Howard,
Thank you for your May 10 response. We have reviewed your letter carefully and understand that the parties maintain divergent views on the coverage issues presented by this loss. Meridian Surety & Indemnity Company continues to believe that its January 22, 2024 denial was well-founded and supported by the applicable policy exclusions. That said, Meridian recognizes the efficiency of attempting to resolve this matter short of litigation and appreciates SLG's willingness to explore that path.
To that end, Meridian agrees that mediation is a constructive next step. We would propose JAMS Houston as the venue, and my client is willing to proceed on an expedited basis. I would suggest the parties jointly select a mediator and target a mediation date within four to six weeks. I will circulate a short list of proposed mediator names under separate cover later this week. Of course, we welcome any candidates Calderwood & Harkness may wish to suggest as well.
Meridian Surety & Indemnity Company reserves all rights and defenses under Policy No. IML-TX-0039821-2023, at law, and in equity. Nothing in this correspondence shall be construed as a waiver of any such rights or defenses.
I look forward to your response.
Best regards,
Victoria Kessler Partner Kessler, Brandt & Howe LLP 1401 McKinney Street, Suite 2800 Houston, TX 77010 T: (713) 555-4100 F: (713) 555-4101 vkessler@kbhlaw.com
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From: Howard Bellamy To: Victoria Kessler Cc: Andrew Fitzpatrick ; Samuel Okonkwo Date: Friday, May 10, 2024 11:18 AM CDT Subject: RE: Stonefield Logistics Group Inc. — Settlement Discussion / Policy No. IML-TX-0039821-2023
Victoria,
We are in receipt of your May 6 correspondence conveying Meridian Surety & Indemnity Company's offer of $1,750,000 in settlement of our client's claim. We appreciate Meridian's willingness to engage in dialogue, but I must be direct: the offer is inadequate and does not reflect a good-faith evaluation of Meridian's obligations under the policy.
As we set forth in detail in our April 12, 2024 demand letter, SLG's coverage position under Policy No. IML-TX-0039821-2023 is compelling. The all-risk coverage grant clearly encompasses the November 17, 2023 warehouse fire loss at the Midland Facility. Neither Exclusion 4(f) (Improper Storage) nor Exclusion 4(k) (Failure to Maintain) applies to this loss, and Meridian bears the burden under Texas law of establishing the applicability of any exclusion it invokes.
With respect to Exclusion 4(f), SLG's Warehouse Layout Plan (Rev. 7, June 2023) maintained a 40-foot buffer zone between pipe storage and chemical pallets — well in excess of any applicable standard. Moreover, the Cantera Chemical Supply Co. chemicals stored at the facility are Class IIIB combustible liquids with flash points exceeding 200°F, placing them outside the scope of the OSHA 29 CFR 1910.106 segregation requirements that Meridian invoked in its denial. The exclusion simply does not apply on these facts.
With respect to Exclusion 4(k), SLG completed all quarterly visual inspections required by NFPA 25 § 5.2.1. The annual full-flow test was scheduled for November 20, 2023 — three days after the loss — with Lone Star Fire Protection Inc., pursuant to an engagement letter dated August 28, 2023. SLG was in full compliance with all applicable maintenance obligations at the time of the fire. More fundamentally, the independent origin-and-cause report prepared by Ridgeline Forensic Consultants LLC (Dr. William Creech, P.E., CFEI) conclusively establishes that the fire originated in the Square D Model QED-2 electrical panel — not from any sprinkler system deficiency. The Ridgeline report further confirms that even a fully code-compliant sprinkler system operating at design pressure would not have prevented the loss, given the documented municipal water-pressure deficit at the Midland Facility (36 psi actual versus 52 psi design). Exclusion 4(k) is inapplicable as a matter of both fact and causation.
Beyond the coverage merits, I draw your attention to the accrual of statutory penalty interest under Tex. Ins. Code § 542.060. SLG submitted its sworn proof of loss on February 1, 2024. The 61st business day following that submission was approximately April 29, 2024. Accordingly, 18% per annum statutory interest has been accruing on the $4,530,000 net claim amount since that date and continues to accrue daily. Meridian's exposure is growing with each passing day that this claim remains unresolved.
To put Meridian's offer in perspective, $1,750,000 represents less than 39% of SLG's net claim of $4,530,000 ($4,780,000 total cargo loss less the $250,000 self-insured retention) and does not account for any statutory penalties or interest. That figure cannot reasonably be characterized as a good-faith compromise.
I would also note that the manner in which Meridian has handled this claim raises serious concerns. Exclusion 4(f) was raised for the first time in the January 22, 2024 denial letter, despite the fact that the December 4, 2023 Reservation of Rights letter cited only Exclusion 4(k). The assertion of a previously unidentified exclusion at the denial stage, without prior notice or investigation, gives rise to potential claims under Tex. Ins. Code Chapter 541 for unfair settlement practices — claims that SLG expressly reserves.
Notwithstanding the foregoing, SLG remains willing to resolve this matter without litigation, provided that any resolution fully compensates SLG for its covered loss. We believe a structured mediation would be a more productive path toward that objective than a continued exchange of correspondence.
We request your response regarding Meridian's willingness to mediate, along with any preferences as to venue and timing.
SLG reserves all rights, claims, and remedies under the Policy, at law, and in equity, including without limitation the right to pursue remedies under Tex. Ins. Code Chapters 541 and 542.
Regards,
Howard Bellamy Partner Calderwood & Harkness LLP 700 Louisiana Street, Suite 4500 Houston, TX 77002 T: (713) 555-7200 F: (713) 555-7201 hbellamy@calderwoodharkness.com Matter No. 1012-00003
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CONFIDENTIALITY NOTICE: This email and any attachments are privileged and confidential and are intended solely for the use of the individual or entity to whom they are addressed. This communication is made in the context of settlement discussions and is privileged and inadmissible pursuant to Federal Rule of Evidence 408 and Texas Rule of Evidence 408. If you are not the intended recipient, please notify the sender immediately, delete this message, and do not disclose or copy its contents.
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From: Victoria Kessler To: Howard Bellamy Cc: Andrew Fitzpatrick ; Samuel Okonkwo Date: Monday, May 6, 2024 2:15 PM CDT Subject: Stonefield Logistics Group Inc. — Settlement Discussion / Policy No. IML-TX-0039821-2023
Howard,
I write on behalf of our client, Meridian Surety & Indemnity Company ("Meridian"), in response to Calderwood & Harkness's formal demand letter dated April 12, 2024, submitted on behalf of Stonefield Logistics Group Inc. ("SLG") regarding the November 17, 2023 loss at SLG's Midland, Texas facility (the "Midland Facility") under Inland Marine Policy No. IML-TX-0039821-2023 (the "Policy").
Meridian has carefully reviewed your demand letter and the materials submitted therewith, including the origin-and-cause report prepared by Ridgeline Forensic Consultants LLC. Meridian continues to believe that its coverage denial of January 22, 2024 was properly supported by the terms of the Policy, including Exclusion 4(f) (Improper Storage of Hazardous Materials) and Exclusion 4(k) (Failure to Maintain Fire Suppression Systems), for the reasons set forth in the denial letter. Our review of the Ridgeline report and the additional documentation you provided has not altered that assessment.
However, in the interest of resolving this matter efficiently and avoiding the costs and uncertainties inherent in protracted coverage litigation, Meridian is prepared to offer a compromise payment of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000.00) in full and final settlement of all claims arising from or related to the November 17, 2023 loss. This offer is made without any admission of liability, coverage obligation, or wrongdoing on the part of Meridian and is expressly conditioned upon the execution of a full mutual release in a form acceptable to both parties, releasing all claims, demands, and causes of action arising from the loss and the handling of SLG's claim.
We would appreciate your client's response at its earliest convenience. Please do not hesitate to contact me or Samuel Okonkwo if you wish to discuss.
Best regards,
Victoria Kessler Partner Kessler, Brandt & Howe LLP 1401 McKinney Street, Suite 2800 Houston, TX 77010 T: (713) 555-4100 F: (713) 555-4101 vkessler@kbhlaw.com
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CONFIDENTIALITY NOTICE: This email and any attachments are confidential, may be privileged, and are intended solely for the use of the addressee(s). This communication constitutes a settlement communication within the meaning of Federal Rule of Evidence 408 and Texas Rule of Evidence 408 and is therefore privileged and inadmissible for any purpose other than in connection with settlement of the matter referenced herein. Unauthorized review, use, disclosure, or distribution is prohibited. If you have received this message in error, please contact the sender immediately and delete all copies.