PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 599 Lexington Avenue New York, NY 10022
Due Diligence Memorandum — Insurance Coverage
Matter: Calloway-Briggs Renewables Inc. — Proposed Initial Public Offering
C&H Matter No.: 1015-00001
To: Jennifer Kwon, Responsible Partner, Capital Markets
From: Brendan Walsh, Lead Associate, Capital Markets; Natasha Forbes, Working Associate, Capital Markets
Date: April 20, 2022
Re: Due Diligence Review — Insurance Coverage of Calloway-Briggs Renewables Inc. and Subsidiaries
This memorandum has been prepared by Calderwood & Harkness LLP in connection with the proposed initial public offering of common stock of Calloway-Briggs Renewables Inc. It is protected by the attorney-client privilege and the attorney work product doctrine. It is intended solely for the use of the addressee and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
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I. Executive Summary
This memorandum summarizes the results of our due diligence review of the insurance programs maintained by Calloway-Briggs Renewables Inc. ("CBR" or the "Company") and its direct and indirect subsidiaries in connection with the Company's proposed initial public offering of common stock (the "IPO" or the "Offering"). The Company intends to offer shares of its common stock on the New York Stock Exchange under the proposed ticker symbol "CBRI," with an anticipated aggregate offering size of approximately $600,000,000. The purpose of this memorandum is to (i) describe the material insurance programs currently in place, (ii) assess the adequacy of existing coverage for a company transitioning to public-company status, and (iii) identify any gaps, deficiencies, or action items that must be addressed prior to or in connection with the IPO.
Scope of Review. Our review encompassed the following categories of insurance coverage: directors and officers ("D&O") liability insurance (including the full D&O tower and Side A difference-in-conditions ("DIC") coverage), commercial general liability ("CGL") insurance, property insurance (including coverage for the Company's operating wind, solar, and battery energy storage assets), builder's risk insurance for projects under construction, professional liability / errors and omissions ("E&O") insurance, umbrella and excess liability insurance, cyber liability insurance, environmental liability insurance, workers' compensation and employer's liability insurance, and business automobile liability insurance.
Insurance Broker. The Company's insurance programs are brokered through Dravello Place Insurance Advisors LLC ("Fenwick Place"), a full-service insurance brokerage firm. Our principal contact at Fenwick Place has been Nina Radcliffe, Vice President, located at 250 Greenwich Street, Suite 3700, New York, NY 10007. Ms. Radcliffe has been responsive and cooperative throughout the due diligence process and has facilitated our review of all relevant policies, binders, certificates of insurance, and related correspondence.
Key Findings. Based on our review, CBR maintains a reasonably comprehensive insurance program that is generally consistent with industry practices for a utility-scale renewable energy developer of the Company's size and scope of operations. The Company's insurance portfolio covers its operating fleet of approximately 3.8 GW of renewable energy and energy storage assets across five states, as well as two projects currently under construction (the 420 MW Mesquite Wind project in Oldham County, Texas, and the 350 MW Cimarron Solar project in Doña Ana County, New Mexico). However, several material enhancements and modifications are required in connection with the transition from private-company to public-company status, and we have identified certain areas where the Company should consider strengthening its coverage posture. The principal areas requiring attention are as follows:
(a) D&O Tower Expansion and Restructuring. The Company's current D&O tower provides aggregate coverage of $50,000,000, which is within the range maintained by comparable publicly traded renewable energy companies but is at the lower end of that range. We recommend that the Company discuss with Fenwick Place whether to increase the D&O tower to $75,000,000. In addition, the Side C (entity securities) coverage under the primary policy must be expanded to cover public-company securities claims, including claims arising under Sections 11 and 12 of the Securities Act of 1933 (the "Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), as the current Side C endorsement is drafted for a private-company context. Formal IPO renewal quotes have been requested from the three tower carriers.
(b) Side A DIC Program. The non-rescindable Side A DIC feature in the primary Meridian National Assurance Company policy must be confirmed and, if necessary, enhanced. A standalone Side A DIC policy should be considered to provide an additional layer of protection for individual directors and officers in the event of corporate insolvency or rescission of the underlying D&O program.
(c) Builder's Risk — Change of Control. The builder's risk policies covering the Mesquite Wind and Cimarron Solar construction projects must be reviewed for IPO-as-change-of-control provisions to confirm that the transition to public-company status does not trigger termination, modification, or any requirement for carrier consent that could create a gap in coverage during the construction period.
(d) Cyber Insurance Enhancement. The Company's current cyber liability coverage of $10,000,000 per occurrence / $10,000,000 aggregate is at the lower end of the range maintained by comparable publicly traded infrastructure and renewable energy companies with significant SCADA and operational technology exposure. We recommend increasing the limit to $25,000,000, consistent with peer-company benchmarks.
(e) Lender Covenant Compliance. Insurance covenants under the Veltrano National Bank corporate credit facility, the Prairie Commercial Bank project-finance construction-to-term facilities, and the Veltara Basin Financial LLC tax-equity partnership agreement must be confirmed as satisfied by the existing insurance program, including any modifications made in connection with the IPO.
Cross-References. This memorandum should be read in conjunction with the following documents maintained in the due diligence database:
• Due Diligence Request List — Insurance (Doc. 14)
• D&O Insurance Coverage Memorandum (Doc. 98)
• D&O Insurance — Side A DIC Policy Summary (Doc. 99)
• Correspondence — C&H to Fenwick Place re IPO D&O Placement (Doc. 100)
Sources Reviewed. In preparing this memorandum, we reviewed the following categories of materials: (i) copies of all material insurance policies, binders, and certificates of insurance provided by CBR and Fenwick Place in response to our Due Diligence Request List — Insurance; (ii) schedules of insurance coverage prepared by Fenwick Place; (iii) relevant credit agreements, construction facility loan agreements, and partnership agreements containing insurance covenants; and (iv) information obtained through discussions with Nina Radcliffe (Fenwick Place), Sandra Haverford (General Counsel & Corporate Secretary of CBR), and Priya Anand (SVP, Finance & Treasurer of CBR).
II. Directors & Officers Liability Insurance
A. Overview of Current D&O Program
CBR maintains a directors and officers liability insurance program that provides aggregate coverage of $50,000,000 across a three-layer tower. The program is brokered by Dravello Place Insurance Advisors LLC, with Nina Radcliffe serving as the primary point of contact for D&O placement and renewal. The current annual premium for the entire D&O tower is approximately $1,870,000 ($1.87 million). The policy period runs on an annual basis, with the current term expiring on or about January 1, 2023. The named insured under the D&O program is Calloway-Briggs Renewables Inc. and all of its direct and indirect subsidiaries, including CBR Holdings LLC, Calloway-Briggs Operating Company LLC, and all project-level special purpose vehicles.
The D&O program is a critical element of the Company's risk management framework and will become even more significant upon the Company's transition to public-company status. Public-company D&O insurance serves multiple important functions: it provides individual protection to directors and officers against personal liability arising from the discharge of their duties, it reimburses the Company for indemnification payments made to directors and officers, and it provides entity-level coverage for securities claims brought against the Company itself. The availability of adequate D&O coverage is also an important factor in the Company's ability to recruit and retain qualified independent directors for its post-IPO board of directors.
B. Tower Structure
The D&O tower is structured as follows:
Meridian National Assurance Company serves as the primary carrier on the D&O tower, providing the first $15,000,000 of coverage on a ground-up basis. Meridian National is a Connecticut-domiciled insurer and is the policy-issuing carrier responsible for claims administration and defense coordination under the primary layer. The primary policy, Policy Number DNO-22-048871, contains the core terms, conditions, definitions, and exclusions that govern the entire D&O program, and the excess layers generally follow form to the primary policy.
Stonebridge Indemnity Corp. provides the first excess layer, contributing $20,000,000 in limits excess of the $15,000,000 primary layer, for a total of $35,000,000 in coverage at the top of the Stonebridge layer. Stonebridge is an Illinois-domiciled insurer. The Stonebridge excess policy follows form to the Meridian National primary policy, subject to any specific terms, conditions, or exclusions set forth in the Stonebridge policy itself. The policy number for the Stonebridge layer is to be confirmed upon receipt of the executed binder.
Commonwealth Omnivrel Insurance Ltd. provides the second excess layer, contributing $15,000,000 in limits excess of the $35,000,000 attachment point (i.e., excess of the combined primary and first excess layers), bringing the total D&O tower to $50,000,000. Commonwealth Fidelity is a Bermuda-domiciled insurer. The use of a Bermuda-domiciled carrier in the excess layers of a D&O tower is standard market practice and does not raise any particular concerns, provided the carrier maintains adequate financial strength ratings from the major rating agencies. The policy number for the Commonwealth Fidelity layer is also to be confirmed.
C. Coverage Components (Primary Policy — Meridian National)
The Meridian National primary policy provides the following coverage components, which are standard for a comprehensive D&O insurance program:
Side A (Individual Directors & Officers Coverage). Side A provides coverage for non-indemnifiable losses incurred by individual directors and officers of CBR and its subsidiaries. Side A coverage applies when the Company is unable or unwilling to indemnify its directors and officers — for example, in situations of corporate insolvency (where the Company lacks the financial resources to make indemnification payments), statutory prohibition (where applicable law prohibits the Company from indemnifying certain categories of losses), or other circumstances where the corporate indemnity is unavailable. Side A is the most critical component of D&O coverage from the perspective of individual directors and officers, as it provides a direct source of recovery that is not dependent on the Company's financial condition or willingness to indemnify. The Side A coverage under the Meridian National policy carries no corporate retention — that is, there is a $0 retention for Side A claims, meaning coverage begins from the first dollar of loss.
Side B (Corporate Reimbursement Coverage). Side B reimburses CBR for indemnification payments that the Company makes to its directors and officers in connection with covered claims. When the Company exercises its indemnification obligations (whether under its certificate of incorporation, bylaws, indemnification agreements, or applicable law) and makes payments to or on behalf of its directors and officers, Side B operates to reimburse the Company for those payments, subject to the applicable corporate retention. The corporate retention under the current Meridian National policy is $500,000 per claim for Side B coverage.
Side C (Entity Securities Coverage). Side C provides coverage to CBR itself (as an entity, rather than its individual directors and officers) for securities claims brought against the Company. This is an important coverage feature because securities class actions and other securities-related claims are frequently brought against both the Company and its individual directors and officers, and the availability of entity-level coverage ensures that the Company's own defense costs and settlement payments are covered under the D&O program rather than drawn from the Company's general corporate funds. The corporate retention for Side C coverage under the current Meridian National policy is $500,000 per claim.
Critically, the current Side C coverage is drafted for a private-company context. The definition of "Securities Claim" in the current policy is tailored to the types of securities claims that may arise in a private-company setting and does not encompass the full range of claims that a publicly traded company may face. In connection with the IPO, the definition of "Securities Claim" must be updated to encompass claims arising under the Securities Act (including Section 11 claims relating to the registration statement and Section 12 claims relating to the prospectus) and the Exchange Act (including Section 10(b) and Rule 10b-5 claims relating to ongoing public reporting, and claims arising under the proxy rules). The failure to expand Side C coverage would leave a significant gap in the Company's D&O program, as the entity itself would not be covered for the most common categories of securities claims faced by publicly traded companies.
Side A DIC (Difference-in-Conditions) Coverage. The Meridian National primary policy includes a non-rescindable Side A DIC endorsement. This endorsement provides that the Side A coverage will remain in effect and will "drop down" to provide coverage in certain specified circumstances, including: (i) if the underlying D&O policy is rescinded by the insurer (e.g., for material misrepresentation in the application); (ii) if the underlying D&O policy's limits are exhausted by payments under Side B or Side C; or (iii) if the underlying D&O policy does not cover a particular loss that would be covered under a broader Side A DIC grant of coverage. The non-rescindable nature of the Side A DIC endorsement is critical, as it ensures that individual directors and officers retain their personal protection even if the Company's own conduct (such as a misrepresentation in the insurance application) leads to rescission of the broader D&O policy.
The Side A DIC feature is particularly important in the IPO context, where individual directors and officers (including outside directors who will serve on the post-IPO board) are exposed to significant personal liability under the Securities Act and the Exchange Act. We have prepared a separate detailed analysis of the Side A DIC coverage, which is available as Doc. 99 in the due diligence database.
Retentions. As noted above, the retention structure under the current Meridian National policy is as follows:
• Side A: $0 retention (no retention for non-indemnifiable claims against individual directors and officers)
• Side B: $500,000 per claim
• Side C: $500,000 per claim
D. IPO Readiness Assessment — D&O
Adequacy of Limits. The current $50,000,000 aggregate D&O tower is within the range of limits typically maintained by publicly traded companies of CBR's expected size. Based on the Company's projected post-IPO equity market capitalization of approximately $2.72 billion (on a base-offering basis, assuming a midpoint IPO price and no exercise of the underwriters' over-allotment option) and an enterprise value of approximately $4.25 billion, we surveyed the D&O programs maintained by comparable publicly traded renewable energy companies in the $2–5 billion market capitalization range. Based on publicly available information and market data provided by Fenwick Place, comparable companies in this range typically maintain D&O towers of $50,000,000 to $75,000,000. While $50,000,000 falls within this range, it represents the lower end. Given the heightened litigation risk associated with a newly public company (particularly during the first two to three years following the IPO, when Section 11 liability under the Securities Act remains available to purchasers who can trace their shares to the IPO registration statement) and the general increase in securities class action activity in recent years, we recommend that the Company discuss with Fenwick Place whether to increase the D&O tower to $75,000,000 by adding one or more additional excess layers.
Side C Expansion. As discussed above, the current Side C coverage must be expanded to cover public-company securities claims. This is a threshold requirement for IPO readiness. The expanded Side C coverage should encompass, at a minimum:
(i) claims arising under Sections 11 and 12 of the Securities Act in connection with the IPO registration statement and prospectus;
(ii) claims arising under Section 10(b) and Rule 10b-5 of the Exchange Act in connection with the Company's ongoing periodic reporting obligations (Forms 10-K, 10-Q, and 8-K) and other public statements;
(iii) claims arising under the proxy rules (Section 14 of the Exchange Act) in connection with the Company's annual meetings and proxy solicitations;
(iv) claims arising under Section 16(b) of the Exchange Act (short-swing profit recovery); and
(v) derivative claims asserting breaches of fiduciary duty in connection with the Company's public-company operations.
Tail / Run-Off Coverage. In the event that any existing D&O carrier is replaced as part of the IPO restructuring of the D&O tower, it will be necessary to obtain tail coverage (also known as run-off coverage or an extended reporting period ("ERP") endorsement) from the departing carrier. Tail coverage provides protection for claims arising from wrongful acts that occurred during the policy period but are not reported until after the policy has been cancelled or non-renewed. The standard tail period in the D&O market is three to six years, and we recommend negotiating a six-year tail if any carrier change is implemented. Tail coverage is particularly important in this context because D&O claims, especially securities class actions, are frequently filed months or even years after the alleged wrongful conduct.
Carrier Credit Quality. We have reviewed the financial strength ratings of each carrier in the D&O tower:
• Meridian National Assurance Company: Rated A (Excellent) by A.M. Best; rated A- by S&P Global Ratings
• Stonebridge Indemnity Corp.: Rated A- (Excellent) by A.M. Best
• Commonwealth Omnivrel Insurance Ltd.: Rated A- by A.M. Best; rated A- by S&P Global Ratings
All three carriers are rated A- or better by the major rating agencies, which satisfies the credit-quality thresholds typically required by lenders and institutional investors. Commonwealth Fidelity's Bermuda domicile is standard market practice for excess D&O layers and does not raise concerns regarding regulatory solvency oversight, as Bermuda maintains a robust insurance regulatory framework administered by the Bermuda Monetary Authority.
Consent / Change-of-Control Provisions. We have reviewed each policy in the D&O tower for provisions that could be triggered by the IPO. An IPO may constitute a "change of control" under certain D&O policy forms, which could trigger automatic termination, conversion to a run-off policy, or other adverse modifications to coverage. We have confirmed with Fenwick Place that the current Meridian National, Stonebridge, and Commonwealth Fidelity policies do not contain express IPO-triggered termination clauses. However, as a matter of best practice and to preserve the Company's rights under the policies, formal written notice of the IPO must be provided to all three carriers in advance of the Offering. Fenwick Place has agreed to coordinate the delivery of these notices on behalf of the Company.
Premium Impact. Fenwick Place has advised that the Company should expect a significant increase in D&O premiums in connection with the transition to public-company status. Based on current market conditions and Fenwick Place's preliminary discussions with the tower carriers, the estimated post-IPO annual premium for the D&O tower (assuming the current $50,000,000 limit is maintained) is in the range of $2,600,000 to $3,000,000, representing an increase of approximately 40% to 60% over the current annual premium of $1,870,000. This increase reflects the enhanced exposure associated with public-company status, including the availability of private rights of action under the Securities Act and the Exchange Act, the increased volume of public disclosures, and the general elevation of litigation risk for newly public companies. If the tower is increased to $75,000,000, the premium would increase further, and Fenwick Place has been asked to provide estimates for the expanded tower in connection with the IPO renewal process.
Action Items:
1. IPO Renewal Quotes. Fenwick Place (Nina Radcliffe) to coordinate the solicitation of formal IPO renewal quotes from Meridian National, Stonebridge, and Commonwealth Fidelity. A letter requesting these quotes was sent by C&H to Fenwick Place on April 5, 2022 (see Doc. 100 in the due diligence database). We expect to receive preliminary indications within four to six weeks.
2. Tower Increase to $75M. The Company, in consultation with Fenwick Place and C&H, should evaluate whether to increase the D&O tower from $50,000,000 to $75,000,000 by adding one or more additional excess layers. This evaluation should consider the Company's risk profile, the cost of additional coverage, and the practices of comparable publicly traded renewable energy companies.
3. Side C Expansion. Fenwick Place to coordinate with Meridian National on the expansion of Side C coverage to encompass public-company securities claims, including IPO-related Section 11 and Section 12 claims and ongoing Exchange Act reporting liability.
4. Side A DIC Confirmation. Confirm the non-rescindable nature of the Side A DIC endorsement in the Meridian National primary policy. If additional protection is desired, consider the placement of a standalone Side A DIC policy from an independent carrier.
5. Carrier Notices. Provide formal written notice of the proposed IPO to Meridian National, Stonebridge, and Commonwealth Fidelity. Fenwick Place to coordinate delivery.
6. Tail Coverage. If any carrier is replaced in connection with the IPO restructuring, negotiate tail / run-off coverage terms providing an extended reporting period of not less than six years for pre-IPO wrongful acts.
III. General Liability Insurance
A. Program Summary
CBR maintains a commercial general liability ("CGL") insurance program that provides coverage for bodily injury, property damage, and personal and advertising injury claims arising from the Company's premises, operations, and completed operations. The material terms of the CGL program are summarized below:
• Insurer: Briarcliff Casualty Insurance Company (carrier to be confirmed upon receipt of final binder)
• Coverage Type: Commercial General Liability (occurrence-based)
• Per-Occurrence Limit: $5,000,000
• General Aggregate Limit: $10,000,000
• Products / Completed Operations Aggregate: $5,000,000
• Personal and Advertising Injury Limit: $5,000,000 per occurrence
• Named Insured: Calloway-Briggs Renewables Inc. and all direct and indirect subsidiaries, including CBR Holdings LLC, Calloway-Briggs Operating Company LLC, and all project-level special purpose vehicles
• Additional Insureds: Veltrano National Bank (as administrative agent under the corporate credit facility), Prairie Commercial Bank, N.A. (as lender under the project-finance construction-to-term facilities), and Veltara Basin Financial LLC (as tax-equity investor under the Solaris West partnership agreement), in each case as required under the applicable credit agreements and tax-equity partnership agreements
• Policy Period: Annual
B. Key Coverage Terms
The CGL policy provides occurrence-based coverage for claims arising from bodily injury, property damage, and personal and advertising injury. Coverage extends to CBR's operations at all project sites across Texas, New Mexico, Arizona, California, and Oklahoma, including both operating assets and projects under construction. The policy covers operations conducted by CBR employees and, subject to standard policy conditions, the activities of contractors and subcontractors at CBR project sites to the extent that CBR is vicariously liable for their actions.
The CGL policy includes contractual liability coverage for "insured contracts," which is an important feature given the Company's extensive network of contractual relationships. CBR is party to numerous power purchase agreements ("PPAs"), engineering, procurement, and construction ("EPC") contracts, and operations and maintenance ("O&M") agreements, many of which contain indemnification provisions requiring CBR to hold counterparties harmless against certain categories of losses. The contractual liability coverage under the CGL policy extends to these indemnity obligations to the extent they qualify as "insured contracts" under the policy terms.
The CGL policy contains the following material exclusions:
• Pollution Liability Exclusion. The CGL policy excludes coverage for claims arising from pollution conditions. This exclusion is standard in CGL policies and is addressed by the Company's separate environmental liability / pollution legal liability program (discussed in Section IX below).
• Professional Services Exclusion. The CGL policy excludes coverage for claims arising from the rendering of or failure to render professional services. This exclusion is addressed by the Company's separate professional liability / errors and omissions policy (discussed in Section VII below).
• Workers' Compensation / Employer's Liability Exclusion. The CGL policy excludes coverage for bodily injury to employees arising out of and in the course of their employment. This exposure is addressed by the Company's workers' compensation and employer's liability program (discussed in Section X below).
C. IPO Readiness Assessment
The general liability insurance program appears adequate for the Company's current operations. The per-occurrence limit of $5,000,000 and general aggregate of $10,000,000 are within the range of limits typically maintained by utility-scale renewable energy developers of CBR's size, with approximately 1,240 employees and 22 operating projects across five states. In addition, the umbrella / excess liability tower (discussed in Section VI below) provides additional limits above the CGL program.
We have confirmed that the policy's named insured definition includes CBR and all subsidiaries. However, we recommend that the Company confirm that all project-level SPVs are specifically scheduled or, alternatively, that the policy provides blanket coverage for all entities that qualify as "subsidiaries" under the policy's definition (which typically includes any entity in which the named insured holds a majority ownership interest or over which it exercises management control). The following project-level entities should be confirmed as covered:
• Solaris West Solar LLC
• Red Mesa Wind Energy LLC
• Painted Rock Solar LLC
• Pronghorn Wind LLC
• Brazos Energy Storage LLC
• Mesquite Wind Holdings LLC
• Cimarron Solar Development LLC
• CBR Development Co. LLC
General liability insurance is not typically a gating item for an IPO, and we do not identify any material gaps in the CGL program that would require remediation prior to the Offering. The CGL program should continue to be maintained in its current form following the IPO, subject to routine renewals and any adjustments recommended by Fenwick Place in light of changes in the Company's operations.
IV. Property Insurance
A. Program Summary
CBR maintains an all-risk property insurance program that provides coverage for physical loss or damage to the Company's operating renewable energy and energy storage assets. The property insurance program is one of the most significant elements of CBR's overall insurance portfolio, given the substantial capital investment represented by the Company's operating fleet of approximately 3.8 GW across 22 projects. The material terms of the property insurance program are summarized below:
• Insurer(s): Ridgecrest Property & Casualty Co. (lead insurer), with quota-share participation from Ironwood Reinsurance Ltd. (carrier names to be confirmed upon receipt of final binder documentation)
• Coverage Type: All-risk property insurance for operating renewable energy and energy storage assets
• Total Insured Values (TIV): Approximately $3.0 billion across the entire operating portfolio
• Covered Perils: Fire, lightning, windstorm, hail, explosion, equipment breakdown, and other customary perils
• Key Exclusions: Flood (addressed by separate flood insurance where required by lender covenants or regulatory requirements), earthquake, war, terrorism (covered under a separate TRIA policy, if applicable), and nuclear events
• Deductibles: $1,000,000 per occurrence (standard); $2,500,000 per occurrence for named windstorm events affecting project sites located in Texas and Oklahoma
• Business Interruption / Loss of Revenue: Included; covers lost revenue under power purchase agreements during covered outage periods; subject to a 30-day waiting period
• Expediting Expense Coverage: Included; covers additional costs incurred to expedite the repair or replacement of damaged equipment
B. Coverage by Project
The following table sets forth the principal operating projects covered under the property insurance program, together with the technology type, capacity, location, and estimated replacement cost of each project:
Business interruption and loss of revenue coverage is included within the property insurance program and is designed to replace PPA revenue lost during periods when a covered peril causes an insured project to be taken offline or to operate at reduced capacity. The business interruption coverage is subject to a 30-day waiting period, which is the period of time following a covered loss during which no business interruption payments are made. This waiting period is standard in the renewable energy property insurance market and reflects the inherent time required to assess damage, mobilize repair crews, and source replacement equipment.
Expediting expense coverage provides reimbursement for additional costs incurred to accelerate the repair or replacement of damaged equipment beyond what would be required under normal repair timelines. This coverage can be particularly valuable in the renewable energy sector, where specialized components (such as wind turbine generators, main bearings, gearboxes, transformers, and inverters) may have long lead times for procurement.
C. IPO Readiness Assessment
The property insurance program is comprehensive and consistent with industry practice for utility-scale renewable energy developers and operators. The total insured values of approximately $3.0 billion are commensurate with the estimated replacement costs of the Company's operating portfolio, and the covered perils are appropriate for the types of assets and geographic locations involved.
We have identified the following areas for confirmation or further review:
(a) Brazos Storage Battery Project (Li-ion BESS). The Brazos Storage project, a 200 MW / 800 MWh lithium-ion battery energy storage system located in Fort Bend County, Texas, presents a specialized risk profile. Lithium-ion battery systems are subject to a unique set of risks, including thermal runaway events (a self-sustaining exothermic reaction that can cause fire, explosion, and toxic gas release), which have occurred at battery storage facilities in other jurisdictions. We recommend confirming that the property insurance policy specifically covers thermal-runaway events for the Brazos Storage project and that this risk is not excluded or subject to a sub-limit that would be inadequate to cover the estimated $320,000,000 replacement cost of the facility. Fenwick Place should be asked to provide written confirmation from Ridgecrest Property & Casualty Co. on this point.
(b) Named Windstorm Deductible. The $2,500,000 deductible for named windstorm events affecting project sites in Texas and Oklahoma is higher than the standard $1,000,000 deductible applicable to other covered perils. Given that several of the Company's largest projects (Solaris West in Pecos County, TX; Pronghorn Wind in Nolan County, TX; and Red Mesa Wind in Custer County, OK) are located in areas subject to severe weather events, including hurricanes, tropical storms, tornadoes, and severe convective storms, we recommend confirming that the named-windstorm deductible is consistent with market practice for comparable assets in these locations and that the Company has adequate reserves or self-insurance capacity to absorb the deductible in the event of a significant windstorm loss.
(c) Lender Covenant Compliance. The property insurance program must satisfy the insurance covenants contained in the Veltrano National Bank corporate credit facility (discussed in Section XII.A below) and the Prairie Commercial Bank project-finance facilities for projects that have achieved commercial operation (discussed in Section XII.B below). We recommend confirming compliance with all applicable lender insurance requirements, including minimum coverage limits, named insured / additional insured / loss payee endorsement requirements, and notice-of-cancellation provisions.
Subject to the foregoing confirmations, we do not identify material gaps in the property insurance program that would require remediation prior to the IPO.
V. Builder's Risk Insurance
A. Program Summary
CBR maintains project-specific builder's risk insurance (also referred to as course-of-construction insurance) for renewable energy projects currently under construction. Builder's risk insurance provides coverage for physical loss or damage to work in progress, materials in transit, materials stored at staging areas, and temporary structures during the construction period. Coverage typically extends through the testing and commissioning phase and terminates at the earlier of the project's commercial operation date ("COD") or the policy expiration date. The Company currently has two projects under construction:
Mesquite Wind. The Mesquite Wind project is a 420 MW onshore wind energy project located in Oldham County, Texas. The project has an expected COD of Q3 2022 and is being financed in part through a construction-to-term credit facility of $165,000,000 provided by Prairie Commercial Bank, N.A. The completed project value is estimated at approximately $620,000,000.
Cimarron Solar. The Cimarron Solar project is a 350 MW solar photovoltaic project located in Doña Ana County, New Mexico. The project has an expected COD of Q1 2023 and is being financed in part through a construction-to-term credit facility of $143,000,000 provided by Prairie Commercial Bank, N.A. The completed project value is estimated at approximately $455,000,000.
The material terms of the builder's risk insurance program are summarized below:
• Insurer: Atlantic Builders Assurance Corp. (carrier to be confirmed upon receipt of final binder documentation)
• Coverage Type: All-risk builder's risk / course of construction
• Limits: Project-specific, set at or near the total completed project value
• Mesquite Wind: approximately $620,000,000
• Cimarron Solar: approximately $455,000,000
• Coverage Scope: Physical loss or damage to all work in progress, materials in transit (including inland marine transit of major equipment such as wind turbine nacelles, towers, blades, solar panels, inverters, and transformers), materials at staging areas, temporary structures, and testing and commissioning activities
• Coverage Period: From commencement of construction to the earlier of COD or policy expiration
B. Key Coverage Terms
The builder's risk policies for both the Mesquite Wind and Cimarron Solar projects are written on an all-risk basis, providing coverage for physical loss or damage from any cause not specifically excluded. We reviewed both named-peril and all-risk policy forms during our due diligence and confirmed that the current policies are all-risk.
Key coverage features include:
• Delay in Start-Up (DSU) / Advanced Loss of Profits (ALOP). Both policies include coverage for delay in start-up, which compensates the project company for revenue that would have been earned during the period of delay caused by a covered loss event. DSU / ALOP coverage is a critical feature for project-financed renewable energy projects, as construction delays caused by insured events can result in significant revenue losses under the project's power purchase agreement and can trigger debt service coverage ratio defaults under the construction loan agreement.
• Equipment Breakdown During Testing. Both policies provide coverage for equipment breakdown that occurs during the testing and commissioning phase, which is a period of heightened risk as major equipment (turbines, inverters, transformers, and associated electrical systems) is energized and tested for the first time.
• Inland Transit Coverage. Both policies include inland transit coverage for major equipment being transported to the project site. This is particularly important for the Mesquite Wind project, where wind turbine components (nacelles, towers, and blades) are being transported by oversize / overweight convoys from manufacturing facilities and ports to the remote project site in Oldham County, Texas.
• Additional Insured / Loss Payee. Prairie Commercial Bank, N.A. is named as an additional insured and loss payee / mortgagee under both builder's risk policies, as required by the construction-to-term credit facility loan agreements. Appropriate loss payee and mortgagee endorsements have been issued.
C. IPO Readiness Assessment
The builder's risk insurance program is directly relevant to the IPO for several reasons. First, the Mesquite Wind and Cimarron Solar projects represent significant capital commitments of the Company (with a combined completed project value of approximately $1.075 billion), and the adequacy of builder's risk coverage is material to the Company's overall risk profile as disclosed in the registration statement. Second, the Company intends to allocate approximately $100,000,000 of the primary proceeds of the IPO to the continued construction and development of the Cimarron Solar project, which makes the adequacy and continuity of builder's risk coverage directly relevant to the Company's use-of-proceeds disclosure.
We have identified the following areas for confirmation or further review:
(a) Change of Control / IPO Provisions. The builder's risk policies for both projects must be reviewed for provisions that could be triggered by the IPO. Certain builder's risk policies contain change-of-control clauses that could terminate or modify coverage upon a change in the ownership or control of the named insured or the project company. The transition of CBR from a private to a publicly traded company could potentially be characterized as such a change of control, depending on the specific language of the policies. Fenwick Place must confirm with Atlantic Builders Assurance Corp. that the builder's risk policies do not contain IPO-triggered termination clauses and that no carrier consent is required in connection with the IPO. If carrier consent is required, it should be obtained prior to the closing of the IPO.
(b) Lender Compliance. The Prairie Commercial Bank construction-to-term credit facility agreements for both Mesquite Wind ($165,000,000) and Cimarron Solar ($143,000,000) contain specific insurance requirements with respect to builder's risk coverage. These requirements include, among other things, minimum limits, named insured / additional insured / loss payee requirements, DSU / ALOP coverage, and notice-of-cancellation provisions. We recommend confirming that both builder's risk policies satisfy all of the insurance requirements set forth in the applicable credit agreements. Coordination with Brent Hollowell, SVP, Project Finance at Prairie Commercial Bank (2200 Ross Avenue, Suite 3600, Dallas, TX 75201), may be necessary to confirm lender satisfaction.
(c) Transition to Operations. Upon the achievement of COD for each project, the builder's risk policy will terminate and the project will transition to the Company's operational property insurance program. It is critical to confirm that there is no gap in coverage at the handover point — i.e., that the property insurance policy attaches immediately upon the termination of the builder's risk policy, without any period during which the project is uninsured. Fenwick Place should coordinate the timing of the transition with both Atlantic Builders Assurance Corp. (builder's risk) and Ridgecrest Property & Casualty Co. (property) to ensure seamless coverage continuity.
Subject to the foregoing confirmations, we do not identify material gaps in the builder's risk program. However, the change-of-control confirmation is time-sensitive and should be prioritized in connection with the IPO timeline.
VI. Umbrella / Excess Liability Insurance
A. Program Summary
CBR maintains an umbrella / excess liability insurance program that provides additional limits above the Company's primary CGL, business automobile liability, and employer's liability policies. The material terms of the umbrella / excess liability program are summarized below:
• Insurer(s): Meridian National Assurance Company (umbrella lead; carrier to be confirmed upon receipt of final binder documentation)
• Umbrella / Excess Tower: $50,000,000 aggregate
• Underlying Policies: Follows form over commercial general liability, business automobile liability, and employer's liability
• Self-Insured Retention: $25,000 for claims not covered by any underlying policy (i.e., claims that fall within the umbrella's broader coverage grant but are not covered by an underlying policy)
The umbrella policy is structured on a "follow form" basis, meaning that it generally adopts the terms, conditions, definitions, and exclusions of the underlying primary policies. In addition, the umbrella policy may provide broader coverage in certain respects than the underlying policies, subject to the $25,000 self-insured retention for such claims. The umbrella policy provides an important additional layer of protection for CBR against catastrophic liability events that could exceed the limits of the primary CGL, auto, or employer's liability policies.
B. IPO Readiness Assessment
The $50,000,000 umbrella limit is within the expected range for a company of CBR's size, scope of operations, and risk profile. Utility-scale renewable energy companies with large-scale construction and operational activities, significant employee headcounts, and extensive vehicle fleets typically maintain umbrella / excess liability towers in the range of $25,000,000 to $100,000,000, with $50,000,000 being a common benchmark for companies of CBR's size.
We recommend confirming that the umbrella policy follows form over all relevant underlying policies, including any newly placed or modified policies in connection with the IPO. If any underlying policy is replaced, amended, or restructured as part of the IPO process, it will be important to confirm that the umbrella policy continues to follow form over the replacement or amended policy without any lapse in coverage.
No material gaps have been identified in the umbrella / excess liability program for purposes of the IPO.
VII. Professional Liability / Errors & Omissions Insurance
A. Program Summary
CBR maintains a professional liability / errors and omissions ("E&O") insurance policy that provides coverage for claims arising from the rendering of or failure to render professional services. CBR provides certain energy consulting, project management, and engineering services to third parties and in connection with its own operations and maintenance activities, and the E&O policy is designed to cover claims alleging negligent acts, errors, or omissions in the performance of these professional services. The material terms of the E&O program are summarized below:
• Insurer: Veltrano Professional Indemnity Corp. (carrier to be confirmed upon receipt of final binder documentation)
• Coverage Type: Professional liability / errors and omissions
• Per-Claim Limit: $10,000,000
• Aggregate Limit: $10,000,000
• Retention: $250,000 per claim
• Named Insured: CBR and all subsidiaries
B. IPO Readiness Assessment
The E&O coverage appears adequate for the Company's current operations. The $10,000,000 per-claim and aggregate limits are consistent with industry norms for renewable energy companies that provide project management and engineering services, whether to third-party clients or in connection with their own O&M activities.
We recommend confirming that the E&O policy's named insured definition extends to all CBR subsidiaries, with particular attention to CBR Development Co. LLC, the entity through which the Company conducts its pipeline development activities. CBR Development Co. LLC is responsible for the development of new renewable energy projects, including site selection, permitting, interconnection, resource assessment, and other pre-construction development activities that may involve the rendering of professional opinions or engineering judgments. If CBR Development Co. LLC is not currently covered under the E&O policy, coverage should be extended to include it.
No material IPO-specific issues have been identified with respect to the E&O program.
VIII. Cyber Liability Insurance
A. Program Summary
CBR maintains a cyber liability insurance policy that provides both first-party and third-party coverage for cyber-related losses and liabilities. As a utility-scale renewable energy operator with supervisory control and data acquisition ("SCADA") systems deployed across 22 operating projects and proprietary monitoring software, the Company has significant exposure to cybersecurity risks that could result in operational disruption, data breaches, regulatory investigations, and third-party liability. The material terms of the cyber liability program are summarized below:
• Insurer: Digital Shield Assurance Company (carrier to be confirmed upon receipt of final binder documentation)
• Coverage Type: Cyber liability (first-party and third-party)
• Per-Occurrence Limit: $10,000,000
• Aggregate Limit: $10,000,000
• Retention: $150,000
The cyber liability policy provides the following categories of coverage:
First-Party Coverages:
• Data Breach Response. Covers costs associated with responding to a data breach, including forensic investigation, notification to affected individuals, credit monitoring services, public relations and crisis management, and legal expenses.
• Business Interruption. Covers lost revenue and extra expenses incurred as a result of a network security failure or cyber event that causes an interruption to CBR's business operations.
• Cyber Extortion. Covers ransom payments and related expenses incurred in response to cyber extortion demands (e.g., ransomware attacks).
Third-Party Coverages:
• Network Security Liability. Covers third-party claims arising from a failure to prevent unauthorized access to, or a security breach of, CBR's network or computer systems.
• Privacy Liability. Covers third-party claims arising from a failure to protect personally identifiable information or other confidential data.
B. IPO Readiness Assessment
Cyber insurance is an area of increasing scrutiny for public companies, and the adequacy of cyber coverage is likely to be examined by underwriters, institutional investors, and the Company's post-IPO audit committee. The Company's current $10,000,000 per-occurrence / $10,000,000 aggregate limit is at the lower end of the range maintained by comparable publicly traded infrastructure and renewable energy companies, particularly those with significant operational technology ("OT") and SCADA exposure.
CBR operates SCADA systems across all 22 of its operating projects, representing approximately 3.8 GW of generation and storage capacity. The SCADA systems are used to monitor and control the real-time operation of the Company's wind turbines, solar inverters, battery management systems, and associated electrical infrastructure. In addition, the Company has developed proprietary monitoring software that is used to analyze performance data and optimize asset operations (see Due Diligence Memorandum — Intellectual Property, Doc. 28, for a detailed analysis of the Company's intellectual property portfolio). A cyber intrusion affecting the SCADA systems could, in a worst-case scenario, cause operational disruption across the Company's entire operating portfolio, resulting in significant revenue losses, equipment damage, and potential grid-stability impacts.
Given the scope and significance of this exposure, we recommend that the Company discuss with Fenwick Place whether to increase the cyber liability limits from $10,000,000 to $25,000,000, which would be more consistent with peer-company benchmarks in the utility-scale renewable energy and power infrastructure sectors. The cost of additional coverage should be evaluated in the context of the Company's overall insurance budget and risk tolerance.
Additionally, we recommend that the cybersecurity risk exposure and the limitations of the Company's cyber insurance coverage be flagged for inclusion in the Risk Factors section of the S-1 registration statement. The registration statement drafting team should include customary disclosure regarding the potential for cyber intrusions to disrupt the Company's operations, the risk that SCADA systems and operational technology may be targeted by threat actors, and the possibility that the Company's cyber insurance coverage may not be adequate to cover all losses arising from a significant cyber event.
Action Item: Discuss with Fenwick Place the potential to increase cyber liability limits to $25,000,000. Coordinate with the S-1 drafting team to ensure appropriate cybersecurity risk factor disclosure.
IX. Environmental Liability Insurance
A. Program Summary