1021-00003 · Verimark Hospitality Group · Coverage Analysis & Strategy

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Contract analysis Extract to table

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131

MEMORANDUM

November 1, 2022

FROM: Andrew Fitzpatrick, Associate, Calderwood & Harkness LLP

TO: Elaine Forsythe, Partner, Calderwood & Harkness LLP

CC: Tiffany Rosenthal, Associate, Calderwood & Harkness LLP

RE: Florida Anti-Concurrent Causation Jurisprudence — Application to Ironclad Indemnity Corporation's Flood Exclusion Defense, VHG Hurricane Callista Claim

CLIENT: Verimark Hospitality Group Inc. ("VHG")

ENGAGEMENT NO.: 1021-00003

PRIVILEGE DESIGNATION: Attorney-Client Privileged / Attorney Work Product — Prepared in Anticipation of Litigation

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I. Executive Summary

This memorandum analyzes Florida law governing anti-concurrent causation ("ACC") clauses in all-risk property insurance policies and their interaction with flood exclusions. The analysis is undertaken in the specific context of Ironclad Indemnity Corporation's ("Ironclad") assertion that storm-surge (flood) damage at the Verimark Grand Key Resort triggers the flood exclusion for all concurrent wind damage caused by Hurricane Callista, thereby eliminating or drastically limiting coverage for VHG's catastrophic business interruption losses across its three insured resort properties.

Ironclad issued a reservation of rights letter on October 12, 2022, citing, among other grounds, concurrent causation and the flood exclusion as a basis to deny or limit coverage under its primary property insurance policy, Policy No. IIC-PRP-2022-07541. On February 3, 2023, Ironclad followed with a formal coverage denial letter listing the concurrent causation/flood exclusion defense as one of four stated bases for denial. The three remaining bases for denial — which are addressed in separate memoranda — relate to the alleged windstorm sub-limit, late notice, and a purported vacancy exclusion. This memorandum addresses only the ACC/flood exclusion issue, which represents the most economically significant coverage dispute in the VHG claim.

Conclusion: Florida law generally applies the efficient proximate cause doctrine, which favors coverage where the predominant cause of loss is a covered peril (wind), even if an excluded peril (flood/storm surge) concurrently contributes to the loss. The weight of Florida appellate authority supports VHG's position that the flood exclusion should not bar recovery for wind-caused property damage and the resulting business interruption losses. Even in the unlikely event that a Florida court were to give some effect to the ACC clause, the prevailing approach under Florida law would require apportionment — permitting recovery for the portion of loss attributable to wind — rather than the wholesale denial of coverage that Ironclad seeks.

This analysis is particularly critical with respect to the Verimark Grand Key Resort, located at Mile Marker 48, Marathon, Monroe County, Florida 33050. Grand Key is the property most significantly affected by the ACC/flood exclusion dispute because it experienced both Category 4 sustained winds of 145 mph and storm surge of 8–14 feet during Hurricane Callista's landfall. The property was closed for 178 days, from September 18, 2022 through March 15, 2023, with estimated business interruption losses of $31.4 million. However, as set forth below, the forensic and structural evidence supports the conclusion that wind — not storm surge — was the efficient proximate cause of the property damage and resulting business interruption, even at Grand Key. The total claimed business interruption loss across all three insured VHG properties is approximately $60 million, which equals the full available limit of the insurance tower.

The purpose of this memorandum is to provide the legal framework for VHG's coverage position, to assess the risks associated with Ironclad's concurrent causation defense, and to recommend concrete steps to strengthen VHG's claim in advance of anticipated litigation.

II. Factual Background

A. Hurricane Callista — Relevant Facts

Hurricane Callista was named by the National Hurricane Center ("NHC") on September 12, 2022, after a tropical depression rapidly organized in the southwestern Caribbean Sea. The system intensified quickly, reaching Category 2 strength by September 14 and Category 4 strength by September 17, as it tracked northwest through the Straits of Florida toward the Florida Keys.

On September 16, 2022, Monroe County officials issued a mandatory evacuation order for all non-essential personnel in the Lower and Middle Keys, including Marathon, where VHG's Grand Key Resort is located. On September 17, 2022, Lee County issued a similar mandatory evacuation order for coastal areas including Fort Myers Beach, the site of VHG's Harborview Hotel & Conference Center. Pinellas County issued voluntary evacuation advisories for barrier island communities including St. Pete Beach, where VHG's Sunset Shores property is situated.

Hurricane Callista made landfall on September 18, 2022, at approximately 1:30 PM EDT as a Category 4 hurricane with maximum sustained winds of 145 mph and gusts exceeding 170 mph. The center of the storm crossed the coastline near Big Pine Key in the Lower Florida Keys, approximately 12 miles southwest of Marathon. The NHC and subsequent post-storm analysis confirmed that the eyewall passed directly over the Marathon area, subjecting the region to the most intense winds associated with the storm.

In addition to catastrophic wind, Hurricane Callista generated massive storm surge throughout the Florida Keys and along the southwestern Florida Gulf Coast. Tide gauges and post-storm high-water marks documented by the United States Geological Survey ("USGS") and the Federal Emergency Management Agency ("FEMA") recorded the following surge levels:

• Monroe County (Lower and Middle Keys): 8–14 feet above mean higher high water ("MHHW"), with localized surges exceeding 14 feet near Big Pine Key and Marathon.

• Lee County (Fort Myers Beach and surrounding barrier islands): 6–10 feet above MHHW, with the most severe flooding occurring along Estero Boulevard and the bayside of Fort Myers Beach.

• Pinellas County (St. Pete Beach): 3–5 feet above MHHW, with localized flooding but significantly less storm surge than the Keys or Lee County.

Hurricane Callista caused widespread devastation across southwestern Florida and the Keys, resulting in a presidentially declared major disaster (FEMA-DR-4725-FL) and estimated insured losses statewide exceeding $48 billion, according to preliminary estimates from the Fenmore Group division of Kestrel Enterprises.

VHG's three insured resort properties sustained the following damage and business interruption losses:

Verimark Grand Key Resort (Mile Marker 48, Marathon, Monroe County, FL 33050). Grand Key is a 312-room luxury resort and marina complex situated on approximately 18 acres of oceanfront property. The resort features a main hotel tower (8 stories), two low-rise guest wings (3 stories each), a 65-slip marina, two restaurants, a conference center, a spa, and associated amenities. During Hurricane Callista, the property experienced sustained Category 4 winds and storm surge of 8–14 feet. The hotel tower sustained catastrophic roof damage, including loss of approximately 40% of the roof membrane and significant structural damage to the roof deck. Exterior wall systems on the windward (south) side of the main tower and guest wings suffered multiple breaches, and large-impact window failures were documented on floors 3 through 8 of the main tower. The marina was destroyed. Ground-floor areas of all structures were inundated by storm surge. The resort was closed for 178 consecutive days, from September 18, 2022 through March 15, 2023. The estimated business interruption loss for the Grand Key Resort is $31.4 million, inclusive of lost revenue, continuing expenses, and extra expense incurred during the restoration period. This property is the primary focus of the ACC/flood exclusion issue due to the severity of the storm surge experienced.

Verimark Harborview Hotel & Conference Center (7200 Estero Boulevard, Fort Myers Beach, Lee County, FL 33931). Harborview is a 224-room hotel with a 40,000-square-foot conference facility, situated on the beachfront. The property experienced sustained Category 4 winds (estimated 130–140 mph at the site based on wind field models) and storm surge of 6–10 feet. The property sustained severe roof damage to the conference center and hotel tower, extensive window failures, and ground-floor flooding. The hotel was closed for 135 consecutive days, from September 18, 2022 through January 31, 2023. The estimated business interruption loss is $18.7 million.

Verimark Sunset Shores (4800 Gulf Boulevard, St. Pete Beach, Pinellas County, FL 33706). Sunset Shores is a 186-room boutique resort on the Gulf of Mexico. The property experienced Category 2–3 winds (estimated 110–120 mph at the site) and 3–5 feet of storm surge. The resort sustained significant roof and exterior damage from wind, with more limited flooding confined primarily to the ground-floor lobby and parking areas. The property underwent a partial closure for 73 days, from September 18 through November 30, 2022, followed by reduced-capacity operations through February 2023. The estimated business interruption loss is $9.9 million.

The total claimed business interruption loss across all three VHG properties is approximately $60 million, which corresponds to the full aggregate limit of the insurance tower.

B. The Insurance Program

VHG maintains an all-risk property and business-interruption insurance program arranged through its broker, Coastal Atlantic Risk Advisors LLC, structured as a layered tower with a total available limit of $60 million in excess of a $500,000 per-occurrence deductible. The program is structured as follows:

The policy period for all layers is July 1, 2022 through July 1, 2023. The Ironclad primary policy is the governing policy for purposes of the coverage grant, exclusions, conditions, and definitions applicable to the ACC clause and flood exclusion at issue. The three excess policies are "follow-form" policies that incorporate by reference the terms, conditions, and exclusions of the Ironclad primary policy, subject to certain modifications not relevant to the ACC issue. Accordingly, the resolution of the ACC/flood exclusion issue under the Ironclad primary policy will directly control the outcome under all three excess layers. For this reason, the legal analysis in this memorandum focuses exclusively on the Ironclad primary policy language.

C. Ironclad's Coverage Position on Concurrent Causation

In its reservation of rights letter dated October 12, 2022, addressed to VHG's Chief Financial Officer, Sandra Pellegrino, with a copy to Coastal Atlantic Risk Advisors, Ironclad asserted that substantial portions of the damage at the Verimark Grand Key Resort resulted from storm surge, which constitutes "flood" under the policy. Ironclad took the position that the policy's flood exclusion, as modified by the anti-concurrent causation clause, bars coverage for all damage caused directly or indirectly by storm surge, regardless of whether wind concurrently contributed to the loss. Ironclad further stated that it was reserving its rights to apply the flood exclusion to the Harborview and Sunset Shores properties as well, pending further investigation.

Ironclad's independent adjusting firm, Arbor Claims Services LLC ("Arbor"), based in Jacksonville, Florida, was retained to inspect and adjust the VHG claim. Arbor's lead adjuster, Denise Whitford, CPCU, conducted site inspections of all three VHG properties between October 3 and October 7, 2022. Ms. Whitford inspected the Grand Key Resort on October 5, 2022. According to Arbor's preliminary inspection report (a copy of which has not yet been provided to VHG despite multiple requests), Arbor concluded that "significant portions" of the damage at Grand Key were attributable to storm surge rather than wind. The methodology by which Arbor reached this conclusion, and the qualifications of the individuals who made causation determinations, are presently unknown and will be a primary focus of discovery.

On February 3, 2023, Ironclad issued a formal coverage denial letter to VHG, listing four grounds for denial:

1. The anti-concurrent causation clause and flood exclusion;

2. The purported windstorm sub-limit of $10 million (which VHG contends was deleted at the July 2022 renewal, as discussed in a separate memorandum dated October 20, 2022);

3. Late notice of loss; and

4. The vacancy exclusion as applied to the Grand Key Resort's pre-storm evacuation.

This memorandum addresses only the first of these four grounds.

Ironclad has retained the law firm of Fendowell Rourke & Stanton LLP ("Fendowell Rourke") to serve as coverage counsel. The engagement is led by Gregory Stanton, a partner in Fendowell Rourke's Fort Lauderdale office. Mr. Stanton has represented Ironclad and other property insurers in several prior hurricane coverage disputes in Florida, including post-Hurricane Irma litigation. His positions in those cases have generally reflected aggressive enforcement of ACC clauses and exclusions, with mixed results in the Florida courts.

D. The Relevant Policy Language

The Ironclad primary policy, Policy No. IIC-PRP-2022-07541, is a manuscript all-risk commercial property policy. The coverage grant is stated in Section I (Insuring Agreement), which provides coverage for "all risks of direct physical loss of or damage to Covered Property at the Covered Locations caused by a Covered Cause of Loss during the Policy Period," subject to the policy's terms, conditions, limitations, and exclusions. "Covered Cause of Loss" is defined as "risks of direct physical loss unless the loss is limited or caused by a peril that is excluded." This is a standard broad-form all-risk insuring agreement that shifts the burden to Ironclad to prove the applicability of any exclusion it invokes.

The policy's exclusions are set forth in Section IV (Exclusions). The exclusions are prefaced by an anti-concurrent causation clause, which states as follows:

"B. Excluded Causes of Loss. We will not pay for loss or damage caused directly or indirectly by any of the following excluded causes or events. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss."

This anti-concurrent causation language precedes the enumerated list of excluded causes of loss. The language is designed to operate as a "lead-in" to the exclusions, purporting to negate coverage whenever an excluded cause contributes to a loss in any manner — whether concurrently, sequentially, or in any causal chain — even if a covered cause also contributes.

Among the enumerated exclusions that follow the ACC clause is the flood exclusion, stated at Section IV.B.4:

"4. Flood, meaning: (a) flood, including but not limited to surface water, waves, tidal water, tidal wave, tsunami, storm surge, overflow of any body of water, or their spray, all whether driven by wind or not; (b) mudslide or mudflow; (c) water that backs up or overflows from a sewer, drain, or sump; or (d) water under the ground surface pressing on, or flowing or seeping through: (i) foundations, walls, floors or paved surfaces; (ii) basements, whether paved or not; or (iii) doors, windows, or other openings."

This language is broad and explicitly includes "storm surge" and "waves" within the definition of "flood." Read in conjunction with the ACC clause, the exclusion purports to bar coverage for any loss caused directly or indirectly by storm surge, regardless of whether wind concurrently caused or contributed to the same loss.

It is important to note that this policy language closely mirrors the standard Quillon Group ("ISO") form ACC clause that has been widely used in the commercial property insurance industry since the mid-1980s. The ISO form was specifically developed in response to a series of judicial decisions in the 1980s — most notably in California and other western states — that applied the efficient proximate cause doctrine to find coverage where both covered and excluded perils contributed to a loss. The insurance industry drafted the ACC clause as an attempt to contractually override the efficient proximate cause doctrine and impose an absolute bar to coverage whenever an excluded peril played any role in the loss. As discussed below, Florida courts have not uniformly enforced these clauses, particularly in the hurricane context.

III. Legal Analysis — Florida Anti-Concurrent Causation Doctrine

A. The Efficient Proximate Cause Doctrine in Florida

Florida courts have long applied the "efficient proximate cause" doctrine to determine coverage in cases involving multiple causes of loss, some covered and some excluded. Under this doctrine, where a covered peril is the predominant, dominant, or efficient cause of a loss, coverage exists even if an excluded peril concurrently contributes to the loss or operates in the same causal chain. The doctrine recognizes that in the real world — particularly in catastrophic weather events like hurricanes — multiple perils frequently combine to produce a single indivisible loss, and the question of coverage should turn on which peril was the moving, effective, or dominant cause.

The efficient proximate cause doctrine is rooted in several foundational principles of Florida insurance law:

First, Florida courts construe insurance policy exclusions narrowly and strictly against the insurer. See, e.g., Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000) ("Exclusionary clauses are construed even more narrowly than coverage clauses."); Washington Nat'l Ins. Corp. v. Ruderman, 117 So. 3d 943, 950 (Fla. 2013) (reaffirming that "exclusionary provisions in insurance contracts are to be construed strictly against the insurer"). This principle has particular force where, as here, the insurer invokes a broadly worded exclusion — the ACC clause — that purports to eliminate coverage for an entire category of loss (windstorm damage) merely because another excluded peril (flood) also contributed in some measure.

Second, ambiguities in insurance policies are resolved in favor of coverage and against the insurer as the drafter of the policy. See Swire Pac. Holdings, Inc. v. Glenrock Assurance Ins. Co., 845 So. 2d 161, 165 (Fla. 2003). Where the interaction of the ACC clause, the flood exclusion, and the all-risk coverage grant creates any ambiguity as to whether wind-caused losses are covered, that ambiguity must be resolved in the insured's favor.

Third, in all-risk property insurance policies, the insurer bears the burden of proving that an exclusion applies to bar coverage. See Wallach v. Rosenberg, 527 So. 2d 1386, 1387 (Fla. 3d DCA 1988). Once the insured demonstrates that a loss occurred during the policy period and that the loss falls within the broad all-risk coverage grant, the burden shifts to the insurer to prove that a specific exclusion eliminates coverage. This means that Ironclad — not VHG — bears the burden of proving that storm surge, rather than wind, was the cause of the damage and that the flood exclusion applies.

Fourth, Florida follows the rule that the efficient proximate cause — the dominant, moving, or effective cause of the loss — determines whether coverage exists, rather than merely any contributing cause. This principle prevents an insurer from avoiding its coverage obligations by identifying any contributing excluded peril, no matter how minor, and using it to eliminate coverage for the entire loss. The doctrine was developed precisely to prevent the kind of overreaching that Ironclad's position represents — using the mere presence of some storm surge to eliminate coverage for massive wind damage that independently caused the business interruption.

Florida courts have articulated the efficient proximate cause standard in various formulations. In its most basic form, the doctrine asks: "What was the dominant, moving, or effective cause that set the chain of events in motion and produced the loss?" Where that cause is a covered peril, coverage exists, regardless of whether an excluded peril also contributed to the overall loss. The doctrine is particularly well-suited to hurricane losses, where wind and water are inherently intertwined but where it is both possible and necessary — as a matter of forensic analysis — to distinguish the causal contribution of each peril.

B. Florida Caselaw on ACC Clauses in Property Policies

Florida appellate courts have addressed ACC clauses in the property insurance context on multiple occasions, particularly in the wake of major hurricanes. While no single Florida Supreme Court decision has issued a definitive, all-encompassing ruling on the enforceability of ACC clauses, the weight of authority from both the Supreme Court and the intermediate appellate courts supports the proposition that ACC clauses cannot be enforced to eliminate coverage for losses predominantly caused by a covered peril merely because an excluded peril concurrently contributes.

The Florida Supreme Court's general approach to insurance coverage disputes involving concurrent causation is informed by its broader commitment to construing exclusions narrowly and preventing forfeitures of coverage. In Glenrock Enterprises, 208 So. 3d 694 (Fla. 2016), the Supreme Court addressed the scope of an earth-movement exclusion in a homeowner's policy and reiterated that "exclusionary clauses are to be construed narrowly against the insurer" and that "the insurer bears the burden of demonstrating that a claimed loss falls within the scope of an exclusion." While Sebo did not directly involve an ACC clause, the Court's analytical framework — emphasizing narrow construction of exclusions, the insurer's burden of proof, and the importance of examining the actual cause of the loss — is fully consistent with the efficient proximate cause doctrine and directly applicable to the ACC/flood exclusion issue.

In the context of hurricane litigation, Florida's intermediate appellate courts have produced a body of decisions that is generally favorable to policyholders on the ACC/concurrent causation issue. Several lines of authority are particularly relevant:

Apportionment and Separate Causation. Florida courts have consistently held that where wind and storm surge are concurrent causes of loss but cause distinguishable damage to different portions or components of a property, the insured is entitled to recover for the wind-caused damage and the insurer may exclude only the damage attributable to flood. This apportionment approach was applied in numerous post-Hurricane Andrew cases in the 1990s, where Miami-Dade County courts routinely required insurers to pay for wind damage while permitting exclusion of only the separately identifiable flood damage. The approach recognizes that wind and storm surge, while occurring during the same hurricane event, are functionally independent perils that cause different types of damage through different mechanisms. Wind causes structural damage through pressure differentials, uplift, and debris impact; storm surge causes damage through hydrostatic pressure, buoyancy, and water inundation. Forensic engineers can differentiate these damage patterns, and courts have relied on such evidence to apportion losses between covered and excluded causes.

Efficient Proximate Cause as the Governing Standard. Multiple Florida appellate decisions have applied the efficient proximate cause doctrine in the hurricane context. In cases arising from Hurricanes Andrew (1992), Charley and Ivan (2004), Wilma (2005), Irma (2017), and Michael (2018), Florida courts have held that where wind is the efficient proximate cause of a loss — the dominant force that set the loss-producing chain of events in motion — the insured is entitled to coverage even if storm surge contributed to the overall damage. This line of authority recognizes that in a major hurricane, the wind is the driving force that generates the storm surge itself, and that treating wind and surge as entirely separate and independent perils for coverage purposes — as Ironclad's ACC clause purports to do — is both scientifically inaccurate and inequitable.

Narrow Construction of ACC Clauses. Several Florida appellate panels have specifically addressed ACC clauses and have declined to enforce them in a manner that would eliminate coverage for wind-caused losses. These courts have reasoned that enforcing ACC clauses literally in the hurricane context would render windstorm coverage illusory for coastal properties, because virtually every major hurricane that strikes the Florida coast produces some degree of storm surge. If the mere presence of any storm surge were sufficient to trigger the flood exclusion for all damage at a coastal property — as the ACC clause purports to provide — then the windstorm coverage that the insured purchased and the insurer charged a premium for would be meaningless. Florida courts have recognized this illusory-coverage problem and have construed ACC clauses narrowly to avoid it.

The Florida Third District Court of Appeal, which encompasses Miami-Dade and Monroe Counties (including Marathon, where Grand Key Resort is located), has been particularly receptive to the efficient proximate cause doctrine in hurricane cases. This is significant because VHG's most contested property — Grand Key — falls within the Third District's jurisdiction.

Distinguishing Cases Enforcing ACC Clauses. It is important to acknowledge that not all Florida decisions have been uniformly favorable to policyholders on the ACC issue. Certain Florida decisions — and particularly several decisions by federal district courts sitting in Florida and applying Florida law — have given broader effect to ACC clauses. However, these decisions can generally be distinguished on their facts. In some cases, the excluded peril (e.g., flood or earth movement) was truly the dominant and overwhelming cause of the loss, and the court's enforcement of the ACC clause merely confirmed a result that would have been the same under the efficient proximate cause doctrine. In other cases, the insured failed to present competent forensic evidence differentiating covered and excluded causes of loss, leaving the court with no basis for apportionment and effectively conceding that the causes were inseparable. In still other cases, the policy language at issue differed materially from the standard ISO-form ACC clause in the Ironclad policy. None of these distinguishing circumstances is present here: VHG has retained a qualified forensic engineer (Jeffrey Caldwell, PE), the wind damage at all three properties is forensically distinguishable from the storm surge damage, and the Ironclad ACC clause is the standard ISO-form language that has been critically analyzed and narrowly construed by the majority of Florida courts.

C. The "Concurrent vs. Independent" Cause Distinction

A critical analytical framework in Florida concurrent causation law is the distinction between truly concurrent causes and independent or sequential causes.

Truly Concurrent Causes. Truly concurrent causes are perils that operate simultaneously on the same property, at the same time, producing an indivisible loss that cannot be separated or apportioned. The classic example would be wind and storm surge striking the same wall of a building at the same moment, with the resulting structural failure being attributable to the combined force of both perils in a manner that cannot be disaggregated. Where causes are truly concurrent in this strict sense, the efficient proximate cause doctrine asks which peril was the dominant or moving cause, and coverage is determined accordingly. Under Florida law, where the causes are truly inseparable, the burden falls on the insurer to prove that the excluded peril — not the covered peril — was the efficient proximate cause. If the insurer cannot carry this burden, coverage exists.

Independent or Sequential Causes. Independent or sequential causes are perils that, while occurring during the same weather event, operate on different portions or components of the property, at different times, or through different mechanisms, producing distinguishable and separable damage. In the hurricane context, this is the far more common scenario. Wind typically causes damage to upper stories, roofs, windows, and exterior wall systems through pressure differentials, uplift forces, and windborne debris. Storm surge typically causes damage to ground-floor and below-grade areas through hydrostatic pressure, buoyancy, and water inundation. The damage patterns are forensically distinguishable, and courts have routinely permitted apportionment in such cases.

Where wind and storm surge operate as independent causes on distinct portions of the damage, the efficient proximate cause doctrine allows — and indeed requires — apportionment. The insured recovers for the damage caused by wind (the covered peril), and the insurer excludes only the damage attributable solely to flood (the excluded peril). The ACC clause, even if given some effect, cannot operate to bar recovery for independently caused wind damage that is forensically distinguishable from storm surge damage.

This distinction is critical to VHG's claim because, at all three properties, much of the wind damage is independently identifiable and clearly separable from the storm surge damage. For example, at Grand Key Resort, the catastrophic roof damage to the main hotel tower — loss of 40% of the roof membrane, structural damage to the roof deck — was caused exclusively by Category 4 winds. Storm surge, by definition, does not damage eighth-floor roof systems. Similarly, the large-impact window failures on floors 3 through 8 were caused by windborne debris and wind pressure, not by storm surge that reached, at most, the ground-floor level. Conversely, the ground-floor flooding and marina destruction at Grand Key may be partially or predominantly attributable to storm surge. The point is that these are separable causes producing separable damage, and the ACC clause cannot be used to deny coverage for the independently caused wind damage.

The importance of forensic engineering evidence in making this distinction cannot be overstated. Calderwood & Harkness has retained Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc. (Doral, FL), a licensed professional engineer with over twenty years of experience in forensic analysis of hurricane damage, to provide precisely this differentiation at each of VHG's three properties. Mr. Caldwell's credentials include testimony as an expert witness in over forty hurricane-related insurance disputes in Florida, and he has been qualified as an expert by courts in the Third, Fourth, and Fifth Districts of Appeal. His analysis will be critical to establishing that wind damage and storm surge damage are independently identifiable at each property and that wind was the efficient proximate cause of the business interruption.

D. Public Policy Considerations in Florida

Beyond the doctrinal analysis, Florida's status as the most hurricane-prone state in the nation implicates significant public policy considerations that bear on the enforceability of ACC clauses in the windstorm/flood context.

Florida's property insurance market is uniquely shaped by hurricane risk. Windstorm coverage is the single most important coverage for coastal commercial properties, and it is the most expensive component of any property insurance program for properties located in hurricane-exposed areas. VHG paid substantial premiums — approximately $2.8 million annually for the primary Ironclad policy alone — specifically for the protection that windstorm coverage provides. Ironclad accepted those premiums, underwrote the risk with full knowledge that VHG's properties were located in hurricane-exposed coastal areas of Monroe, Lee, and Pinellas Counties, and priced the coverage to reflect the windstorm exposure. For Ironclad now to invoke the ACC clause and flood exclusion to avoid paying for wind-caused damage — the very risk it was paid to insure — raises fundamental fairness concerns that Florida courts have recognized as matters of public policy.

Florida's strong public policy favoring coverage for hurricane-related losses is well-documented in the case law and reflected in the Florida Legislature's extensive regulation of the property insurance market. The Florida Legislature has enacted numerous consumer-protection statutes governing property insurance, including statutes requiring prompt payment of claims, prohibiting unfair claims practices, and regulating the use of exclusionary language in property policies. Florida's Office of Insurance Regulation ("OIR") has scrutinized overly broad exclusionary language in property policies and has, in certain instances, required insurers to narrow or clarify exclusions that would render coverage illusory for hurricane-related losses.

The argument that enforcing ACC clauses literally would render windstorm coverage illusory is especially compelling in the Florida context. Virtually every major hurricane that makes landfall in Florida produces some degree of storm surge along the coast. If the ACC clause is enforced as Ironclad urges — barring all coverage whenever any storm surge contributes to the loss — then no coastal property in Florida would ever collect on its windstorm coverage following a major hurricane. This result would be absurd and would render the windstorm coverage that insurers sell, and that policyholders purchase at great expense, entirely meaningless. Florida courts have recognized this illusory-coverage problem and have relied on it as an independent basis for declining to enforce ACC clauses in the hurricane context.

Furthermore, VHG's three resort properties are significant contributors to Florida's tourism economy. The Grand Key Resort, Harborview Hotel, and Sunset Shores collectively employ over 1,200 workers and generate substantial tax revenue for Monroe, Lee, and Pinellas Counties. The prompt recovery of these properties — which depends on the availability of insurance proceeds — is a matter of public interest. A ruling that ACC clauses can be used to deny windstorm coverage for coastal hospitality properties would have devastating consequences for the Florida tourism industry, discouraging investment in coastal properties and undermining the purpose of the property insurance market.

IV. Application to VHG's Claim

A. Grand Key Resort — Primary Focus

The Verimark Grand Key Resort, located at Mile Marker 48 in Marathon, Monroe County, Florida, is the property most significantly impacted by storm surge during Hurricane Callista and therefore represents the most closely contested factual battleground for the ACC/flood exclusion issue.

As noted above, Monroe County recorded storm surge levels of 8–14 feet during Hurricane Callista's landfall. The Grand Key Resort is situated on the oceanfront, with ground-floor elevations of approximately 6 feet above mean sea level. The storm surge thus inundated the ground-floor areas of all structures on the property, including the lobby, ground-floor guest rooms, restaurants, mechanical rooms, and back-of-house facilities. The 65-slip marina was destroyed. This ground-floor flooding and marina damage may be partially or predominantly attributable to storm surge, and Ironclad will undoubtedly point to this damage in support of its concurrent causation defense.

However, the Category 4 winds that accompanied the storm surge caused massive independent structural damage to the Grand Key Resort that is clearly attributable to wind and entirely separate from water inundation. Specifically:

• Roof damage. Approximately 40% of the roof membrane on the main hotel tower (an 8-story structure) was torn off by wind, and the underlying roof deck sustained significant structural damage. This damage occurred at the 80+ foot elevation and could not have been caused by storm surge. Wind pressure and suction forces were the sole cause of this damage.

• Exterior wall breaches. The windward (south-facing) exterior wall systems of the main tower and both guest wings sustained multiple breaches from wind pressure and windborne debris impact. These breaches occurred on upper floors and are forensically distinguishable from any surge-related damage.

• Window failures. Large-impact-resistant windows on floors 3 through 8 of the main tower failed due to windborne debris impact and positive wind pressure. Again, these failures occurred well above the storm surge level and are attributable exclusively to wind.

• Debris impact. Significant structural damage was caused by windborne debris, including portions of adjacent structures, signage, landscaping materials, and marina components that became airborne during the storm. The pattern and location of debris-impact damage can be forensically mapped and attributed to wind.

• Structural compromise. The combination of roof loss, wall breaches, and window failures allowed wind-driven rain to penetrate the interior of the building on all floors, causing extensive damage to guest rooms, corridors, mechanical systems, and furnishings. This secondary damage, while involving water, was caused by wind-driven rain entering through wind-created openings, not by storm surge, and is properly classified as wind damage under Florida law. See, e.g., Essex Builders Grp., Inc. v. Ameritas Life Partners Corp., 2006 WL 1733857 (M.D. Fla. June 20, 2006) (wind-driven rain through wind-damaged openings is wind damage, not flood).

The 178-day business interruption at the Grand Key Resort ($31.4 million in estimated BI losses) encompasses losses resulting from both wind and surge damage. However, the wind damage alone was sufficient to close the property for the full 178-day period. Even if the storm surge had never occurred — even if there had been zero feet of surge — the catastrophic roof damage, wall breaches, and window failures caused by Category 4 winds would have rendered the Grand Key Resort uninhabitable and inoperable for the same 178-day period. The roof damage alone required full replacement and took approximately five months to complete. The structural repairs to the wall systems and window replacements required an additional period. These wind-damage repairs were on the critical path of the restoration timeline, meaning they controlled the overall duration of the closure regardless of the concurrent surge damage.

This is a critical point for the efficient proximate cause analysis. Where the covered peril (wind) independently caused sufficient damage to produce the full business interruption loss — and where the concurrent excluded peril (surge) was not necessary to produce that loss — wind is the efficient proximate cause of the business interruption. The flood exclusion does not apply to eliminate BI coverage under these circumstances, even if surge contributed to some component of the physical damage.

Our preliminary assessment, pending the completion of the full forensic engineering analysis by Jeffrey Caldwell, PE, is that wind was the efficient proximate cause of the business interruption at the Grand Key Resort because the structural damage from wind alone rendered the property uninhabitable and inoperable, independent of and regardless of the concurrent storm surge. Mr. Caldwell's preliminary site visit on October 19, 2022 confirmed that the damage patterns at Grand Key are consistent with this assessment, though his formal report is not expected until approximately December 15, 2022.

Even under an apportionment approach — if a court were to decline to apply the efficient proximate cause doctrine and instead require allocation of the loss between wind and surge — a substantial majority of the BI loss at Grand Key is attributable to wind. The wind-damage repairs, not the flood remediation, drove the critical-path timeline for restoration. The physical damage to the upper stories (caused exclusively by wind) was more extensive and more costly to repair than the ground-floor flooding (caused primarily by surge). A preliminary estimate, subject to refinement by Caldwell Engineering and Dr. Vasquez, suggests that wind accounts for 70–80% of the total restoration cost and approximately 85% of the BI loss at Grand Key.

B. Harborview and Sunset Shores

The Verimark Harborview Hotel & Conference Center in Fort Myers Beach, Lee County, experienced 6–10 feet of storm surge in conjunction with Category 4 winds estimated at 130–140 mph at the site. The property sustained severe roof damage to both the hotel tower and the conference facility, extensive upper-story window failures, and ground-floor flooding. The pattern of damage is similar to Grand Key, though with somewhat less severe storm surge. As with Grand Key, the wind damage at Harborview is independently identifiable, occurred on upper stories well above the surge level, and was on the critical path of the 135-day restoration period. Wind was clearly the efficient proximate cause of the business interruption at Harborview. The 6–10 foot storm surge caused significant ground-floor damage, but the wind damage alone would have required the full closure period. The ACC/flood exclusion defense is weaker as to Harborview than as to Grand Key, given the lower storm surge levels and the even more pronounced dominance of wind as the cause of structural damage.

The Verimark Sunset Shores in St. Pete Beach, Pinellas County, experienced the least storm surge of the three properties — 3–5 feet — with Category 2–3 winds estimated at 110–120 mph at the site. Wind damage was overwhelmingly the predominant cause of damage at Sunset Shores. The storm surge was confined primarily to the ground-floor lobby and parking areas and caused relatively modest damage compared to the extensive roof, wall, and window damage caused by wind. The 73-day partial closure and subsequent reduced-capacity operations were driven almost entirely by wind-damage repairs. The ACC/flood exclusion argument is weakest as to this property, where wind is clearly and overwhelmingly the dominant cause of loss. We do not believe Ironclad can mount a credible concurrent causation defense as to Sunset Shores, and even Ironclad's reservation of rights letter acknowledged that the flood exclusion issue was "primarily" directed at the Grand Key and Harborview properties.

C. Rebutting Ironclad's Position

Ironclad's position — that any concurrent storm surge damage triggers the flood exclusion for all damage at the property, barring recovery for the entire claim — is inconsistent with the weight of Florida authority and should be rejected for the following reasons:

First, the efficient proximate cause doctrine, as applied by the majority of Florida courts, holds that coverage is determined by the dominant or moving cause of the loss. Where wind is the efficient proximate cause — as it is here, at all three properties — the flood exclusion does not bar recovery for the wind-caused losses.

Second, even if the ACC clause is given some effect, Florida courts have consistently required apportionment rather than wholesale denial where the causes of loss are independently identifiable and separable. The wind damage at VHG's properties is forensically distinguishable from the storm surge damage, and apportionment is both feasible and required. The ACC clause, at most, operates to exclude the indivisible portion of loss attributable solely to flood; it cannot be used to eliminate coverage for separately identifiable wind damage.

Third, Ironclad bears the burden of proving the applicability of the flood exclusion. In an all-risk policy, the insured need only demonstrate that a covered loss occurred; the insurer must then prove that an exclusion applies. Ironclad has the burden of demonstrating — through competent forensic evidence, not mere assertion — that storm surge, rather than wind, caused the specific damage for which it seeks to deny coverage. To date, Ironclad has not presented any such evidence to VHG, and its reliance on Arbor Claims' preliminary and unsubstantiated conclusions is insufficient.

Fourth, enforcing the ACC clause as Ironclad urges would render VHG's windstorm coverage illusory. VHG purchased all-risk property insurance specifically to protect against hurricane losses at its coastal Florida properties. Ironclad underwrote and priced the coverage with full knowledge of the hurricane exposure. If the ACC clause eliminates all windstorm coverage whenever any storm surge is present — as it inevitably will be during a major hurricane at a coastal property — then the coverage VHG purchased is meaningless. Florida courts have recognized this illusory-coverage problem and have declined to enforce ACC clauses that produce this result.

Fifth, it bears noting the interaction between the ACC/flood exclusion issue and the separate windstorm sub-limit dispute analyzed in our October 20, 2022 memorandum. VHG contends that the $10 million windstorm sub-limit that appeared in the prior policy year was deleted at the July 2022 renewal, such that the full $25 million primary policy limit applies to windstorm damage without sub-limitation. If VHG prevails on the sub-limit issue (as we believe it will, based on the broker's placement slip and the renewal correspondence), then the full policy limits apply to wind damage, further undermining Ironclad's attempt to use the flood exclusion to avoid the majority of its coverage obligation. The two issues are interrelated: if Ironclad cannot limit its exposure through the windstorm sub-limit, it has an even stronger incentive to invoke the flood exclusion/ACC clause to reduce its liability, and its doing so should be viewed in that context.

V. Comparison with Other Jurisdictions

While Florida law controls this dispute — the Ironclad primary policy contains a Florida governing-law provision, and all three insured properties are located in Florida — a brief survey of how other hurricane-prone jurisdictions have addressed ACC clauses in the wind/flood context is informative for two reasons: (1) Ironclad may cite out-of-state decisions in support of its position, and we should be prepared to distinguish them; and (2) the comparison highlights the relative strength of VHG's position under Florida law.

Mississippi — Fifth Circuit Post-Katrina Litigation. The most prominent body of law on ACC clauses in the hurricane context arose from the massive volume of coverage litigation following Hurricane Katrina's landfall in Mississippi in August 2005. In a series of decisions, the United States Court of Appeals for the Fifth Circuit, applying Mississippi law, enforced ACC clauses to bar coverage where wind and storm surge concurrently caused damage. Most notably, in Leonard v. Nationwide Mutual Insurance Co., 499 F.3d 419 (5th Cir. 2007), the Fifth Circuit held that a homeowner's policy ACC clause barred coverage for damage caused by a combination of wind and storm surge, reasoning that the ACC clause was clear and unambiguous and must be enforced as written under Mississippi law. The Fifth Circuit declined to apply the efficient proximate cause doctrine, holding that the ACC clause effectively contracted around it. Similarly, in Tuepker v. State Farm Fire & Casualty Co., 507 F.3d 346 (5th Cir. 2007), the court upheld the enforceability of an ACC clause in a flood exclusion context, requiring the insured to prove which portions of the damage were caused exclusively by wind in order to recover.

These Fifth Circuit decisions represent the most aggressive judicial enforcement of ACC clauses in the hurricane context. However, they are distinguishable from the present case on several grounds. Most importantly, these cases applied Mississippi law, not Florida law. Mississippi does not apply the efficient proximate cause doctrine in the same manner as Florida, and the Mississippi Supreme Court has not adopted the same pro-coverage interpretive principles that Florida courts apply. Additionally, the Mississippi cases involved homeowner's policies, not commercial all-risk policies with the broad coverage grants at issue here. Florida courts have expressly declined to follow the Fifth Circuit's Mississippi approach in addressing ACC clauses under Florida law.

Texas. Texas courts have adopted a mixed approach to ACC clauses. The Texas Supreme Court has recognized the efficient proximate cause doctrine but has also given effect to ACC clauses in certain circumstances. However, Texas courts have generally required apportionment where the causes are separable, consistent with the approach favored under Florida law. Texas law is not directly applicable here but does not support Ironclad's absolutist position.

Louisiana. Louisiana courts, applying civil law principles, have generally required apportionment of hurricane losses between wind and flood damage. Post-Katrina Louisiana decisions have been largely favorable to policyholders, requiring insurers to pay for the wind-caused portion of hurricane losses and excluding only the flood-caused portion. The Louisiana approach is consistent with Florida's apportionment framework.

Legislative Responses. Several Gulf Coast states have enacted or considered legislation limiting the enforceability of ACC clauses in the windstorm/flood context. Mississippi enacted legislation in 2007 requiring property insurers to provide clearer notice of ACC clauses and flood exclusions. While no Florida statute directly addresses ACC clauses, the Florida Legislature's broader consumer-protection framework for property insurance — including the Valued Policy Law (Fla. Stat. § 627.702) and the prompt-payment statutes — reflects a legislative policy favoring coverage for hurricane-related losses.

In summary, Florida law is among the most favorable in the nation for policyholders on the ACC/concurrent causation issue. Ironclad will likely cite Fifth Circuit Mississippi precedent in support of its position, but those decisions are distinguishable and have not been followed by Florida courts. Florida law controls this dispute, and Florida's approach strongly favors VHG's position.

VI. Evidentiary Strategy — Building the Record

To maximize VHG's position under the efficient proximate cause doctrine — and to protect against the risk of a court requiring apportionment — Calderwood & Harkness must build a comprehensive factual record demonstrating that wind was the predominant cause of property damage and resulting business interruption at each of VHG's three resort properties. The evidentiary strategy has several components:

Forensic Engineering. Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc. (Doral, FL), has been retained to perform a detailed forensic engineering analysis of the hurricane damage at each property. Mr. Caldwell's scope of work includes: (1) physical inspection of all three properties; (2) review of meteorological data, including wind speed records, storm surge measurements, and radar imagery; (3) identification and mapping of wind damage versus storm surge damage at each property, using established forensic methodologies including damage pattern analysis, structural load calculations, and waterline/debris evidence; (4) determination of the efficient proximate cause of the business interruption at each property; and (5) preparation of a written expert report suitable for use in litigation. Mr. Caldwell conducted a preliminary site inspection at Grand Key on October 19, 2022, with inspections of Harborview and Sunset Shores scheduled for November 8–9, 2022. His formal report is expected by approximately December 15, 2022. His analysis will be the foundation of VHG's efficient proximate cause argument and any apportionment analysis the court may require.

Financial/Business Interruption Expert. Dr. Helen Vasquez of Meridian Forensic Economics LLC (Tampa, FL) has been engaged to quantify VHG's business interruption losses. In addition to her primary assignment — calculating the full $60 million BI loss across all three properties — Dr. Vasquez should be directed to prepare an alternative BI loss calculation that isolates the wind-only losses at each property. This alternative calculation would model the BI losses that would have resulted from wind damage alone, assuming no storm surge damage had occurred. This wind-only BI model serves two strategic purposes: (1) it provides a fallback damages figure in the event the court allows partial application of the flood exclusion and requires apportionment of BI losses; and (2) it affirmatively demonstrates that wind damage alone was sufficient to cause the full closure period at each property, supporting the efficient proximate cause argument. Dr. Vasquez should coordinate closely with Mr. Caldwell so that her wind-only BI model is consistent with his forensic engineering conclusions regarding the physical cause of the damage.

Deposition Targets. Calderwood & Harkness's litigation plan should include depositions of the following key witnesses:

• Victor Haddon, Senior Vice President of Claims, Ironclad Indemnity Corporation. Mr. Haddon is the senior claims executive responsible for the VHG claim. His deposition should explore: Ironclad's internal decision-making process regarding the concurrent causation/flood exclusion defense; whether Ironclad conducted any independent analysis to differentiate wind and flood damage; the basis for Ironclad's conclusion that the ACC clause applies to bar coverage; and any internal communications regarding the VHG claim.

• Denise Whitford, CPCU, Lead Adjuster, Arbor Claims Services LLC. Ms. Whitford conducted the site inspections and prepared the preliminary cause-of-loss report on which Ironclad's coverage denial is based. Her deposition should explore: her methodology for determining the cause of loss at each property; whether she differentiated wind damage from storm surge damage; her qualifications (or lack thereof) to render engineering opinions on causation; the instructions she received from Ironclad; and the contents of her inspection report and file.

Document discovery. Calderwood & Harkness should seek comprehensive document discovery from Ironclad, including: (1) the complete claim file, including all internal memoranda, email communications, and notes relating to the VHG claim; (2) all communications between Ironclad and Arbor Claims Services regarding the cause-of-loss analysis and the concurrent causation defense; (3) any engineering reports, meteorological analyses, or expert analyses commissioned by Ironclad in connection with the VHG claim; (4) Ironclad's claims-handling guidelines and internal policies relating to the application of ACC clauses and flood exclusions in hurricane claims; and (5) documents relating to Ironclad's handling of other Hurricane Callista claims involving concurrent wind and storm surge damage, which may reveal inconsistent positions or differential treatment of similarly situated claims.

VII. Potential Counterarguments and Risk Assessment

A. Ironclad's Likely Arguments

We should anticipate the following arguments from Ironclad and its defense counsel, Gregory Stanton of Fendowell Rourke & Stanton LLP:

Plain Language Enforcement. Ironclad's primary argument will be that the ACC clause is clear and unambiguous on its face and must be enforced as written. The clause states that losses caused "directly or indirectly" by flood are excluded "regardless of any other cause or event that contributes concurrently or in any sequence." Ironclad will argue that this language plainly bars coverage for any loss to which storm surge contributed, even if wind concurrently caused damage, and that the court should not rewrite the contract or override the parties' bargained-for allocation of risk. This argument has surface appeal but is inconsistent with the weight of Florida authority, which holds that ACC clauses cannot override the efficient proximate cause doctrine and cannot render coverage illusory.

Selective Citation of Authority. Ironclad will likely cite the Fifth Circuit's Mississippi decisions (Leonard, Tuepker) and any Florida decisions — particularly federal court decisions applying Florida law — that have given broader effect to ACC clauses. We should be prepared to distinguish these decisions as discussed in Section V above. We should also monitor for any new decisions issued before litigation is filed, particularly from the Eleventh Circuit or the Florida appellate courts.

Storm Surge as Efficient Proximate Cause. Ironclad may argue that storm surge — not wind — was the efficient proximate cause of the closure of the Grand Key Resort, given the 8–14 feet of surge recorded in Monroe County. Ironclad's position may be that the magnitude of the surge was so overwhelming that it was the dominant cause of the loss, and that the wind damage — while severe — was secondary. This argument will be supported by Ironclad's damages expert, Dr. Warren Birk of Graystone Consulting Group LLC (Chicago, IL), who may attempt to attribute a disproportionate share of the physical damage and resulting BI loss to flood/storm surge. We anticipate that Dr. Birk will rely heavily on the surge levels and the extent of ground-floor flooding to support an allocation that favors the excluded peril.

Our response to this argument is that the efficient proximate cause inquiry is not simply a comparison of surge height to wind speed. The question is which peril was the dominant cause of the specific loss at issue — the business interruption. Wind damage alone was sufficient to close Grand Key for the full 178-day period, because the roof, wall, and window damage caused by wind rendered the property uninhabitable regardless of the surge. The surge remediation (pumping water, drying, remediating mold) was completed faster than the structural wind-damage repairs that drove the critical path. Jeffrey Caldwell's engineering analysis will be essential to rebutting this argument.

Failure to Segregate Causes. Ironclad may argue that VHG has failed to segregate wind damage from flood damage and therefore cannot recover for any portion of the loss. This argument would invoke the principle that where the insured cannot prove which portion of the loss was caused by a covered peril, the insurer has no obligation to pay any portion of the claim. Our response is that VHG has retained a qualified forensic engineer specifically to make this segregation, that the damage patterns are forensically distinguishable, and that the burden of proving the exclusion applies rests on Ironclad, not on VHG.

B. Risk Assessment

Overall Assessment. VHG's position on the ACC/flood exclusion issue is strong under Florida law, particularly as to the Harborview and Sunset Shores properties. The efficient proximate cause doctrine, Florida's pro-coverage interpretive principles, the narrow construction of exclusions, the insurer's burden of proof, and the illusory-coverage doctrine all favor VHG's position.

Grand Key Resort. Grand Key presents the most contested factual question due to the severity of storm surge in Monroe County (8–14 feet). Ironclad will mount its strongest ACC/flood exclusion defense at this property. However, even at Grand Key, Category 4 winds at 145 mph caused massive independent structural damage — to the roof, exterior walls, and windows — that is clearly attributable to wind and that alone justified the full 178-day closure period. The risk of a total exclusion of the Grand Key claim on ACC/flood grounds is low under prevailing Florida law. However, som

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131
MEMORANDUM
November 1, 2022
FROM: Andrew Fitzpatrick, Associate, Calderwood & Harkness LLP
TO: Elaine Forsythe, Partner, Calderwood & Harkness LLP
CC: Tiffany Rosenthal, Associate, Calderwood & Harkness LLP
RE: Florida Anti-Concurrent Causation Jurisprudence — Application to Ironclad Indemnity Corporation's Flood Exclusion Defense, VHG Hurricane Callista Claim
CLIENT: Verimark Hospitality Group Inc. ("VHG")
ENGAGEMENT NO.: 1021-00003
PRIVILEGE DESIGNATION: Attorney-Client Privileged / Attorney Work Product — Prepared in Anticipation of Litigation
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I. Executive Summary
This memorandum analyzes Florida law governing anti-concurrent causation ("ACC") clauses in all-risk property insurance policies and their interaction with flood exclusions. The analysis is undertaken in the specific context of Ironclad Indemnity Corporation's ("Ironclad") assertion that storm-surge (flood) damage at the Verimark Grand Key Resort triggers the flood exclusion for all concurrent wind damage caused by Hurricane Callista, thereby eliminating or drastically limiting coverage for VHG's catastrophic business interruption losses across its three insured resort properties.
Ironclad issued a reservation of rights letter on October 12, 2022, citing, among other grounds, concurrent causation and the flood exclusion as a basis to deny or limit coverage under its primary property insurance policy, Policy No. IIC-PRP-2022-07541. On February 3, 2023, Ironclad followed with a formal coverage denial letter listing the concurrent causation/flood exclusion defense as one of four stated bases for denial. The three remaining bases for denial — which are addressed in separate memoranda — relate to the alleged windstorm sub-limit, late notice, and a purported vacancy exclusion. This memorandum addresses only the ACC/flood exclusion issue, which represents the most economically significant coverage dispute in the VHG claim.
Conclusion: Florida law generally applies the efficient proximate cause doctrine, which favors coverage where the predominant cause of loss is a covered peril (wind), even if an excluded peril (flood/storm surge) concurrently contributes to the loss. The weight of Florida appellate authority supports VHG's position that the flood exclusion should not bar recovery for wind-caused property damage and the resulting business interruption losses. Even in the unlikely event that a Florida court were to give some effect to the ACC clause, the prevailing approach under Florida law would require apportionment — permitting recovery for the portion of loss attributable to wind — rather than the wholesale denial of coverage that Ironclad seeks.
This analysis is particularly critical with respect to the Verimark Grand Key Resort, located at Mile Marker 48, Marathon, Monroe County, Florida 33050. Grand Key is the property most significantly affected by the ACC/flood exclusion dispute because it experienced both Category 4 sustained winds of 145 mph and storm surge of 8–14 feet during Hurricane Callista's landfall. The property was closed for 178 days, from September 18, 2022 through March 15, 2023, with estimated business interruption losses of $31.4 million. However, as set forth below, the forensic and structural evidence supports the conclusion that wind — not storm surge — was the efficient proximate cause of the property damage and resulting business interruption, even at Grand Key. The total claimed business interruption loss across all three insured VHG properties is approximately $60 million, which equals the full available limit of the insurance tower.
The purpose of this memorandum is to provide the legal framework for VHG's coverage position, to assess the risks associated with Ironclad's concurrent causation defense, and to recommend concrete steps to strengthen VHG's claim in advance of anticipated litigation.
II. Factual Background
A. Hurricane Callista — Relevant Facts
Hurricane Callista was named by the National Hurricane Center ("NHC") on September 12, 2022, after a tropical depression rapidly organized in the southwestern Caribbean Sea. The system intensified quickly, reaching Category 2 strength by September 14 and Category 4 strength by September 17, as it tracked northwest through the Straits of Florida toward the Florida Keys.
On September 16, 2022, Monroe County officials issued a mandatory evacuation order for all non-essential personnel in the Lower and Middle Keys, including Marathon, where VHG's Grand Key Resort is located. On September 17, 2022, Lee County issued a similar mandatory evacuation order for coastal areas including Fort Myers Beach, the site of VHG's Harborview Hotel & Conference Center. Pinellas County issued voluntary evacuation advisories for barrier island communities including St. Pete Beach, where VHG's Sunset Shores property is situated.
Hurricane Callista made landfall on September 18, 2022, at approximately 1:30 PM EDT as a Category 4 hurricane with maximum sustained winds of 145 mph and gusts exceeding 170 mph. The center of the storm crossed the coastline near Big Pine Key in the Lower Florida Keys, approximately 12 miles southwest of Marathon. The NHC and subsequent post-storm analysis confirmed that the eyewall passed directly over the Marathon area, subjecting the region to the most intense winds associated with the storm.
In addition to catastrophic wind, Hurricane Callista generated massive storm surge throughout the Florida Keys and along the southwestern Florida Gulf Coast. Tide gauges and post-storm high-water marks documented by the United States Geological Survey ("USGS") and the Federal Emergency Management Agency ("FEMA") recorded the following surge levels:
• Monroe County (Lower and Middle Keys): 8–14 feet above mean higher high water ("MHHW"), with localized surges exceeding 14 feet near Big Pine Key and Marathon.
• Lee County (Fort Myers Beach and surrounding barrier islands): 6–10 feet above MHHW, with the most severe flooding occurring along Estero Boulevard and the bayside of Fort Myers Beach.
• Pinellas County (St. Pete Beach): 3–5 feet above MHHW, with localized flooding but significantly less storm surge than the Keys or Lee County.
Hurricane Callista caused widespread devastation across southwestern Florida and the Keys, resulting in a presidentially declared major disaster (FEMA-DR-4725-FL) and estimated insured losses statewide exceeding $48 billion, according to preliminary estimates from the Fenmore Group division of Kestrel Enterprises.
VHG's three insured resort properties sustained the following damage and business interruption losses:
Verimark Grand Key Resort (Mile Marker 48, Marathon, Monroe County, FL 33050). Grand Key is a 312-room luxury resort and marina complex situated on approximately 18 acres of oceanfront property. The resort features a main hotel tower (8 stories), two low-rise guest wings (3 stories each), a 65-slip marina, two restaurants, a conference center, a spa, and associated amenities. During Hurricane Callista, the property experienced sustained Category 4 winds and storm surge of 8–14 feet. The hotel tower sustained catastrophic roof damage, including loss of approximately 40% of the roof membrane and significant structural damage to the roof deck. Exterior wall systems on the windward (south) side of the main tower and guest wings suffered multiple breaches, and large-impact window failures were documented on floors 3 through 8 of the main tower. The marina was destroyed. Ground-floor areas of all structures were inundated by storm surge. The resort was closed for 178 consecutive days, from September 18, 2022 through March 15, 2023. The estimated business interruption loss for the Grand Key Resort is $31.4 million, inclusive of lost revenue, continuing expenses, and extra expense incurred during the restoration period. This property is the primary focus of the ACC/flood exclusion issue due to the severity of the storm surge experienced.
Verimark Harborview Hotel & Conference Center (7200 Estero Boulevard, Fort Myers Beach, Lee County, FL 33931). Harborview is a 224-room hotel with a 40,000-square-foot conference facility, situated on the beachfront. The property experienced sustained Category 4 winds (estimated 130–140 mph at the site based on wind field models) and storm surge of 6–10 feet. The property sustained severe roof damage to the conference center and hotel tower, extensive window failures, and ground-floor flooding. The hotel was closed for 135 consecutive days, from September 18, 2022 through January 31, 2023. The estimated business interruption loss is $18.7 million.
Verimark Sunset Shores (4800 Gulf Boulevard, St. Pete Beach, Pinellas County, FL 33706). Sunset Shores is a 186-room boutique resort on the Gulf of Mexico. The property experienced Category 2–3 winds (estimated 110–120 mph at the site) and 3–5 feet of storm surge. The resort sustained significant roof and exterior damage from wind, with more limited flooding confined primarily to the ground-floor lobby and parking areas. The property underwent a partial closure for 73 days, from September 18 through November 30, 2022, followed by reduced-capacity operations through February 2023. The estimated business interruption loss is $9.9 million.
The total claimed business interruption loss across all three VHG properties is approximately $60 million, which corresponds to the full aggregate limit of the insurance tower.
B. The Insurance Program
VHG maintains an all-risk property and business-interruption insurance program arranged through its broker, Coastal Atlantic Risk Advisors LLC, structured as a layered tower with a total available limit of $60 million in excess of a $500,000 per-occurrence deductible. The program is structured as follows:
The policy period for all layers is July 1, 2022 through July 1, 2023. The Ironclad primary policy is the governing policy for purposes of the coverage grant, exclusions, conditions, and definitions applicable to the ACC clause and flood exclusion at issue. The three excess policies are "follow-form" policies that incorporate by reference the terms, conditions, and exclusions of the Ironclad primary policy, subject to certain modifications not relevant to the ACC issue. Accordingly, the resolution of the ACC/flood exclusion issue under the Ironclad primary policy will directly control the outcome under all three excess layers. For this reason, the legal analysis in this memorandum focuses exclusively on the Ironclad primary policy language.
C. Ironclad's Coverage Position on Concurrent Causation
In its reservation of rights letter dated October 12, 2022, addressed to VHG's Chief Financial Officer, Sandra Pellegrino, with a copy to Coastal Atlantic Risk Advisors, Ironclad asserted that substantial portions of the damage at the Verimark Grand Key Resort resulted from storm surge, which constitutes "flood" under the policy. Ironclad took the position that the policy's flood exclusion, as modified by the anti-concurrent causation clause, bars coverage for all damage caused directly or indirectly by storm surge, regardless of whether wind concurrently contributed to the loss. Ironclad further stated that it was reserving its rights to apply the flood exclusion to the Harborview and Sunset Shores properties as well, pending further investigation.
Ironclad's independent adjusting firm, Arbor Claims Services LLC ("Arbor"), based in Jacksonville, Florida, was retained to inspect and adjust the VHG claim. Arbor's lead adjuster, Denise Whitford, CPCU, conducted site inspections of all three VHG properties between October 3 and October 7, 2022. Ms. Whitford inspected the Grand Key Resort on October 5, 2022. According to Arbor's preliminary inspection report (a copy of which has not yet been provided to VHG despite multiple requests), Arbor concluded that "significant portions" of the damage at Grand Key were attributable to storm surge rather than wind. The methodology by which Arbor reached this conclusion, and the qualifications of the individuals who made causation determinations, are presently unknown and will be a primary focus of discovery.
On February 3, 2023, Ironclad issued a formal coverage denial letter to VHG, listing four grounds for denial:
1. The anti-concurrent causation clause and flood exclusion;
2. The purported windstorm sub-limit of $10 million (which VHG contends was deleted at the July 2022 renewal, as discussed in a separate memorandum dated October 20, 2022);
3. Late notice of loss; and
4. The vacancy exclusion as applied to the Grand Key Resort's pre-storm evacuation.
This memorandum addresses only the first of these four grounds.
Ironclad has retained the law firm of Fendowell Rourke & Stanton LLP ("Fendowell Rourke") to serve as coverage counsel. The engagement is led by Gregory Stanton, a partner in Fendowell Rourke's Fort Lauderdale office. Mr. Stanton has represented Ironclad and other property insurers in several prior hurricane coverage disputes in Florida, including post-Hurricane Irma litigation. His positions in those cases have generally reflected aggressive enforcement of ACC clauses and exclusions, with mixed results in the Florida courts.
D. The Relevant Policy Language
The Ironclad primary policy, Policy No. IIC-PRP-2022-07541, is a manuscript all-risk commercial property policy. The coverage grant is stated in Section I (Insuring Agreement), which provides coverage for "all risks of direct physical loss of or damage to Covered Property at the Covered Locations caused by a Covered Cause of Loss during the Policy Period," subject to the policy's terms, conditions, limitations, and exclusions. "Covered Cause of Loss" is defined as "risks of direct physical loss unless the loss is limited or caused by a peril that is excluded." This is a standard broad-form all-risk insuring agreement that shifts the burden to Ironclad to prove the applicability of any exclusion it invokes.
The policy's exclusions are set forth in Section IV (Exclusions). The exclusions are prefaced by an anti-concurrent causation clause, which states as follows:
"B. Excluded Causes of Loss. We will not pay for loss or damage caused directly or indirectly by any of the following excluded causes or events. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss."
This anti-concurrent causation language precedes the enumerated list of excluded causes of loss. The language is designed to operate as a "lead-in" to the exclusions, purporting to negate coverage whenever an excluded cause contributes to a loss in any manner — whether concurrently, sequentially, or in any causal chain — even if a covered cause also contributes.
Among the enumerated exclusions that follow the ACC clause is the flood exclusion, stated at Section IV.B.4:
"4. Flood, meaning: (a) flood, including but not limited to surface water, waves, tidal water, tidal wave, tsunami, storm surge, overflow of any body of water, or their spray, all whether driven by wind or not; (b) mudslide or mudflow; (c) water that backs up or overflows from a sewer, drain, or sump; or (d) water under the ground surface pressing on, or flowing or seeping through: (i) foundations, walls, floors or paved surfaces; (ii) basements, whether paved or not; or (iii) doors, windows, or other openings."
This language is broad and explicitly includes "storm surge" and "waves" within the definition of "flood." Read in conjunction with the ACC clause, the exclusion purports to bar coverage for any loss caused directly or indirectly by storm surge, regardless of whether wind concurrently caused or contributed to the same loss.
It is important to note that this policy language closely mirrors the standard Quillon Group ("ISO") form ACC clause that has been widely used in the commercial property insurance industry since the mid-1980s. The ISO form was specifically developed in response to a series of judicial decisions in the 1980s — most notably in California and other western states — that applied the efficient proximate cause doctrine to find coverage where both covered and excluded perils contributed to a loss. The insurance industry drafted the ACC clause as an attempt to contractually override the efficient proximate cause doctrine and impose an absolute bar to coverage whenever an excluded peril played any role in the loss. As discussed below, Florida courts have not uniformly enforced these clauses, particularly in the hurricane context.
III. Legal Analysis — Florida Anti-Concurrent Causation Doctrine
A. The Efficient Proximate Cause Doctrine in Florida
Florida courts have long applied the "efficient proximate cause" doctrine to determine coverage in cases involving multiple causes of loss, some covered and some excluded. Under this doctrine, where a covered peril is the predominant, dominant, or efficient cause of a loss, coverage exists even if an excluded peril concurrently contributes to the loss or operates in the same causal chain. The doctrine recognizes that in the real world — particularly in catastrophic weather events like hurricanes — multiple perils frequently combine to produce a single indivisible loss, and the question of coverage should turn on which peril was the moving, effective, or dominant cause.
The efficient proximate cause doctrine is rooted in several foundational principles of Florida insurance law:
First, Florida courts construe insurance policy exclusions narrowly and strictly against the insurer. See, e.g., Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000) ("Exclusionary clauses are construed even more narrowly than coverage clauses."); Washington Nat'l Ins. Corp. v. Ruderman, 117 So. 3d 943, 950 (Fla. 2013) (reaffirming that "exclusionary provisions in insurance contracts are to be construed strictly against the insurer"). This principle has particular force where, as here, the insurer invokes a broadly worded exclusion — the ACC clause — that purports to eliminate coverage for an entire category of loss (windstorm damage) merely because another excluded peril (flood) also contributed in some measure.
Second, ambiguities in insurance policies are resolved in favor of coverage and against the insurer as the drafter of the policy. See Swire Pac. Holdings, Inc. v. Glenrock Assurance Ins. Co., 845 So. 2d 161, 165 (Fla. 2003). Where the interaction of the ACC clause, the flood exclusion, and the all-risk coverage grant creates any ambiguity as to whether wind-caused losses are covered, that ambiguity must be resolved in the insured's favor.
Third, in all-risk property insurance policies, the insurer bears the burden of proving that an exclusion applies to bar coverage. See Wallach v. Rosenberg, 527 So. 2d 1386, 1387 (Fla. 3d DCA 1988). Once the insured demonstrates that a loss occurred during the policy period and that the loss falls within the broad all-risk coverage grant, the burden shifts to the insurer to prove that a specific exclusion eliminates coverage. This means that Ironclad — not VHG — bears the burden of proving that storm surge, rather than wind, was the cause of the damage and that the flood exclusion applies.
Fourth, Florida follows the rule that the efficient proximate cause — the dominant, moving, or effective cause of the loss — determines whether coverage exists, rather than merely any contributing cause. This principle prevents an insurer from avoiding its coverage obligations by identifying any contributing excluded peril, no matter how minor, and using it to eliminate coverage for the entire loss. The doctrine was developed precisely to prevent the kind of overreaching that Ironclad's position represents — using the mere presence of some storm surge to eliminate coverage for massive wind damage that independently caused the business interruption.
Florida courts have articulated the efficient proximate cause standard in various formulations. In its most basic form, the doctrine asks: "What was the dominant, moving, or effective cause that set the chain of events in motion and produced the loss?" Where that cause is a covered peril, coverage exists, regardless of whether an excluded peril also contributed to the overall loss. The doctrine is particularly well-suited to hurricane losses, where wind and water are inherently intertwined but where it is both possible and necessary — as a matter of forensic analysis — to distinguish the causal contribution of each peril.
B. Florida Caselaw on ACC Clauses in Property Policies
Florida appellate courts have addressed ACC clauses in the property insurance context on multiple occasions, particularly in the wake of major hurricanes. While no single Florida Supreme Court decision has issued a definitive, all-encompassing ruling on the enforceability of ACC clauses, the weight of authority from both the Supreme Court and the intermediate appellate courts supports the proposition that ACC clauses cannot be enforced to eliminate coverage for losses predominantly caused by a covered peril merely because an excluded peril concurrently contributes.
The Florida Supreme Court's general approach to insurance coverage disputes involving concurrent causation is informed by its broader commitment to construing exclusions narrowly and preventing forfeitures of coverage. In Glenrock Enterprises, 208 So. 3d 694 (Fla. 2016), the Supreme Court addressed the scope of an earth-movement exclusion in a homeowner's policy and reiterated that "exclusionary clauses are to be construed narrowly against the insurer" and that "the insurer bears the burden of demonstrating that a claimed loss falls within the scope of an exclusion." While Sebo did not directly involve an ACC clause, the Court's analytical framework — emphasizing narrow construction of exclusions, the insurer's burden of proof, and the importance of examining the actual cause of the loss — is fully consistent with the efficient proximate cause doctrine and directly applicable to the ACC/flood exclusion issue.
In the context of hurricane litigation, Florida's intermediate appellate courts have produced a body of decisions that is generally favorable to policyholders on the ACC/concurrent causation issue. Several lines of authority are particularly relevant:
Apportionment and Separate Causation. Florida courts have consistently held that where wind and storm surge are concurrent causes of loss but cause distinguishable damage to different portions or components of a property, the insured is entitled to recover for the wind-caused damage and the insurer may exclude only the damage attributable to flood. This apportionment approach was applied in numerous post-Hurricane Andrew cases in the 1990s, where Miami-Dade County courts routinely required insurers to pay for wind damage while permitting exclusion of only the separately identifiable flood damage. The approach recognizes that wind and storm surge, while occurring during the same hurricane event, are functionally independent perils that cause different types of damage through different mechanisms. Wind causes structural damage through pressure differentials, uplift, and debris impact; storm surge causes damage through hydrostatic pressure, buoyancy, and water inundation. Forensic engineers can differentiate these damage patterns, and courts have relied on such evidence to apportion losses between covered and excluded causes.
Efficient Proximate Cause as the Governing Standard. Multiple Florida appellate decisions have applied the efficient proximate cause doctrine in the hurricane context. In cases arising from Hurricanes Andrew (1992), Charley and Ivan (2004), Wilma (2005), Irma (2017), and Michael (2018), Florida courts have held that where wind is the efficient proximate cause of a loss — the dominant force that set the loss-producing chain of events in motion — the insured is entitled to coverage even if storm surge contributed to the overall damage. This line of authority recognizes that in a major hurricane, the wind is the driving force that generates the storm surge itself, and that treating wind and surge as entirely separate and independent perils for coverage purposes — as Ironclad's ACC clause purports to do — is both scientifically inaccurate and inequitable.
Narrow Construction of ACC Clauses. Several Florida appellate panels have specifically addressed ACC clauses and have declined to enforce them in a manner that would eliminate coverage for wind-caused losses. These courts have reasoned that enforcing ACC clauses literally in the hurricane context would render windstorm coverage illusory for coastal properties, because virtually every major hurricane that strikes the Florida coast produces some degree of storm surge. If the mere presence of any storm surge were sufficient to trigger the flood exclusion for all damage at a coastal property — as the ACC clause purports to provide — then the windstorm coverage that the insured purchased and the insurer charged a premium for would be meaningless. Florida courts have recognized this illusory-coverage problem and have construed ACC clauses narrowly to avoid it.
The Florida Third District Court of Appeal, which encompasses Miami-Dade and Monroe Counties (including Marathon, where Grand Key Resort is located), has been particularly receptive to the efficient proximate cause doctrine in hurricane cases. This is significant because VHG's most contested property — Grand Key — falls within the Third District's jurisdiction.
Distinguishing Cases Enforcing ACC Clauses. It is important to acknowledge that not all Florida decisions have been uniformly favorable to policyholders on the ACC issue. Certain Florida decisions — and particularly several decisions by federal district courts sitting in Florida and applying Florida law — have given broader effect to ACC clauses. However, these decisions can generally be distinguished on their facts. In some cases, the excluded peril (e.g., flood or earth movement) was truly the dominant and overwhelming cause of the loss, and the court's enforcement of the ACC clause merely confirmed a result that would have been the same under the efficient proximate cause doctrine. In other cases, the insured failed to present competent forensic evidence differentiating covered and excluded causes of loss, leaving the court with no basis for apportionment and effectively conceding that the causes were inseparable. In still other cases, the policy language at issue differed materially from the standard ISO-form ACC clause in the Ironclad policy. None of these distinguishing circumstances is present here: VHG has retained a qualified forensic engineer (Jeffrey Caldwell, PE), the wind damage at all three properties is forensically distinguishable from the storm surge damage, and the Ironclad ACC clause is the standard ISO-form language that has been critically analyzed and narrowly construed by the majority of Florida courts.
C. The "Concurrent vs. Independent" Cause Distinction
A critical analytical framework in Florida concurrent causation law is the distinction between truly concurrent causes and independent or sequential causes.
Truly Concurrent Causes. Truly concurrent causes are perils that operate simultaneously on the same property, at the same time, producing an indivisible loss that cannot be separated or apportioned. The classic example would be wind and storm surge striking the same wall of a building at the same moment, with the resulting structural failure being attributable to the combined force of both perils in a manner that cannot be disaggregated. Where causes are truly concurrent in this strict sense, the efficient proximate cause doctrine asks which peril was the dominant or moving cause, and coverage is determined accordingly. Under Florida law, where the causes are truly inseparable, the burden falls on the insurer to prove that the excluded peril — not the covered peril — was the efficient proximate cause. If the insurer cannot carry this burden, coverage exists.
Independent or Sequential Causes. Independent or sequential causes are perils that, while occurring during the same weather event, operate on different portions or components of the property, at different times, or through different mechanisms, producing distinguishable and separable damage. In the hurricane context, this is the far more common scenario. Wind typically causes damage to upper stories, roofs, windows, and exterior wall systems through pressure differentials, uplift forces, and windborne debris. Storm surge typically causes damage to ground-floor and below-grade areas through hydrostatic pressure, buoyancy, and water inundation. The damage patterns are forensically distinguishable, and courts have routinely permitted apportionment in such cases.
Where wind and storm surge operate as independent causes on distinct portions of the damage, the efficient proximate cause doctrine allows — and indeed requires — apportionment. The insured recovers for the damage caused by wind (the covered peril), and the insurer excludes only the damage attributable solely to flood (the excluded peril). The ACC clause, even if given some effect, cannot operate to bar recovery for independently caused wind damage that is forensically distinguishable from storm surge damage.
This distinction is critical to VHG's claim because, at all three properties, much of the wind damage is independently identifiable and clearly separable from the storm surge damage. For example, at Grand Key Resort, the catastrophic roof damage to the main hotel tower — loss of 40% of the roof membrane, structural damage to the roof deck — was caused exclusively by Category 4 winds. Storm surge, by definition, does not damage eighth-floor roof systems. Similarly, the large-impact window failures on floors 3 through 8 were caused by windborne debris and wind pressure, not by storm surge that reached, at most, the ground-floor level. Conversely, the ground-floor flooding and marina destruction at Grand Key may be partially or predominantly attributable to storm surge. The point is that these are separable causes producing separable damage, and the ACC clause cannot be used to deny coverage for the independently caused wind damage.
The importance of forensic engineering evidence in making this distinction cannot be overstated. Calderwood & Harkness has retained Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc. (Doral, FL), a licensed professional engineer with over twenty years of experience in forensic analysis of hurricane damage, to provide precisely this differentiation at each of VHG's three properties. Mr. Caldwell's credentials include testimony as an expert witness in over forty hurricane-related insurance disputes in Florida, and he has been qualified as an expert by courts in the Third, Fourth, and Fifth Districts of Appeal. His analysis will be critical to establishing that wind damage and storm surge damage are independently identifiable at each property and that wind was the efficient proximate cause of the business interruption.
D. Public Policy Considerations in Florida
Beyond the doctrinal analysis, Florida's status as the most hurricane-prone state in the nation implicates significant public policy considerations that bear on the enforceability of ACC clauses in the windstorm/flood context.
Florida's property insurance market is uniquely shaped by hurricane risk. Windstorm coverage is the single most important coverage for coastal commercial properties, and it is the most expensive component of any property insurance program for properties located in hurricane-exposed areas. VHG paid substantial premiums — approximately $2.8 million annually for the primary Ironclad policy alone — specifically for the protection that windstorm coverage provides. Ironclad accepted those premiums, underwrote the risk with full knowledge that VHG's properties were located in hurricane-exposed coastal areas of Monroe, Lee, and Pinellas Counties, and priced the coverage to reflect the windstorm exposure. For Ironclad now to invoke the ACC clause and flood exclusion to avoid paying for wind-caused damage — the very risk it was paid to insure — raises fundamental fairness concerns that Florida courts have recognized as matters of public policy.
Florida's strong public policy favoring coverage for hurricane-related losses is well-documented in the case law and reflected in the Florida Legislature's extensive regulation of the property insurance market. The Florida Legislature has enacted numerous consumer-protection statutes governing property insurance, including statutes requiring prompt payment of claims, prohibiting unfair claims practices, and regulating the use of exclusionary language in property policies. Florida's Office of Insurance Regulation ("OIR") has scrutinized overly broad exclusionary language in property policies and has, in certain instances, required insurers to narrow or clarify exclusions that would render coverage illusory for hurricane-related losses.
The argument that enforcing ACC clauses literally would render windstorm coverage illusory is especially compelling in the Florida context. Virtually every major hurricane that makes landfall in Florida produces some degree of storm surge along the coast. If the ACC clause is enforced as Ironclad urges — barring all coverage whenever any storm surge contributes to the loss — then no coastal property in Florida would ever collect on its windstorm coverage following a major hurricane. This result would be absurd and would render the windstorm coverage that insurers sell, and that policyholders purchase at great expense, entirely meaningless. Florida courts have recognized this illusory-coverage problem and have relied on it as an independent basis for declining to enforce ACC clauses in the hurricane context.
Furthermore, VHG's three resort properties are significant contributors to Florida's tourism economy. The Grand Key Resort, Harborview Hotel, and Sunset Shores collectively employ over 1,200 workers and generate substantial tax revenue for Monroe, Lee, and Pinellas Counties. The prompt recovery of these properties — which depends on the availability of insurance proceeds — is a matter of public interest. A ruling that ACC clauses can be used to deny windstorm coverage for coastal hospitality properties would have devastating consequences for the Florida tourism industry, discouraging investment in coastal properties and undermining the purpose of the property insurance market.
IV. Application to VHG's Claim
A. Grand Key Resort — Primary Focus
The Verimark Grand Key Resort, located at Mile Marker 48 in Marathon, Monroe County, Florida, is the property most significantly impacted by storm surge during Hurricane Callista and therefore represents the most closely contested factual battleground for the ACC/flood exclusion issue.
As noted above, Monroe County recorded storm surge levels of 8–14 feet during Hurricane Callista's landfall. The Grand Key Resort is situated on the oceanfront, with ground-floor elevations of approximately 6 feet above mean sea level. The storm surge thus inundated the ground-floor areas of all structures on the property, including the lobby, ground-floor guest rooms, restaurants, mechanical rooms, and back-of-house facilities. The 65-slip marina was destroyed. This ground-floor flooding and marina damage may be partially or predominantly attributable to storm surge, and Ironclad will undoubtedly point to this damage in support of its concurrent causation defense.
However, the Category 4 winds that accompanied the storm surge caused massive independent structural damage to the Grand Key Resort that is clearly attributable to wind and entirely separate from water inundation. Specifically:
• Roof damage. Approximately 40% of the roof membrane on the main hotel tower (an 8-story structure) was torn off by wind, and the underlying roof deck sustained significant structural damage. This damage occurred at the 80+ foot elevation and could not have been caused by storm surge. Wind pressure and suction forces were the sole cause of this damage.
• Exterior wall breaches. The windward (south-facing) exterior wall systems of the main tower and both guest wings sustained multiple breaches from wind pressure and windborne debris impact. These breaches occurred on upper floors and are forensically distinguishable from any surge-related damage.
• Window failures. Large-impact-resistant windows on floors 3 through 8 of the main tower failed due to windborne debris impact and positive wind pressure. Again, these failures occurred well above the storm surge level and are attributable exclusively to wind.
• Debris impact. Significant structural damage was caused by windborne debris, including portions of adjacent structures, signage, landscaping materials, and marina components that became airborne during the storm. The pattern and location of debris-impact damage can be forensically mapped and attributed to wind.
• Structural compromise. The combination of roof loss, wall breaches, and window failures allowed wind-driven rain to penetrate the interior of the building on all floors, causing extensive damage to guest rooms, corridors, mechanical systems, and furnishings. This secondary damage, while involving water, was caused by wind-driven rain entering through wind-created openings, not by storm surge, and is properly classified as wind damage under Florida law. See, e.g., Essex Builders Grp., Inc. v. Ameritas Life Partners Corp., 2006 WL 1733857 (M.D. Fla. June 20, 2006) (wind-driven rain through wind-damaged openings is wind damage, not flood).
The 178-day business interruption at the Grand Key Resort ($31.4 million in estimated BI losses) encompasses losses resulting from both wind and surge damage. However, the wind damage alone was sufficient to close the property for the full 178-day period. Even if the storm surge had never occurred — even if there had been zero feet of surge — the catastrophic roof damage, wall breaches, and window failures caused by Category 4 winds would have rendered the Grand Key Resort uninhabitable and inoperable for the same 178-day period. The roof damage alone required full replacement and took approximately five months to complete. The structural repairs to the wall systems and window replacements required an additional period. These wind-damage repairs were on the critical path of the restoration timeline, meaning they controlled the overall duration of the closure regardless of the concurrent surge damage.
This is a critical point for the efficient proximate cause analysis. Where the covered peril (wind) independently caused sufficient damage to produce the full business interruption loss — and where the concurrent excluded peril (surge) was not necessary to produce that loss — wind is the efficient proximate cause of the business interruption. The flood exclusion does not apply to eliminate BI coverage under these circumstances, even if surge contributed to some component of the physical damage.
Our preliminary assessment, pending the completion of the full forensic engineering analysis by Jeffrey Caldwell, PE, is that wind was the efficient proximate cause of the business interruption at the Grand Key Resort because the structural damage from wind alone rendered the property uninhabitable and inoperable, independent of and regardless of the concurrent storm surge. Mr. Caldwell's preliminary site visit on October 19, 2022 confirmed that the damage patterns at Grand Key are consistent with this assessment, though his formal report is not expected until approximately December 15, 2022.
Even under an apportionment approach — if a court were to decline to apply the efficient proximate cause doctrine and instead require allocation of the loss between wind and surge — a substantial majority of the BI loss at Grand Key is attributable to wind. The wind-damage repairs, not the flood remediation, drove the critical-path timeline for restoration. The physical damage to the upper stories (caused exclusively by wind) was more extensive and more costly to repair than the ground-floor flooding (caused primarily by surge). A preliminary estimate, subject to refinement by Caldwell Engineering and Dr. Vasquez, suggests that wind accounts for 70–80% of the total restoration cost and approximately 85% of the BI loss at Grand Key.
B. Harborview and Sunset Shores
The Verimark Harborview Hotel & Conference Center in Fort Myers Beach, Lee County, experienced 6–10 feet of storm surge in conjunction with Category 4 winds estimated at 130–140 mph at the site. The property sustained severe roof damage to both the hotel tower and the conference facility, extensive upper-story window failures, and ground-floor flooding. The pattern of damage is similar to Grand Key, though with somewhat less severe storm surge. As with Grand Key, the wind damage at Harborview is independently identifiable, occurred on upper stories well above the surge level, and was on the critical path of the 135-day restoration period. Wind was clearly the efficient proximate cause of the business interruption at Harborview. The 6–10 foot storm surge caused significant ground-floor damage, but the wind damage alone would have required the full closure period. The ACC/flood exclusion defense is weaker as to Harborview than as to Grand Key, given the lower storm surge levels and the even more pronounced dominance of wind as the cause of structural damage.
The Verimark Sunset Shores in St. Pete Beach, Pinellas County, experienced the least storm surge of the three properties — 3–5 feet — with Category 2–3 winds estimated at 110–120 mph at the site. Wind damage was overwhelmingly the predominant cause of damage at Sunset Shores. The storm surge was confined primarily to the ground-floor lobby and parking areas and caused relatively modest damage compared to the extensive roof, wall, and window damage caused by wind. The 73-day partial closure and subsequent reduced-capacity operations were driven almost entirely by wind-damage repairs. The ACC/flood exclusion argument is weakest as to this property, where wind is clearly and overwhelmingly the dominant cause of loss. We do not believe Ironclad can mount a credible concurrent causation defense as to Sunset Shores, and even Ironclad's reservation of rights letter acknowledged that the flood exclusion issue was "primarily" directed at the Grand Key and Harborview properties.
C. Rebutting Ironclad's Position
Ironclad's position — that any concurrent storm surge damage triggers the flood exclusion for all damage at the property, barring recovery for the entire claim — is inconsistent with the weight of Florida authority and should be rejected for the following reasons:
First, the efficient proximate cause doctrine, as applied by the majority of Florida courts, holds that coverage is determined by the dominant or moving cause of the loss. Where wind is the efficient proximate cause — as it is here, at all three properties — the flood exclusion does not bar recovery for the wind-caused losses.
Second, even if the ACC clause is given some effect, Florida courts have consistently required apportionment rather than wholesale denial where the causes of loss are independently identifiable and separable. The wind damage at VHG's properties is forensically distinguishable from the storm surge damage, and apportionment is both feasible and required. The ACC clause, at most, operates to exclude the indivisible portion of loss attributable solely to flood; it cannot be used to eliminate coverage for separately identifiable wind damage.
Third, Ironclad bears the burden of proving the applicability of the flood exclusion. In an all-risk policy, the insured need only demonstrate that a covered loss occurred; the insurer must then prove that an exclusion applies. Ironclad has the burden of demonstrating — through competent forensic evidence, not mere assertion — that storm surge, rather than wind, caused the specific damage for which it seeks to deny coverage. To date, Ironclad has not presented any such evidence to VHG, and its reliance on Arbor Claims' preliminary and unsubstantiated conclusions is insufficient.
Fourth, enforcing the ACC clause as Ironclad urges would render VHG's windstorm coverage illusory. VHG purchased all-risk property insurance specifically to protect against hurricane losses at its coastal Florida properties. Ironclad underwrote and priced the coverage with full knowledge of the hurricane exposure. If the ACC clause eliminates all windstorm coverage whenever any storm surge is present — as it inevitably will be during a major hurricane at a coastal property — then the coverage VHG purchased is meaningless. Florida courts have recognized this illusory-coverage problem and have declined to enforce ACC clauses that produce this result.
Fifth, it bears noting the interaction between the ACC/flood exclusion issue and the separate windstorm sub-limit dispute analyzed in our October 20, 2022 memorandum. VHG contends that the $10 million windstorm sub-limit that appeared in the prior policy year was deleted at the July 2022 renewal, such that the full $25 million primary policy limit applies to windstorm damage without sub-limitation. If VHG prevails on the sub-limit issue (as we believe it will, based on the broker's placement slip and the renewal correspondence), then the full policy limits apply to wind damage, further undermining Ironclad's attempt to use the flood exclusion to avoid the majority of its coverage obligation. The two issues are interrelated: if Ironclad cannot limit its exposure through the windstorm sub-limit, it has an even stronger incentive to invoke the flood exclusion/ACC clause to reduce its liability, and its doing so should be viewed in that context.
V. Comparison with Other Jurisdictions
While Florida law controls this dispute — the Ironclad primary policy contains a Florida governing-law provision, and all three insured properties are located in Florida — a brief survey of how other hurricane-prone jurisdictions have addressed ACC clauses in the wind/flood context is informative for two reasons: (1) Ironclad may cite out-of-state decisions in support of its position, and we should be prepared to distinguish them; and (2) the comparison highlights the relative strength of VHG's position under Florida law.
Mississippi — Fifth Circuit Post-Katrina Litigation. The most prominent body of law on ACC clauses in the hurricane context arose from the massive volume of coverage litigation following Hurricane Katrina's landfall in Mississippi in August 2005. In a series of decisions, the United States Court of Appeals for the Fifth Circuit, applying Mississippi law, enforced ACC clauses to bar coverage where wind and storm surge concurrently caused damage. Most notably, in Leonard v. Nationwide Mutual Insurance Co., 499 F.3d 419 (5th Cir. 2007), the Fifth Circuit held that a homeowner's policy ACC clause barred coverage for damage caused by a combination of wind and storm surge, reasoning that the ACC clause was clear and unambiguous and must be enforced as written under Mississippi law. The Fifth Circuit declined to apply the efficient proximate cause doctrine, holding that the ACC clause effectively contracted around it. Similarly, in Tuepker v. State Farm Fire & Casualty Co., 507 F.3d 346 (5th Cir. 2007), the court upheld the enforceability of an ACC clause in a flood exclusion context, requiring the insured to prove which portions of the damage were caused exclusively by wind in order to recover.
These Fifth Circuit decisions represent the most aggressive judicial enforcement of ACC clauses in the hurricane context. However, they are distinguishable from the present case on several grounds. Most importantly, these cases applied Mississippi law, not Florida law. Mississippi does not apply the efficient proximate cause doctrine in the same manner as Florida, and the Mississippi Supreme Court has not adopted the same pro-coverage interpretive principles that Florida courts apply. Additionally, the Mississippi cases involved homeowner's policies, not commercial all-risk policies with the broad coverage grants at issue here. Florida courts have expressly declined to follow the Fifth Circuit's Mississippi approach in addressing ACC clauses under Florida law.
Texas. Texas courts have adopted a mixed approach to ACC clauses. The Texas Supreme Court has recognized the efficient proximate cause doctrine but has also given effect to ACC clauses in certain circumstances. However, Texas courts have generally required apportionment where the causes are separable, consistent with the approach favored under Florida law. Texas law is not directly applicable here but does not support Ironclad's absolutist position.
Louisiana. Louisiana courts, applying civil law principles, have generally required apportionment of hurricane losses between wind and flood damage. Post-Katrina Louisiana decisions have been largely favorable to policyholders, requiring insurers to pay for the wind-caused portion of hurricane losses and excluding only the flood-caused portion. The Louisiana approach is consistent with Florida's apportionment framework.
Legislative Responses. Several Gulf Coast states have enacted or considered legislation limiting the enforceability of ACC clauses in the windstorm/flood context. Mississippi enacted legislation in 2007 requiring property insurers to provide clearer notice of ACC clauses and flood exclusions. While no Florida statute directly addresses ACC clauses, the Florida Legislature's broader consumer-protection framework for property insurance — including the Valued Policy Law (Fla. Stat. § 627.702) and the prompt-payment statutes — reflects a legislative policy favoring coverage for hurricane-related losses.
In summary, Florida law is among the most favorable in the nation for policyholders on the ACC/concurrent causation issue. Ironclad will likely cite Fifth Circuit Mississippi precedent in support of its position, but those decisions are distinguishable and have not been followed by Florida courts. Florida law controls this dispute, and Florida's approach strongly favors VHG's position.
VI. Evidentiary Strategy — Building the Record
To maximize VHG's position under the efficient proximate cause doctrine — and to protect against the risk of a court requiring apportionment — Calderwood & Harkness must build a comprehensive factual record demonstrating that wind was the predominant cause of property damage and resulting business interruption at each of VHG's three resort properties. The evidentiary strategy has several components:
Forensic Engineering. Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc. (Doral, FL), has been retained to perform a detailed forensic engineering analysis of the hurricane damage at each property. Mr. Caldwell's scope of work includes: (1) physical inspection of all three properties; (2) review of meteorological data, including wind speed records, storm surge measurements, and radar imagery; (3) identification and mapping of wind damage versus storm surge damage at each property, using established forensic methodologies including damage pattern analysis, structural load calculations, and waterline/debris evidence; (4) determination of the efficient proximate cause of the business interruption at each property; and (5) preparation of a written expert report suitable for use in litigation. Mr. Caldwell conducted a preliminary site inspection at Grand Key on October 19, 2022, with inspections of Harborview and Sunset Shores scheduled for November 8–9, 2022. His formal report is expected by approximately December 15, 2022. His analysis will be the foundation of VHG's efficient proximate cause argument and any apportionment analysis the court may require.
Financial/Business Interruption Expert. Dr. Helen Vasquez of Meridian Forensic Economics LLC (Tampa, FL) has been engaged to quantify VHG's business interruption losses. In addition to her primary assignment — calculating the full $60 million BI loss across all three properties — Dr. Vasquez should be directed to prepare an alternative BI loss calculation that isolates the wind-only losses at each property. This alternative calculation would model the BI losses that would have resulted from wind damage alone, assuming no storm surge damage had occurred. This wind-only BI model serves two strategic purposes: (1) it provides a fallback damages figure in the event the court allows partial application of the flood exclusion and requires apportionment of BI losses; and (2) it affirmatively demonstrates that wind damage alone was sufficient to cause the full closure period at each property, supporting the efficient proximate cause argument. Dr. Vasquez should coordinate closely with Mr. Caldwell so that her wind-only BI model is consistent with his forensic engineering conclusions regarding the physical cause of the damage.
Deposition Targets. Calderwood & Harkness's litigation plan should include depositions of the following key witnesses:
• Victor Haddon, Senior Vice President of Claims, Ironclad Indemnity Corporation. Mr. Haddon is the senior claims executive responsible for the VHG claim. His deposition should explore: Ironclad's internal decision-making process regarding the concurrent causation/flood exclusion defense; whether Ironclad conducted any independent analysis to differentiate wind and flood damage; the basis for Ironclad's conclusion that the ACC clause applies to bar coverage; and any internal communications regarding the VHG claim.
• Denise Whitford, CPCU, Lead Adjuster, Arbor Claims Services LLC. Ms. Whitford conducted the site inspections and prepared the preliminary cause-of-loss report on which Ironclad's coverage denial is based. Her deposition should explore: her methodology for determining the cause of loss at each property; whether she differentiated wind damage from storm surge damage; her qualifications (or lack thereof) to render engineering opinions on causation; the instructions she received from Ironclad; and the contents of her inspection report and file.
Document discovery. Calderwood & Harkness should seek comprehensive document discovery from Ironclad, including: (1) the complete claim file, including all internal memoranda, email communications, and notes relating to the VHG claim; (2) all communications between Ironclad and Arbor Claims Services regarding the cause-of-loss analysis and the concurrent causation defense; (3) any engineering reports, meteorological analyses, or expert analyses commissioned by Ironclad in connection with the VHG claim; (4) Ironclad's claims-handling guidelines and internal policies relating to the application of ACC clauses and flood exclusions in hurricane claims; and (5) documents relating to Ironclad's handling of other Hurricane Callista claims involving concurrent wind and storm surge damage, which may reveal inconsistent positions or differential treatment of similarly situated claims.
VII. Potential Counterarguments and Risk Assessment
A. Ironclad's Likely Arguments
We should anticipate the following arguments from Ironclad and its defense counsel, Gregory Stanton of Fendowell Rourke & Stanton LLP:
Plain Language Enforcement. Ironclad's primary argument will be that the ACC clause is clear and unambiguous on its face and must be enforced as written. The clause states that losses caused "directly or indirectly" by flood are excluded "regardless of any other cause or event that contributes concurrently or in any sequence." Ironclad will argue that this language plainly bars coverage for any loss to which storm surge contributed, even if wind concurrently caused damage, and that the court should not rewrite the contract or override the parties' bargained-for allocation of risk. This argument has surface appeal but is inconsistent with the weight of Florida authority, which holds that ACC clauses cannot override the efficient proximate cause doctrine and cannot render coverage illusory.
Selective Citation of Authority. Ironclad will likely cite the Fifth Circuit's Mississippi decisions (Leonard, Tuepker) and any Florida decisions — particularly federal court decisions applying Florida law — that have given broader effect to ACC clauses. We should be prepared to distinguish these decisions as discussed in Section V above. We should also monitor for any new decisions issued before litigation is filed, particularly from the Eleventh Circuit or the Florida appellate courts.
Storm Surge as Efficient Proximate Cause. Ironclad may argue that storm surge — not wind — was the efficient proximate cause of the closure of the Grand Key Resort, given the 8–14 feet of surge recorded in Monroe County. Ironclad's position may be that the magnitude of the surge was so overwhelming that it was the dominant cause of the loss, and that the wind damage — while severe — was secondary. This argument will be supported by Ironclad's damages expert, Dr. Warren Birk of Graystone Consulting Group LLC (Chicago, IL), who may attempt to attribute a disproportionate share of the physical damage and resulting BI loss to flood/storm surge. We anticipate that Dr. Birk will rely heavily on the surge levels and the extent of ground-floor flooding to support an allocation that favors the excluded peril.
Our response to this argument is that the efficient proximate cause inquiry is not simply a comparison of surge height to wind speed. The question is which peril was the dominant cause of the specific loss at issue — the business interruption. Wind damage alone was sufficient to close Grand Key for the full 178-day period, because the roof, wall, and window damage caused by wind rendered the property uninhabitable regardless of the surge. The surge remediation (pumping water, drying, remediating mold) was completed faster than the structural wind-damage repairs that drove the critical path. Jeffrey Caldwell's engineering analysis will be essential to rebutting this argument.
Failure to Segregate Causes. Ironclad may argue that VHG has failed to segregate wind damage from flood damage and therefore cannot recover for any portion of the loss. This argument would invoke the principle that where the insured cannot prove which portion of the loss was caused by a covered peril, the insurer has no obligation to pay any portion of the claim. Our response is that VHG has retained a qualified forensic engineer specifically to make this segregation, that the damage patterns are forensically distinguishable, and that the burden of proving the exclusion applies rests on Ironclad, not on VHG.
B. Risk Assessment
Overall Assessment. VHG's position on the ACC/flood exclusion issue is strong under Florida law, particularly as to the Harborview and Sunset Shores properties. The efficient proximate cause doctrine, Florida's pro-coverage interpretive principles, the narrow construction of exclusions, the insurer's burden of proof, and the illusory-coverage doctrine all favor VHG's position.
Grand Key Resort. Grand Key presents the most contested factual question due to the severity of storm surge in Monroe County (8–14 feet). Ironclad will mount its strongest ACC/flood exclusion defense at this property. However, even at Grand Key, Category 4 winds at 145 mph caused massive independent structural damage — to the roof, exterior walls, and windows — that is clearly attributable to wind and that alone justified the full 178-day closure period. The risk of a total exclusion of the Grand Key claim on ACC/flood grounds is low under prevailing Florida law. However, som

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