren Claims Adjuster Clearwater Surety & Insurance Co. 1600 Market Street, Suite 2400 Philadelphia, PA 19103
We recommend sending the notice via both overnight courier (Severin Partners LLC or Halcyon Partners LLC, with tracking and signature confirmation) and certified mail, return receipt requested, to establish a clear and verifiable record of delivery. In addition, a courtesy copy should be sent via email to Thomas Lindgren's business email address, if available.
The notice should include the following information:
(a) Named Buyer: Cascadia Home & Lifestyle Inc.
(b) Insolvency Event: Voluntary petition for relief under Chapter 11 of the Bankruptcy Code, filed October 14, 2025, in the United States Bankruptcy Court for the District of Delaware.
(c) Case Information: Case No. 25-12087, the Honorable Christine M. Aldridge presiding.
(d) Total Outstanding Receivable: $14,726,418.37, comprising 83 unpaid invoices dated July 18, 2025 through October 10, 2025.
(e) Applicable Sub-Limit: $5,000,000.00 (Cascadia buyer-specific sub-limit).
(f) Policy Number: TCI-2024-00783.
(g) Contact Information: Identify the appropriate contacts at Meridian (Priya Anand, General Counsel, and Douglas Hargrove, VP of Finance) and at Calderwood & Harkness (Colette Whitman, Responsible Partner, and Gabrielle Moss, Associate) for purposes of claim correspondence.
B. Documentation for Claim Submission
Following the initial notice of loss, the Policy will require the submission of supporting documentation to substantiate the covered loss. Clearwater's claims adjuster will likely provide a formal claims package or documentation checklist, but Meridian should begin assembling the following materials immediately so that they are available for prompt submission:
1. Invoices. Complete copies of all 83 outstanding invoices (Invoice Nos. MCB-092174 through MCB-095301), including face amounts, invoice dates, due dates, and applicable payment terms. Each invoice should clearly reflect the goods or services provided, the unit pricing, and any applicable discounts or adjustments.
2. Proof of Delivery. Shipping records, bills of lading, delivery receipts, and signed acknowledgments of receipt by Cascadia or its agents (including any third-party logistics providers used by Cascadia) for each shipment underlying the unpaid invoices. Proof of delivery is a critical element of the claims documentation, as it establishes that Meridian performed its obligations under the sale transaction and that the receivables represent bona fide debts owed by Cascadia.
3. Purchase Orders. Copies of all Cascadia purchase orders corresponding to each of the 83 outstanding invoices. The purchase orders should confirm the quantities ordered, the agreed-upon pricing, and the applicable trade terms.
4. Payment History. A complete ledger or accounts receivable aging report showing all payments received from Cascadia during the relevant period, including the 14 payments totaling approximately $8,430,000 received during the 90-day preference period (July 16, 2025 through October 14, 2025). This payment history will be necessary to demonstrate the amount of the unpaid balance and to establish the pattern of payment behavior, which is also relevant to the ordinary course of business defense against potential preference claims.
5. Bankruptcy Filing Confirmation. A copy of Cascadia's Chapter 11 petition, the notice of commencement issued by the Bankruptcy Court, and the relevant case docket entries confirming the filing date, case number, and assigned judge. These documents provide objective verification of the insolvency event that triggers coverage under the Policy.
6. Correspondence. Copies of any demand letters, payment reminders, past-due notices, or default communications sent by Meridian to Cascadia prior to the bankruptcy filing. These records demonstrate that Meridian took reasonable steps to collect the receivables prior to the insolvency event.
7. Trade Terms Documentation. A copy of the Master Supply Agreement between Meridian and Cascadia (most recently amended March 15, 2024), or other terms-of-sale documentation establishing the Net 60 payment terms, the 2% early payment discount at Net 15, and other applicable commercial terms. The Master Supply Agreement also contains provisions regarding warranties, returns, and credit adjustments that may be relevant to calculating the net covered loss.
8. Proof of Claim. Once filed, a copy of the proof of claim submitted in the Bankruptcy Case, including all supporting exhibits and schedules. The proof of claim should be provided to Clearwater as part of the ongoing documentation obligation.
We recommend that Priya Anand instruct Douglas Hargrove (VP of Finance) to immediately begin compiling and organizing these materials in a dedicated file, both in hard copy and electronic format. Calderwood & Harkness can assist in reviewing the assembled documentation for completeness and accuracy before submission to Clearwater.
C. Ongoing Reporting Obligations
Most trade credit insurance policies impose ongoing reporting obligations on the insured throughout the pendency of a claim. These obligations typically require the insured to keep the insurer informed of material developments related to collection efforts, legal proceedings, and any partial recoveries. In the context of a bankruptcy case, this means Meridian should provide Clearwater with copies of or updates regarding the following:
• The bar date notice, once established by the Court;
• Meridian's proof of claim (including any amendments);
• Significant bankruptcy filings, including motions for relief from stay, disclosure statements, and plan documents;
• Any distributions received from the estate;
• The status of the critical vendor motion and any critical vendor payments received;
• The status of the Section 503(b)(9) administrative expense claim;
• Any preference demands or adversary proceedings initiated by the debtor or a trustee against Meridian;
• Plan confirmation proceedings and any plan distributions; and
• Any sale process developments (e.g., Section 363 sales) that may affect the value of the estate and the expected recovery for unsecured creditors.
Failure to cooperate with Clearwater or to provide the required status updates could jeopardize coverage under the Policy. Clearwater may assert that non-compliance with reporting obligations constitutes a breach of the Policy's conditions, potentially providing a basis for claim denial or reduction. Meridian should designate a single point of contact — we suggest Douglas Hargrove, with oversight from Priya Anand — to manage the ongoing reporting relationship with Clearwater's claims adjuster.
VI. Coordination of Insurance Proceeds with Bankruptcy Claim
A. Avoidance of Double Recovery
A fundamental principle governing the intersection of insurance recoveries and bankruptcy claims is the prohibition against double recovery: a creditor cannot recover more than the total amount of its claim through the combined effect of insurance proceeds and bankruptcy distributions. This principle is grounded both in the general equitable principles underlying the Bankruptcy Code and in the terms of the insurance policy itself, which typically limits coverage to the insured's actual net loss.
Meridian's total claim against Cascadia is $14,726,418.37. If Clearwater pays the full net insured amount of $4,500,000.00 (after application of the 10% co-insurance retention), Meridian's remaining claim against the bankruptcy estate is the uninsured balance of $10,226,418.37. Meridian cannot receive aggregate recoveries — from all sources, including insurance proceeds, administrative expense payments, critical vendor payments, and general unsecured distributions — that exceed the total claim amount of $14,726,418.37.
Upon receipt of insurance proceeds, Meridian must evaluate whether to reduce its proof of claim by the insured amount or whether Clearwater, as subrogee, will file its own proof of claim for the subrogated amount. The preferred approach depends on several factors, including Clearwater's willingness to file a separate claim, the administrative convenience of a single or dual filing, and the treatment of subrogation claims in the Bankruptcy Case. These issues are discussed further in Section VII below.
B. Allocation of Insurance Proceeds Across Claim Categories
As noted above, Meridian holds claims in multiple categories within the Bankruptcy Case:
(a) General unsecured claim — the bulk of the receivable balance;
(b) Section 503(b)(9) administrative expense claim — $1,847,200.00 for goods received by Cascadia within 20 days before the petition date;
(c) Reclamation claim under Section 546(c) — approximately $3,218,650.00 in goods delivered within the 45-day pre-petition window (inclusive of the Section 503(b)(9) goods); and
(d) Critical vendor payment — $2,500,000.00, if the critical vendor motion is approved by the Court.
The Clearwater Policy covers trade receivables generally and does not, on its face, distinguish between the administrative and general unsecured portions of the insured's claim. However, the strategic allocation of insurance proceeds across these claim categories has significant implications for Meridian's total recovery.
Recommended Allocation Approach. We recommend that insurance proceeds be allocated against the general unsecured portion of Meridian's claim, not against the Section 503(b)(9) administrative expense claim. The rationale is as follows:
• The Section 503(b)(9) administrative expense claim is entitled to payment in full as a condition of plan confirmation under Section 1129(a)(9) of the Bankruptcy Code. If the claim is allowed, it should be paid at 100 cents on the dollar. Reducing the administrative expense claim by the insurance recovery would effectively waste insurance proceeds on a claim that would have been paid in full regardless.
• The general unsecured claim, by contrast, is expected to receive only a modest percentage distribution — likely in the single digits, given the size of Cascadia's funded debt ($1.379 billion), its negative EBITDA ($42 million), and the estimated total unsecured claims pool ($180 million to $220 million). Each dollar of insurance recovery allocated against the general unsecured claim displaces a dollar that would have received only pennies on the dollar in distribution, thereby maximizing the net economic benefit to Meridian.
• This allocation approach is consistent with general insurance law principles, which provide that insurance proceeds are applied to the insured's actual out-of-pocket loss. Because the administrative claim is expected to be paid in full by the estate, it does not represent a "loss" for insurance purposes to the same extent as the general unsecured claim.
Coordination with Critical Vendor Payment. If the critical vendor motion is approved and Meridian receives the $2,500,000.00 critical vendor payment, this payment constitutes a partial recovery on Meridian's pre-petition claim. The critical vendor payment reduces the total outstanding receivable and, by extension, reduces the amount of the general unsecured claim. However, the critical vendor payment should not be treated as reducing the insured loss under the Policy.
The distinction is important: the critical vendor payment is a recovery from the bankruptcy estate — essentially an accelerated distribution on a pre-petition claim — and not an insurance payment or a recovery from Cascadia outside of the bankruptcy. To the extent Clearwater might argue that the critical vendor payment represents a "recovery" that reduces the covered loss under the Policy, Meridian should be prepared to respond that the critical vendor payment is a distribution from the estate and does not affect the calculation of the insured loss at the time of the insolvency event. The loss crystallized on the petition date at $14,726,418.37, and subsequent estate distributions do not retroactively reduce the insured loss amount — though they may need to be credited against the total claim to avoid double recovery. The key point is that the insurance proceeds and the critical vendor payment should be treated as separate and independent recovery streams, subject only to the overarching prohibition on aggregate recovery exceeding the total claim amount.
Meridian should proactively notify Clearwater of the critical vendor payment (if and when received) and confirm with Thomas Lindgren that the payment does not reduce the insured loss under the Policy.
C. Timing of Insurance Payment vs. Bankruptcy Distributions
The expected timing of Clearwater's insurance payment (on or after approximately April 12, 2026, following the expiration of the 180-day waiting period) is likely to precede any plan distribution in the Bankruptcy Case. Chapter 11 cases involving debtors of Cascadia's size and complexity typically take 12 to 24 months from the petition date to reach plan confirmation, and distributions often do not occur until several months after the plan effective date. Accordingly, Meridian should plan for the possibility that insurance proceeds will be in hand well before any general unsecured distribution is made.
Proof of Claim Filing. Meridian should file its proof of claim for the full amount of $14,726,418.37, without reduction for the anticipated insurance recovery. The proof of claim should, however, disclose the existence of the Clearwater Policy and the potential insurance recovery, as well as Clearwater's potential subrogation interest. This disclosure is required by Official Bankruptcy Form 410 (Proof of Claim), which asks whether the creditor has received any payments or credits and whether there are any other parties (such as an insurer) that may have a claim related to the debt.
Amendment of Proof of Claim. If and when insurance proceeds are received (whether before or after the bar date), Meridian should take one of the following steps:
(a) Amend the proof of claim to reflect the insurance recovery and the resulting allocation between Meridian's retained claim (the uninsured portion) and Clearwater's subrogated claim (the insured portion); or
(b) Provide notice to the Court, debtor's counsel, and Committee counsel (Garvey & Holbrook LLP) of the insurance recovery and the resulting subrogation interest, without formally amending the proof of claim, if Clearwater intends to file its own separate subrogated proof of claim.
The appropriate approach will depend on the claims-filing protocol agreed upon with Clearwater, as discussed in Section VII below.
VII. Clearwater's Subrogation Rights
A. Nature of Subrogation
Upon payment of the insurance claim, Clearwater will be subrogated to Meridian's rights against Cascadia to the extent of the payment. Subrogation is a fundamental insurance law doctrine that operates to transfer the insured's rights against the responsible party to the insurer, to the extent of the insurer's payment. In this case, upon Clearwater's payment of $4,500,000.00, Clearwater will step into Meridian's shoes with respect to that amount and will have the right to recover $4,500,000.00 from the Cascadia estate.
Clearwater's subrogation right arises by operation of law (equitable subrogation) and is also likely set forth expressly in the Policy (contractual subrogation). The effect of subrogation is that Clearwater becomes a creditor of the Cascadia estate to the extent of its payment, holding a claim that is derivative of — and equal in priority to — Meridian's original claim.
B. Practical Considerations
The practical question is how Clearwater's subrogation interest will be reflected in the claims administration process in the Bankruptcy Case. There are two principal approaches:
Approach 1: Clearwater Files a Separate Subrogated Proof of Claim. Clearwater may elect to file its own proof of claim in the Bankruptcy Case for the subrogated amount of $4,500,000.00. If Clearwater files a separate claim, then Meridian's proof of claim should be reduced to the uninsured balance of $10,226,418.37 (or adjusted to reflect the critical vendor payment and other recoveries). The combined claims of Meridian (uninsured portion) and Clearwater (subrogated portion) should equal the total original claim of $14,726,418.37, ensuring that there is neither under- nor over-recovery from the estate.
Approach 2: Meridian Continues to Assert the Full Claim and Remits Distributions. Alternatively, Clearwater may authorize Meridian to continue asserting the full claim of $14,726,418.37 in the Bankruptcy Case and to collect and remit to Clearwater the pro rata share of any estate distributions attributable to the subrogated portion. Under this approach, Meridian acts as a fiduciary for Clearwater with respect to the subrogated portion and is obligated to account for and distribute Clearwater's share of any recoveries.
Each approach has advantages and disadvantages. Approach 1 is cleaner from a claims administration perspective and avoids any potential disputes between Meridian and Clearwater regarding the allocation or timing of distributions. However, it requires Clearwater to actively participate in the Bankruptcy Case, which Clearwater may be reluctant to do. Approach 2 is simpler for Clearwater but imposes additional administrative and fiduciary obligations on Meridian and may create the potential for disputes regarding the allocation of partial distributions.
We recommend that Meridian engage Thomas Lindgren at Clearwater as soon as practicable to clarify Clearwater's preferred approach. This discussion should occur well in advance of the estimated bar date of January 15, 2026, so that the claims-filing strategy can be finalized and implemented before the bar date. If Clearwater intends to file its own proof of claim, Clearwater will need to be provided with adequate notice of the bar date and sufficient information to prepare and file its claim. If Clearwater authorizes Meridian to file the full claim, the parties should memorialize this understanding in a written agreement or at minimum an exchange of correspondence confirming the arrangement.
C. Cooperation Obligations
The Policy likely contains a cooperation clause requiring Meridian to assist Clearwater in pursuing subrogation recoveries, including participating in litigation, providing testimony, producing documents, and taking other reasonable steps to support Clearwater's recovery efforts. This is a standard provision in trade credit insurance policies and creates binding obligations on the insured.
In most circumstances, the cooperation obligation is unproblematic: Meridian's interest in maximizing recovery from the estate is aligned with Clearwater's interest in recovering the subrogated amount. However, in this case, a potential tension exists due to Meridian's appointment to the Official Committee of Unsecured Creditors (the "Committee").
Meridian has been appointed to the Committee, which was formed on October 28, 2025 (six days after the date of this memorandum, but anticipated based on the U.S. Trustee's scheduling of formation interviews). As a Committee member, Meridian will owe fiduciary duties to the body of unsecured creditors as a whole, not merely to its own individual interests. Committee members receive access to confidential information — including the debtor's financial data, business plans, and negotiation positions — that is subject to non-disclosure obligations. This creates a potential conflict:
• Clearwater may request, as part of its cooperation and subrogation rights, access to information about the Bankruptcy Case, the debtor's financial condition, and the expected level of unsecured distributions.
• Meridian, as a Committee member, may be in possession of confidential Committee information that it is not permitted to share with third parties, including Clearwater.
• To the extent Clearwater's requests for information overlap with confidential Committee materials, Meridian will be unable to comply without violating its fiduciary duties to the Committee.
This tension should be monitored carefully throughout the case. If Clearwater makes requests for information that implicate Committee confidentiality, Meridian should consult with Calderwood & Harkness before responding. In general, Meridian can share publicly available information about the Bankruptcy Case (e.g., docket filings, Court orders, publicly available financial disclosures) with Clearwater without any concern, but should not share non-public Committee deliberations, confidential financial information received in the course of Committee service, or privileged communications with Committee counsel.
VIII. Impact on Meridian's Overall Recovery Analysis
A. Summary of Recovery Sources
The following table summarizes Meridian's anticipated recovery sources for the Cascadia receivable:
The general unsecured distribution will be calculated on the net uninsured balance remaining after application of the insurance recovery, the administrative expense payment, and the critical vendor payment, as detailed in the net exposure analysis below.
B. Net Exposure Analysis
The following table sets forth Meridian's net exposure analysis, showing the sequential application of each recovery source against the total claim:
The recovery on the remaining general unsecured claim of $5,879,218.37 will depend on the terms of the confirmed Chapter 11 plan and the percentage distribution to general unsecured creditors. Based on the information currently available, the recovery prospects for general unsecured creditors appear modest. Key financial metrics for Cascadia include:
• Total funded debt: approximately $1.379 billion, comprising a $475 million first-lien term loan, a $250 million second-lien term loan, $500 million in senior unsecured notes (8.75% due 2027), and a $154 million asset-based revolving credit facility;
• Trailing twelve-month adjusted EBITDA: negative ($42 million), reflecting a significant deterioration in operating performance driven by inventory imbalances, declining consumer demand, and elevated freight and raw material costs;
• Estimated total general unsecured claims pool: $180 million to $220 million, including trade claims, rejection damages, and deficiency claims of undersecured creditors; and
• Chapter 11 strategy: Cascadia has indicated its intention to pursue a dual-track process involving either a standalone plan of reorganization or a sale under Section 363, with an initial bid deadline expected in early 2026.
Given the magnitude of Cascadia's funded debt relative to its enterprise value, and the priority claims ahead of general unsecured creditors (including the first-lien and second-lien secured claims), the general unsecured recovery is expected to be in the low single digits as a percentage of allowed claims. Broadleaf Advisory Group LLC (engagement contact: Robert Tanaka), which has been retained as financial advisor to the Committee, is expected to provide preliminary recovery estimates in due course following completion of its review of the debtor's financial projections and valuation analyses.
Assuming, for illustrative purposes, a general unsecured recovery rate of approximately 5%, Meridian's estimated distribution on its remaining general unsecured claim would be:
$5,879,218.37 × 5% = approximately $293,961
This would bring Meridian's estimated total recovery from all sources to approximately:
$4,500,000 (insurance) + $1,847,200 (§ 503(b)(9)) + $2,500,000 (critical vendor) + $293,961 (general unsecured distribution) = approximately $9,141,161
Against the total claim of $14,726,418.37, this represents an aggregate recovery rate of approximately 62.1%, implying a net loss to Meridian of approximately $5,585,257. While this is a significant loss, it is substantially mitigated by the insurance recovery and the administrative/critical vendor payments. Without the insurance coverage, Meridian's estimated total recovery would be approximately $4,641,161, representing an aggregate recovery rate of only approximately 31.5%.
C. Preference Exposure Interaction
An additional factor that may affect the insurance claim analysis is Meridian's potential preference exposure under Section 547 of the Bankruptcy Code.
During the 90-day preference period (July 16, 2025 through October 14, 2025), Meridian received approximately $8,430,000 in payments from Cascadia across 14 separate payments. These payments are potentially avoidable as preferences under Section 547(b) if the debtor (or a Chapter 11 trustee or examiner) can demonstrate that each payment was (i) to or for the benefit of a creditor, (ii) for or on account of an antecedent debt, (iii) made while the debtor was insolvent, (iv) made within 90 days before the petition date, and (v) enabled the creditor to receive more than it would have received in a Chapter 7 liquidation.
If any of these payments are avoided and returned to the estate, the resulting increase in Meridian's outstanding receivable could potentially increase the insured loss under the Policy, subject to the Policy's terms regarding "claim" definitions and loss amounts. Specifically, if preference payments are disgorged, the total outstanding receivable at the date of loss would effectively increase (or, more precisely, would be recalculated to include the disgorged amounts), and the insured loss could increase correspondingly — though the Cascadia sub-limit of $5,000,000 would remain the cap on covered loss.
Conversely, the relationship between preference disgorgement and the insurance claim raises the question of whether a preference payment that is subsequently returned to the estate constitutes a "new or increased loss event" or an "adjustment to the original loss amount" under the Policy. The answer depends on the specific Policy language, and Meridian should review the Policy's definitions of "loss," "claim," and "recovered amounts" to determine how preference disgorgement would be treated.
On the positive side, Meridian's ordinary course of business defense under Section 547(c)(2) appears strong. A preliminary analysis of Cascadia's payment patterns indicates that the historical average payment period was approximately Net 53 (compared to Net 60 contractual terms), while the average payment period during the preference period was approximately Net 58. The modest increase in days-to-pay during the preference period is within the range of normal variation and should support the argument that the preference-period payments were made according to ordinary business terms. A detailed analysis of preference exposure and available defenses is set forth in a separate memorandum dated October 20, 2025, which should be reviewed in conjunction with this memorandum.
IX. Recommendations and Immediate Action Items
Based on the foregoing analysis, we recommend the following immediate action items:
1. Send Immediate Written Notice to Clearwater. Draft and send a formal notice of loss/insolvency event to Thomas Lindgren, Claims Adjuster, at Clearwater Surety & Insurance Co., 1600 Market Street, Suite 2400, Philadelphia, PA 19103, no later than October 25, 2025. The notice should identify the debtor (Cascadia Home & Lifestyle Inc.), the insolvency event (voluntary Chapter 11 petition filed October 14, 2025), the case number (25-12087, Bankr. D. Del.), the total outstanding receivable ($14,726,418.37, comprising 83 unpaid invoices), and the applicable buyer-specific sub-limit ($5,000,000.00). The notice should be sent via overnight courier with tracking and signature confirmation, and via certified mail, return receipt requested. Calderwood & Harkness will prepare a draft notice for Meridian's review and transmittal by no later than October 24, 2025.
2. Preserve and Organize Supporting Documentation. Instruct Douglas Hargrove, VP of Finance, to immediately compile and preserve all documentation necessary to substantiate the insurance claim and the proof of claim in the Bankruptcy Case. This includes: (a) complete copies of all 83 outstanding invoices (MCB-092174 through MCB-095301); (b) proof of delivery for each shipment (shipping records, bills of lading, delivery receipts, and signed acknowledgments); (c) purchase orders corresponding to each invoice; (d) complete accounts receivable aging reports and payment history for the Cascadia account; (e) the Chapter 11 petition, notice of commencement, and case docket; (f) all demand letters, payment reminders, and default notices sent to Cascadia; and (g) the Master Supply Agreement and any amendments establishing trade terms. These materials should be organized in a dedicated file and preserved in both hard copy and electronic format.
3. Clarify Subrogation and Claims-Filing Protocol. Engage Thomas Lindgren at Clearwater to determine whether Clearwater intends to file its own subrogated proof of claim in the Bankruptcy Case or will authorize Meridian to file the full claim amount and remit subrogated distributions to Clearwater from any estate recoveries. This discussion should be initiated promptly and concluded well in advance of the estimated bar date of January 15, 2026. If Clearwater elects to file a separate claim, Clearwater will need adequate notice of the bar date and sufficient documentation to prepare its filing. If Clearwater authorizes Meridian to continue asserting the full claim, the parties should memorialize the arrangement in a written agreement.
4. File Proof of Claim for Full Amount. Prepare and file the proof of claim in the Bankruptcy Case for the full amount of $14,726,418.37, disclosing the existence of the Clearwater Policy (Policy No. TCI-2024-00783), the potential insurance recovery (net $4,500,000.00), and Clearwater's potential subrogation interest. The proof of claim should not be reduced by the anticipated insurance recovery at the time of filing. Rather, the proof of claim should note the insurance coverage and subrogation interest so that the debtor, the Committee, and the Court are aware of the potential reduction once insurance proceeds are received. The proof of claim must be filed on or before the bar date (estimated January 15, 2026).
5. Coordinate Insurance Proceeds with Bankruptcy Recoveries. Upon receipt of insurance proceeds from Clearwater (expected on or after approximately April 12, 2026), take appropriate steps to reflect the insurance recovery in the Bankruptcy Case. This may include amending the proof of claim, filing a notice with the Court, and/or providing written notification to debtor's counsel and Committee counsel (Garvey & Holbrook LLP). Ensure that the insurance proceeds are allocated against the general unsecured portion of the claim, not against the Section 503(b)(9) administrative expense claim, to maximize total recovery.
6. Review Policy "Tail" Provisions. Review the Policy's provisions regarding coverage for claims arising from insolvency events that occur during the policy period but for which the waiting period or claim payment extends beyond the policy expiration date of December 31, 2025. Confirm that the Policy provides adequate "tail" or "run-off" coverage. If there is any ambiguity in the Policy's language, or if the Policy lacks an explicit run-off provision, consider requesting a written confirmation or endorsement from Clearwater affirming that coverage for the Cascadia claim will be honored notwithstanding the expiration of the Policy period.
7. Monitor Critical Vendor Payment and Coordinate with Insurance Claim. If the critical vendor motion is approved by the Court (hearing scheduled November 5, 2025) and Meridian receives the $2,500,000.00 critical vendor payment, promptly notify Clearwater and confirm in writing that the critical vendor payment does not reduce the insured loss under the Policy. The critical vendor payment represents a partial recovery on the pre-petition claim from the bankruptcy estate, not an insurance payment, and should not be credited against the insured loss for purposes of the insurance claim calculation.
8. Calendar Key Dates. The following dates should be calendared and monitored:
X. Conclusion
Meridian's trade credit insurance with Clearwater Surety & Insurance Co. provides meaningful but partial mitigation of Meridian's exposure to the Cascadia bankruptcy. The Policy's Cascadia-specific sub-limit of $5,000,000.00, net of the 10% co-insurance retention of $500,000.00, yields an expected net insurance recovery of $4,500,000.00 — approximately 30.6% of Meridian's total pre-petition claim of $14,726,418.37. After application of the insurance recovery, the remaining uninsured balance of $10,226,418.37 must be pursued through the bankruptcy estate via administrative expense claims, critical vendor payments, and general unsecured distributions.
Prompt and careful coordination between the insurance claim and the bankruptcy proceedings is essential to maximize total recovery and to avoid jeopardizing either the insurance claim or the bankruptcy distribution. Key priorities include: (a) sending timely notice to Clearwater by October 25, 2025; (b) assembling and preserving comprehensive supporting documentation; (c) clarifying the subrogation and claims-filing protocol with Clearwater before the estimated bar date; (d) filing the proof of claim for the full amount with appropriate disclosures; and (e) strategically allocating insurance proceeds against the general unsecured portion of the claim to maximize the aggregate recovery.
Calderwood & Harkness will prepare the notice to Clearwater and coordinate with Meridian's finance team on documentation assembly. We will also engage Thomas Lindgren at Clearwater to initiate the claims-filing discussion and will monitor all key dates and developments in the Bankruptcy Case.
This memorandum should be treated as privileged and confidential. It should not be shared with the Official Committee of Unsecured Creditors, Committee counsel (Garvey & Holbrook LLP), the debtor, or any other party without prior consultation with Calderwood & Harkness LLP. The analysis and recommendations set forth herein are based on the information currently available and are subject to revision as additional facts and developments emerge in the Bankruptcy Case and the insurance claims process.
Please do not hesitate to contact me with any questions or if you would like to discuss any of the foregoing in further detail.
Gabrielle Moss Associate, Bankruptcy & Restructuring Calderwood & Harkness LLP One Liberty Plaza, 47th Floor New York, NY 10006 Tel: (212) 558-4000
Email: gabrielle.moss@calderwoodharkness.com
cc: File (Matter No. 1011-00002)
Item | Detail
Insurer | Clearwater Surety & Insurance Co.
Insurer Address | 1600 Market Street, Suite 2400, Philadelphia, PA 19103
Policy Number | TCI-2024-00783
Policy Period | January 1, 2025 through December 31, 2025
Named Insured | Meridian Consumer Brands LLC (EIN: 83-2947156)
Insured Address | 575 Lexington Avenue, 22nd Floor, New York, NY 10022
Assigned Claims Adjuster | Thomas Lindgren, Clearwater Surety & Insurance Co.
Line Item | Amount
Cascadia buyer-specific sub-limit | $5,000,000.00
Less: Co-insurance retention (10%) | ($500,000.00)
Net expected insurance recovery | $4,500,000.00
Line Item | Amount
Total pre-petition receivables | $14,726,418.37
Less: Net insurance recovery | ($4,500,000.00)
Uninsured claim balance | $10,226,418.37
Recovery Source | Estimated Amount | Timing / Status
Clearwater insurance (net of co-insurance) | $4,500,000.00 | After 180-day waiting period (~April 12, 2026)
§ 503(b)(9) administrative expense claim | $1,847,200.00 | To be paid in full upon plan effective date or as ordered by the Court
Critical vendor payment (if approved) | $2,500,000.00 | Pending approval of critical vendor motion (hearing Nov. 5, 2025)
General unsecured distribution | TBD | Subject to plan confirmation; estimated unsecured claims pool $180M–$220M
Line Item | Amount
Total pre-petition claim | $14,726,418.37
Less: Insurance recovery (net of co-insurance) | ($4,500,000.00)
Less: § 503(b)(9) administrative expense claim (if allowed and paid in full) | ($1,847,200.00)
Less: Critical vendor payment (if approved) | ($2,500,000.00)
Remaining general unsecured claim for distribution | $5,879,218.37
Date | Event
October 25, 2025 | Deadline for sending notice of loss to Clearwater
November 5, 2025 | Hearing on critical vendor motion
December 31, 2025 | Clearwater Policy expiration date
January 15, 2026 (est.) | Estimated general bar date for proofs of claim
April 12, 2026 (approx.) | End of 180-day waiting period; earliest date for Clearwater claim payment

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

MEMORANDUM

MATTER NO.: 1011-00002

Record

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