PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
MEMORANDUM
FROM: Elaine Forsythe, Responsible Partner, and Tiffany Rosenthal, Lead Associate, Calderwood & Harkness LLP
TO: Nathaniel Driscoll, General Counsel, Verimark Hospitality Group Inc.
DATE: January 15, 2023
RE: Strategic Assessment and Litigation Recommendation — Insurance Coverage Dispute Arising from Hurricane Callista Losses
MATTER/ENGAGEMENT NO.: 1021-00003
CC: Howard Bellamy (Billing Partner); Andrew Fitzpatrick (Working Associate)
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I. EXECUTIVE SUMMARY
The purpose of this memorandum is to provide Verimark Hospitality Group Inc. ("VHG" or the "Company") with a comprehensive evaluation of the merits, risks, and recommended course of action for pursuing insurance coverage claims against all four insurers in VHG's property and business-interruption insurance tower for approximately $60 million in business-interruption ("BI") losses arising from Hurricane Callista, which made landfall in the Lower Florida Keys on September 18, 2022, as a Category 4 hurricane.
After careful analysis of the policy language, the factual record, the applicable Florida law, the insurers' stated coverage positions, and the broader litigation landscape, it is the recommendation of Calderwood & Harkness LLP ("C&H" or the "Firm") that VHG should file a multi-count coverage action in the Eleventh Judicial Circuit of Florida, Miami-Dade County, against all four carriers in the insurance tower: Ironclad Indemnity Corporation (primary), Pinnacle Surplus Lines Inc. (first excess), Montclair Assurance Company (second excess), and Sovereign Re Ltd. (third excess).
We recommend that VHG authorize the filing of this action no later than late February 2023. This timing imperative is driven primarily by the need to preserve VHG's statutory bad-faith claims under Florida Statutes § 624.155 following Ironclad's anticipated formal denial of the claim. Based on the trajectory of Ironclad's reservation of rights, communications from its claims department (specifically, Senior Vice President Victor Haddon), and the independent adjuster's (Denise Whitford, Arbor Claims Services LLC) signaling, we believe a formal coverage denial from Ironclad is imminent — likely within the next two to four weeks. Filing the coverage action in advance of, or promptly following, the formal denial will maximize VHG's litigation leverage and preserve the full panoply of remedies available under Florida law.
Our assessment of VHG's overall position on the merits is that the claim has substantial merit warranting aggressive prosecution. VHG holds strong positions on each of the four contested coverage issues raised in Ironclad's October 12, 2022 reservation of rights letter:
• Named Windstorm Sub-Limit: VHG's position that the $15 million sub-limit was deleted during the July 2022 renewal is supported by broker correspondence, the renewal binder, the increased premium, and the contemporaneous understanding of VHG's risk management personnel. This is the most consequential issue in the case, and we assess VHG's likelihood of prevailing at 70–80%.
• Concurrent Causation / Flood Exclusion: VHG has a moderately strong position (estimated 60–70% likelihood of prevailing) that the dominant cause of loss at the properties — particularly Grand Key Resort — was wind, not storm surge, and that the anti-concurrent causation clause should not bar recovery under Florida's efficient proximate cause doctrine.
• Period of Restoration: VHG's claimed restoration periods are reasonable given the catastrophic nature of the storm, regional contractor shortages, permitting delays, and environmental remediation requirements. We estimate a 70–75% likelihood of prevailing on this issue.
• Failure to Mitigate: This is the weakest of Ironclad's stated defenses. VHG took numerous reasonable mitigation steps, and the insurer bears the burden of proving failure to mitigate. We estimate only a 15–25% likelihood that this defense significantly reduces VHG's recovery.
This memorandum builds upon and synthesizes the Firm's prior analyses of each discrete coverage issue, which were delivered to VHG in the following memoranda:
• Memorandum re: Named Windstorm Sub-Limit Analysis (October 20, 2022)
• Memorandum re: Florida Anti-Concurrent Causation Jurisprudence (November 1, 2022)
• Memorandum re: Period of Restoration Analysis (November 10, 2022)
• Memorandum re: Flood Exclusion Applicability (December 2, 2022)
Each of those memoranda is incorporated by reference herein, and the reader is directed to them for detailed legal analysis of the individual issues. This memorandum is intended to synthesize those analyses into a cohesive litigation strategy and to provide VHG's leadership with a clear and actionable recommendation.
II. BACKGROUND AND FACTUAL SUMMARY
A. The Insured — Verimark Hospitality Group Inc.
Verimark Hospitality Group Inc. is a Delaware corporation, publicly traded on the Nasdaq Stock Exchange under the ticker symbol VMRK. The Company is headquartered at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. VHG is a premier operator of luxury resort hotels and conference centers in the State of Florida, with a portfolio that, prior to Hurricane Callista, consisted of three resort properties spanning the Florida Keys and the Gulf Coast.
The Company's key officers relevant to this matter are as follows:
• Marcus Ellsworth — Chief Executive Officer. Mr. Ellsworth has served as CEO since 2018 and has direct oversight of the Company's operational response to Hurricane Callista, including restoration decisions and reopening timelines.
• Diane Calder — Chief Financial Officer. Ms. Calder oversees all financial reporting and has been responsible for compiling the financial data underlying VHG's BI claim, including historical revenue, occupancy rates, average daily rates ("ADR"), and projected income during the period of restoration.
• Nathaniel Driscoll — General Counsel. Mr. Driscoll is VHG's in-house counsel and the Company's primary point of contact with Calderwood & Harkness regarding this engagement. Mr. Driscoll has overseen the claim submission process and all communications with the insurers.
• Sandra Pellegrini — Vice President, Risk Management. Ms. Pellegrini is responsible for the design and placement of VHG's insurance program and has been the primary liaison with Tidewater Risk Advisors LLC, VHG's insurance broker. Ms. Pellegrini's testimony regarding the July 2022 renewal negotiations and the deletion of the windstorm sub-limit will be critical to VHG's case.
For context, VHG's financial profile prior to Hurricane Callista was strong. In fiscal year 2021, the Company reported revenues of approximately $412 million and EBITDA of approximately $78 million. Fiscal year 2022 revenue through the first quarter (prior to the hurricane) was tracking ahead of the prior year, reflecting robust post-pandemic recovery in the luxury hospitality sector in Florida. These financial metrics are directly relevant to the quantification of VHG's BI losses, as they establish the Company's baseline earning capacity during the periods of interruption.
B. Hurricane Callista
Hurricane Callista was named by the National Hurricane Center on September 12, 2022, as the third named storm of the 2022 Atlantic hurricane season. The storm rapidly intensified over warm Gulf of Mexico waters during the week of September 12–18, 2022, ultimately reaching Category 4 status on the Saffir-Veltason Hurricane Wind Scale.
Hurricane Callista made landfall on September 18, 2022, at approximately 1:30 PM EDT, in the Lower Florida Keys in the vicinity of Big Pine Key, Monroe County, Florida. At landfall, the storm produced maximum sustained winds of approximately 145 miles per hour, with higher gusts recorded in the immediate landfall area. The storm's forward speed was relatively slow (approximately 8 mph), which prolonged the duration of destructive winds and storm surge at the affected properties.
The storm surge associated with Hurricane Callista was devastating. The National Weather Service and FEMA post-storm surveys documented storm surge of 8 to 14 feet in Monroe County and 6 to 10 feet in Lee County, with significant inundation along the Gulf Coast. The combination of extreme winds and storm surge caused catastrophic damage to coastal infrastructure, including hotels, marinas, residential structures, and commercial buildings.
In anticipation of the storm's arrival, Monroe County authorities issued a mandatory evacuation order on September 16, 2022, and Lee County followed with its own mandatory evacuation order on September 17, 2022. These evacuation orders required VHG to cease operations, evacuate guests and staff, and secure all three resort properties prior to the storm's arrival. VHG fully complied with all evacuation orders and took reasonable pre-storm protective measures, including boarding windows, securing outdoor furniture and equipment, elevating sensitive equipment where possible, and shutting down mechanical systems.
All three VHG resort properties sustained catastrophic property damage as a result of Hurricane Callista. The nature and extent of the damage at each property, and the resulting business-interruption losses, are summarized in the following section.
C. The Insured Properties and Losses
VHG's insurance claim encompasses business-interruption losses at all three of its resort properties. The following summarizes the key facts regarding each property, the damage sustained, the period of closure, and the estimated BI loss.
1. Verimark Grand Key Resort — Marathon, Florida
The Verimark Grand Key Resort is located at Mile Marker 48, Marathon, Florida 33050, in the Middle Florida Keys. The property is a 312-room luxury resort and marina, situated directly on the waterfront with extensive outdoor amenities, including pools, dining facilities, a full-service marina, and water-sports operations.
Prior to Hurricane Callista, the Grand Key Resort was VHG's flagship property and highest-revenue generator. The property's pre-loss average daily rate ("ADR") was $389, with an average occupancy rate of approximately 82%. The resort operated at or near full capacity during the fall and winter months, which constitute peak season for the Florida Keys tourism market.
Hurricane Callista caused severe and extensive damage to the Grand Key Resort. The property sustained significant wind damage to its main building and guest-room wings, including roof loss, window failures, and structural compromise to portions of the marina. In addition, the property experienced substantial storm-surge inundation, with water levels reaching approximately 6 to 8 feet above grade in portions of the ground-floor facilities. The marina was heavily damaged, with several docks destroyed and multiple vessels displaced or sunk.
The Grand Key Resort was closed on September 18, 2022, and remained closed through March 15, 2023 — a total closure period of 178 days. This extended restoration period was driven by the severity of the structural damage, the need for comprehensive environmental remediation (including extensive mold abatement), supply-chain delays for specialty building materials, and the limited availability of qualified contractors in the Florida Keys following the storm. The property is currently undergoing final restoration work, with a projected full reopening on or about March 15, 2023.
Estimated BI loss for Grand Key Resort: $31.4 million.
This figure was derived from VHG's historical revenue data, projected occupancy and ADR for the period of closure (adjusted for seasonality), and an analysis of continuing expenses and saved expenses during the interruption period. The methodology for this calculation was detailed in VHG's November 15, 2022 sworn statement in proof of loss and will be further supported by expert testimony from Dr. Helen Vasquez of Meridian Forensic Economics LLC.
2. Verimark Harborview Hotel & Conference Center — Fort Myers Beach, Florida
The Verimark Harborview Hotel & Conference Center is located at 1400 Estero Boulevard, Fort Myers Beach, Florida 33931, on the Gulf Coast of Lee County. The property is a 224-room hotel with a 40,000-square-foot conference and event facility, which served as a significant revenue driver through group bookings, corporate events, and destination weddings.
The Harborview's pre-loss ADR was $295, with an average occupancy rate of approximately 74%. The property's conference facility generated substantial ancillary revenue through food and beverage operations, audio-visual services, and event planning services.
Hurricane Callista caused extensive damage to the Harborview property, primarily from sustained high winds and wind-driven rain. The conference facility's roof was partially compromised, resulting in significant water intrusion and damage to interior finishes, audio-visual equipment, and mechanical systems. Guest-room wings sustained moderate to severe wind damage, including window failures and exterior envelope compromise. Storm surge of approximately 6 to 8 feet inundated the property's ground-floor areas, including the lobby, restaurant, and fitness center.
The Harborview was closed on September 18, 2022, and remained closed through January 31, 2023 — a total closure period of 135 days. The extended closure was necessitated by the scope of the required restoration work, particularly the rehabilitation of the conference facility, which required specialized contractors and lead times for replacement audio-visual and mechanical equipment. The property is expected to reopen by the end of January 2023.
Estimated BI loss for Harborview Hotel & Conference Center: $18.7 million.
3. Verimark Sunset Shores — St. Pete Beach, Florida
The Verimark Sunset Shores is located at 7200 Gulf Boulevard, St. Pete Beach, Florida 33706, on the Gulf Coast of Pinellas County. The property is a 186-room boutique resort with a more intimate atmosphere and higher price point, catering to leisure travelers and small-group retreats.
The Sunset Shores' pre-loss ADR was $342, with an average occupancy rate of approximately 79%. The property's boutique positioning and premium pricing made it a significant contributor to VHG's overall revenue and profitability on a per-room basis.
Hurricane Callista caused moderate damage to the Sunset Shores property. The property is located further north than the storm's primary track, and while it sustained significant wind damage — including partial roof loss, window failures, and landscaping destruction — the storm-surge impact was less severe than at the Grand Key Resort or Harborview properties. Storm surge at the Sunset Shores location was approximately 3 to 5 feet.
The Sunset Shores experienced a full closure from September 18 through November 30, 2022 — a period of 73 days. The property partially reopened on November 30, 2022, at reduced capacity (approximately 60% of rooms available), and operated at progressively increasing capacity through early 2023. Full capacity was reached on approximately February 28, 2023. The partial-closure period and reduced-capacity operations contributed additional BI losses beyond the full-closure period.
Estimated BI loss for Sunset Shores: $9.9 million.
4. Total Aggregate Claimed Business-Interruption Loss
The total aggregate BI loss claimed by VHG across all three properties is as follows:
D. Insurance Program Structure
VHG maintains an all-risk property and business-interruption insurance program with a common policy period of July 1, 2022, through July 1, 2023. The program was placed through VHG's insurance broker of record, Tidewater Risk Advisors LLC ("Tidewater"), located at 2600 S. Bayshore Drive, Suite 800, Miami, Florida 33133. The account executive responsible for VHG's placement is Franklin Orde, a senior broker at Tidewater with over twenty years of experience in hospitality and real estate insurance placements.
The insurance program is structured as a layered tower with four carriers, providing total aggregate limits of $60 million (above a $500,000 per-occurrence deductible). The total annual premium paid by VHG for this coverage is $1,840,000. The tower is structured as follows:
The excess policies follow form to the Ironclad primary policy with respect to coverage terms, conditions, and exclusions, subject to each excess carrier's own policy terms regarding attachment, limits, and any specific endorsements. This follow-form structure means that coverage determinations under the primary policy will generally control the availability of coverage under the excess layers, though each excess carrier retains the right to raise its own coverage defenses.
A detailed policy comparison chart was prepared by Calderwood & Harkness and circulated to VHG on September 8, 2022, identifying any material variations among the four policies. That chart is incorporated herein by reference.
E. Claim History and Insurer Responses
The following is a chronological summary of the key events in the claim-handling process to date:
September 22, 2022: VHG submitted its initial notice of loss to Ironclad Indemnity Corporation, as the primary carrier, advising of the Hurricane Callista-related property damage and anticipated business-interruption losses at all three resort properties. Notice was provided by email and certified mail to Ironclad's claims department in Hartford, Connecticut, with copies to Tidewater Risk Advisors and to the excess carriers.
October 5, 2022: Ironclad retained Arbor Claims Services LLC ("Arbor"), an independent adjusting firm, to conduct property inspections and evaluate the claim. Denise Whitford, a senior independent adjuster with Arbor, was designated as the lead adjuster for the VHG claim. Whitford conducted initial property inspections at all three resort properties during the week of October 3–7, 2022.
October 12, 2022: Ironclad issued a reservation of rights letter to VHG, signed by Victor Haddon, Senior Vice President of Claims, raising four potential coverage defenses: (1) the named-windstorm sub-limit of $15 million; (2) the period of restoration as overstated; (3) the concurrent causation / flood exclusion; and (4) failure to mitigate. The reservation of rights letter stated that Ironclad would continue to investigate the claim but reserved the right to deny coverage based on any or all of the stated grounds.
October 25, 2022: Calderwood & Harkness, on behalf of VHG, responded to Ironclad's reservation of rights letter, disputing each of the four stated bases for potential denial. The response was a detailed, 14-page letter setting forth VHG's legal and factual positions on each issue and demanding that Ironclad promptly complete its investigation and pay the claim in full.
November 15, 2022: VHG submitted its sworn statement in proof of loss to Ironclad, quantifying the total BI loss at $60 million across the three properties, with supporting documentation including historical financial data, occupancy and revenue records, and a detailed calculation of the BI loss for each property and each period of interruption.
November 20–21, 2022: Calderwood & Harkness transmitted formal demand letters to all four carriers — Ironclad, Pinnacle, Montclair, and Sovereign Re — demanding payment of each carrier's respective policy limits in full, less the applicable deductible under the primary policy.
As of the date of this memorandum (January 15, 2023): The status of each carrier's response is as follows:
• Ironclad Indemnity Corporation: Ironclad has not yet issued a formal denial of the claim, but has communicated through its claims VP, Victor Haddon, and the independent adjuster, Denise Whitford, that it is unlikely to pay the full claim amount. In a December 15, 2022 telephone conversation between Haddon and undersigned counsel, Haddon indicated that Ironclad was "finalizing its coverage analysis" and expected to issue a "coverage determination" in January 2023. Based on the tone and substance of this communication, as well as the stated reservation of rights, we anticipate that Ironclad will issue a formal denial of all or a substantial portion of the claim imminently.
• Pinnacle Surplus Lines Inc.: Pinnacle has indicated, through its counsel at Braddock & Stein LLP (Sarah Kirchner), that it will follow Ironclad's coverage determination with respect to all coverage issues. Pinnacle has not conducted an independent investigation of the claim. If Ironclad denies coverage based on the windstorm sub-limit, Pinnacle will take the position that its $15 million layer (attaching at $25 million) is not reached.
• Montclair Assurance Company: Montclair has issued its own reservation of rights letter (dated November 3, 2022) but has not taken a formal position on the merits of the coverage dispute. Montclair has indicated that its $10 million layer, attaching at $40 million, would not be reached if the windstorm sub-limit applies, and it is therefore monitoring Ironclad's coverage determination before taking further action.
• Sovereign Re Ltd.: Sovereign Re, through its Bermuda-based claims department, has reserved rights but has similarly taken the position that its $10 million layer, attaching at $50 million, would not be reached under any scenario in which the windstorm sub-limit applies. Sovereign Re has not conducted an independent investigation.
With respect to the insured properties, the Sunset Shores partially reopened on November 30, 2022, at approximately 60% capacity, and is progressing toward full capacity. The Harborview is expected to reopen by the end of January 2023. The Grand Key Resort's restoration is ongoing, with a projected reopening on or about March 15, 2023.
III. COVERAGE ISSUES — MERITS ASSESSMENT
This section provides a summary assessment of each contested coverage issue. For detailed legal analysis, including citation to controlling case law and policy language, the reader is referred to the Firm's prior memoranda on each issue, which are incorporated herein by reference.
A. Issue 1: Named Windstorm Sub-Limit ($15 Million)
1. Ironclad's Position
Ironclad asserts that the primary policy, Policy No. IIC-PRP-2022-07541, contains a named-windstorm sub-limit of $15 million for business-interruption losses arising from named windstorm events. If this sub-limit is applied, VHG's maximum BI recovery under the primary layer would be capped at $15 million (less the $500,000 per-occurrence deductible), or $14.5 million net.
More critically, the application of this sub-limit would effectively cap VHG's total BI recovery across the entire insurance tower at $14.5 million, because the sub-limit would prevent the primary layer's $25 million limit from being exhausted, which is a prerequisite for triggering the excess layers' coverage obligations. In other words, Pinnacle's first excess layer (attaching at $25 million), Montclair's second excess layer (attaching at $40 million), and Sovereign Re's third excess layer (attaching at $50 million) would never be reached.
Ironclad relies on a named-windstorm sub-limit endorsement that appeared in the prior policy year (2021–2022) and argues that the endorsement was carried forward into the current 2022–2023 policy without modification.
2. VHG's Position and Analysis
VHG contends that the $15 million named-windstorm sub-limit was affirmatively deleted during the July 2022 renewal negotiations, as part of an overall restructuring of VHG's insurance program. VHG's position is supported by substantial evidence, which was analyzed in detail in the Firm's October 20, 2022 memorandum prepared by Tiffany Rosenthal and Andrew Fitzpatrick.
The key evidence supporting deletion of the sub-limit is as follows:
(a) Broker Correspondence. Franklin Orde, VHG's account executive at Tidewater Risk Advisors, exchanged a series of emails with Ironclad's underwriting department during the June–July 2022 renewal period. In a June 28, 2022 email, Orde specifically requested deletion of the named-windstorm sub-limit, citing VHG's desire for "full limits" coverage for windstorm BI losses given the Company's increased exposure in the Florida Keys. Ironclad's underwriter, Patricia Wendt, responded on July 5, 2022, indicating that deletion of the sub-limit would be "acceptable subject to a premium increase." A subsequent exchange on July 11, 2022, confirmed the agreed premium increase. This correspondence strongly supports VHG's position that the sub-limit was negotiated out of the policy.
(b) The 2022 Renewal Binder. The renewal binder issued by Ironclad on July 1, 2022, which constitutes the operative evidence of the parties' agreement pending issuance of the formal policy, does not reference the named-windstorm sub-limit. The binder lists the policy's per-occurrence limit as $25 million with a $500,000 deductible, without any sub-limit qualification for windstorm losses.
(c) Increased Premium. VHG paid a significantly increased premium for the primary layer at the 2022 renewal: $980,000 for the 2022–2023 policy year, compared to approximately $780,000 for the prior 2021–2022 policy year — an increase of approximately 25.6%. This premium increase is consistent with the deletion of the sub-limit, which would have expanded Ironclad's potential exposure by $10 million (from a $15 million sub-limit to the full $25 million per-occurrence limit for windstorm BI losses).
(d) Sandra Pellegrini's Contemporaneous Understanding. Sandra Pellegrini, VHG's Vice President of Risk Management, has confirmed in interviews with Calderwood & Harkness that her contemporaneous understanding — and the understanding communicated to VHG's management — was that the named-windstorm sub-limit had been removed from the 2022–2023 policy. Pellegrini specifically recalls discussing the deletion of the sub-limit with Franklin Orde and receiving confirmation that the deletion was reflected in the renewal terms.
Even if the evidence is deemed less than conclusive on the question of whether the sub-limit was affirmatively deleted, VHG has a strong alternative argument based on policy ambiguity. The policy endorsements, read in conjunction with the renewal binder and the broker correspondence, create at minimum an ambiguity regarding whether the sub-limit was carried forward into the 2022–2023 policy year. Under Florida's well-established contra proferentem doctrine, ambiguities in insurance policies are construed against the insurer and in favor of coverage. See, e.g., Excelsior Ins. Co. v. Pomona Park Bar & Package Store, 369 So. 2d 938 (Fla. 1979); Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29 (Fla. 2000). This doctrine provides a strong backstop for VHG's position, particularly at the summary judgment stage.
Assessment: Strong position for VHG. We estimate the likelihood of VHG prevailing on this issue at summary judgment or trial at 70–80%. This is the single most consequential issue in the case. If the sub-limit is found to have been deleted — which is the more likely outcome based on the available evidence — the full $60 million tower is available for VHG's BI claim, and the excess carriers' obligations are triggered once the primary layer is exhausted. Conversely, if the sub-limit is upheld, VHG's recovery would be capped at $14.5 million, a difference of approximately $45.5 million. Accordingly, this issue will be the central battleground of the litigation.
B. Issue 2: Concurrent Causation / Flood Exclusion
1. Ironclad's Position
Ironclad's second coverage defense is based on the policy's flood exclusion and its anti-concurrent causation ("ACC") clause. Ironclad argues that portions of the damage at the VHG properties — particularly at the Grand Key Resort in Marathon — resulted from storm surge, which Ironclad characterizes as "flood" within the meaning of the policy's flood exclusion. Ironclad contends that because the flood exclusion is triggered, and because the policy's ACC clause provides that excluded perils bar recovery even when they act concurrently with covered perils, the entire loss — or at minimum a substantial portion of the loss — is excluded from coverage.
The policy's ACC clause reads, in relevant part:
"This Policy does not insure against loss or damage caused directly or indirectly by any of the following excluded causes of loss. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss."
This clause is followed by the enumerated exclusions, including the exclusion for "flood," which the policy defines as:
"Flood, meaning waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not; or water which backs up through sewers or drains."
2. VHG's Position and Analysis
VHG's position on this issue was analyzed in detail in the Firm's November 1, 2022 memorandum (addressing Florida anti-concurrent causation jurisprudence) and December 2, 2022 memorandum (addressing the applicability of the flood exclusion to storm-surge damage associated with a named windstorm).
VHG's arguments on this issue are multi-layered:
First, under Florida law, the enforceability of broadly worded ACC clauses is subject to significant judicial scrutiny. While Florida courts have not categorically invalidated ACC clauses, there is a body of case law suggesting that such clauses may be unenforceable where they are used to exclude coverage for losses that are predominantly caused by a covered peril. The Florida efficient proximate cause doctrine, which directs courts to identify the dominant or efficient cause of a loss and apply coverage accordingly, remains a viable analytical framework. See Glenrock Enterprises, 208 So. 3d 694 (Fla. 2016) (addressing the interaction between ACC clauses and covered perils in the context of construction-defect claims). Although the Florida Supreme Court has not squarely addressed the enforceability of ACC clauses in the hurricane/storm-surge context, several lower court decisions and federal court decisions applying Florida law have expressed skepticism toward broad ACC clauses that would effectively nullify windstorm coverage whenever any amount of storm-surge damage is present.
Second, the flood exclusion, by its terms, may not encompass storm surge associated with a named windstorm in the manner Ironclad contends. The definition of "flood" in the policy refers to "waves, tides, tidal waves, overflow of any body of water, or their spray." Storm surge — which is an abnormal rise in sea level generated by the low pressure and wind circulation of a tropical cyclone — is a phenomenon distinct from traditional "flooding" caused by riverine overflow or tidal action. VHG will argue that the policy's flood definition was not intended to, and does not clearly, encompass storm surge driven by hurricane-force winds, and that any ambiguity in the definition should be resolved in favor of coverage under the contra proferentem doctrine.
Third, and critically, VHG has retained Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc. (Doral, Florida), as its forensic engineer to conduct a detailed causation analysis. Mr. Caldwell has performed preliminary site inspections and engineering assessments at all three properties. His preliminary findings indicate that the predominant cause of structural damage at the Grand Key Resort was wind, not storm surge. Specifically, Caldwell's analysis distinguishes between (a) wind damage to the building envelope, roof systems, and structural elements, which was extensive and occurred above the storm-surge inundation line, and (b) water damage attributable to storm surge, which was largely confined to ground-floor areas and contents. Caldwell's analysis will be critical to establishing that even if the flood exclusion applies to storm-surge damage, the majority of the damage — and the predominant cause of the business interruption — was the covered peril of wind.
Assessment: Moderately strong position for VHG. We estimate the likelihood of VHG prevailing on this issue at 60–70%. The strength of VHG's position depends significantly on two factors: (1) the forensic engineering evidence, which preliminary analysis indicates will support VHG's position that wind was the dominant cause of loss, and (2) the court's interpretation of the ACC clause and flood exclusion under Florida law, which is an evolving area of jurisprudence. This issue primarily affects the Grand Key Resort claim ($31.4 million), as the storm-surge impact at Harborview and Sunset Shores, while present, was less severe. Even if the court were to allocate some portion of the Grand Key Resort loss to excluded storm-surge damage, the covered wind-related losses would remain substantial.
C. Issue 3: Period of Restoration
1. Ironclad's Position
Ironclad's third coverage defense challenges the reasonableness of VHG's claimed periods of restoration at each of the three properties. The business-interruption coverage provision in the Ironclad policy provides that BI loss is measured during the "period of restoration," which the policy defines as:
"The period of time that: (a) begins with the date of direct physical loss or damage caused by or resulting from a Covered Cause of Loss at the described premises; and (b) ends on the date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality."
Ironclad argues that VHG's claimed restoration periods exceed what would have been achievable "with reasonable speed," and that VHG's BI losses should therefore be calculated based on shorter restoration periods. Ironclad relies on the analysis of its independent adjuster, Denise Whitford of Arbor Claims Services LLC, who has estimated shorter restoration periods for each property as follows:
If Ironclad's shorter restoration periods were accepted, VHG's BI losses would be reduced by approximately 30–35%, which would reduce the total claim from $60 million to approximately $39–$42 million.
2. VHG's Position and Analysis
VHG contends that its claimed restoration periods are entirely reasonable under the circumstances and are well within the range of what constitutes repair "with reasonable speed" given the unprecedented devastation caused by Hurricane Callista. The Firm's November 10, 2022 memorandum analyzed this issue in detail.
VHG's restoration timelines were reasonable and, in many respects, aggressive, given the following factors:
(a) Catastrophic Nature of the Storm. Hurricane Callista was a Category 4 hurricane with 145 mph sustained winds and storm surge of 8–14 feet. The devastation to the Florida Keys and Gulf Coast was widespread and severe, affecting not only VHG's properties but the entire regional infrastructure, including roads, bridges, utilities, and communications. Restoration of luxury resort properties cannot be accomplished in isolation from the restoration of surrounding infrastructure.
(b) Regional Contractor Shortages and Supply-Chain Disruptions. In the aftermath of Hurricane Callista, the demand for construction contractors, building materials, and specialized trades (e.g., electricians, roofers, HVAC technicians) in South Florida far exceeded supply. VHG competed for scarce resources with thousands of other property owners, including homeowners, commercial property owners, and government entities undertaking emergency repairs. Supply-chain disruptions for specialty materials, including hurricane-rated windows and roofing systems, resulted in lead times of 8–12 weeks for certain critical components.
(c) Permitting Delays. Local building departments in Monroe, Lee, and Pinellas Counties were overwhelmed by the volume of permit applications following Hurricane Callista. VHG experienced significant delays in obtaining the necessary building permits for restoration work, particularly at the Grand Key Resort in Monroe County, where the local building department was operating with reduced staff and processing times were extended by several weeks.
(d) Environmental Remediation. The combination of wind damage, water intrusion, and prolonged building closures resulted in extensive mold growth at all three properties. As operators of luxury hospitality properties, VHG had an obligation to conduct thorough environmental remediation — including professional mold abatement, air-quality testing, and certification — before reopening to guests. This remediation work added significant time to the restoration schedule but was essential to guest safety and regulatory compliance.
(e) Guest Safety. VHG operates luxury resort properties that are occupied by paying guests, including families with children. The Company had a legal and ethical obligation to ensure that each property was fully safe for occupancy before reopening, including structural integrity certification, life-safety system testing, and code compliance verification. Reopening a resort property prematurely, before restoration is complete, would expose VHG to significant liability and reputational risk.
Florida courts have consistently recognized that the "reasonable speed" standard in the period-of-restoration definition is evaluated in light of the circumstances surrounding the loss, and that insureds are entitled to reasonable deference in determining restoration timelines. Courts have placed the burden on the insurer to demonstrate that the insured's restoration timeline was unreasonable, and have rejected insurer arguments for artificially compressed timelines that fail to account for real-world conditions following catastrophic events.
VHG intends to retain Dr. Helen Vasquez of Meridian Forensic Economics LLC (Atlanta, Georgia) to provide expert quantification of the BI losses based on the actual restoration periods claimed by VHG. Dr. Vasquez will analyze VHG's historical financial performance, industry benchmarks, and the specific circumstances of each property's closure to opine that the claimed BI losses are reasonable and accurately calculated. Her testimony will also address the reasonableness of VHG's restoration timelines from a business-operations perspective.
Assessment: Strong position for VHG. We estimate the likelihood of VHG prevailing on this issue at 70–75%. The post-hurricane restoration environment in the Florida Keys and Gulf Coast — including well-documented contractor shortages, supply-chain disruptions, and permitting delays — strongly supports VHG's claimed restoration timelines. Arbor Claims Services' compressed timelines do not appear to account adequately for these real-world conditions, and we believe VHG will be able to demonstrate that its restoration periods were reasonable as a matter of law or fact.
D. Issue 4: Failure to Mitigate
1. Ironclad's Position
Ironclad's fourth and final stated coverage defense is that VHG failed to take reasonable steps to reduce the period of business interruption and thereby mitigate its BI losses. Specifically, Ironclad has alleged that VHG: (a) did not engage restoration contractors soon enough after the storm; (b) failed to pursue temporary or partial operations at the affected properties; and (c) did not divert guests and group bookings to unaffected third-party properties to reduce lost revenue.
2. VHG's Position and Analysis
VHG's mitigation efforts were prompt, reasonable, and extensive under the catastrophic circumstances. The Company took numerous affirmative steps to reduce the period and extent of business interruption, including:
(a) Immediate Engagement of Emergency Contractors. Within 48 hours of Hurricane Callista's passage, VHG's facilities management team mobilized emergency remediation contractors to begin water extraction, debris removal, and structural stabilization at all three properties. Given the widespread devastation and the scarcity of available contractors, VHG's ability to engage contractors within this timeframe was itself a significant mitigation achievement.
(b) Coordination with Local Authorities. VHG actively coordinated with Monroe, Lee, and Pinellas County emergency management officials and building departments to obtain expedited access to damaged properties and to accelerate the permitting process for restoration work. VHG's General Counsel, Nathaniel Driscoll, personally intervened with county officials to resolve permitting delays at the Grand Key Resort.
(c) Guest and Group Booking Relocation. VHG's sales and reservations teams worked diligently to relocate displaced guests and rebook group events at third-party partner hotels and resorts. These efforts resulted in the successful relocation of several major group bookings, including a Fortune 500 corporate retreat originally scheduled at the Harborview in November 2022. While these relocation efforts did not generate revenue for VHG directly, they preserved guest and client relationships and reduced the reputational harm associated with cancellations.
(d) Early Partial Reopening. VHG reopened the Sunset Shores property at partial capacity on November 30, 2022 — well ahead of full restoration — to begin generating revenue as soon as feasible. This partial reopening required VHG to absorb additional costs associated with operating a partially restored property, but it demonstrates VHG's good-faith effort to mitigate its losses.
Under Florida law, the insurer bears the burden of proving that the insured failed to mitigate, and the applicable standard is reasonableness under the circumstances — not perfection. See, e.g., Marlowe Casualty Group v. Tropical Shipping & Constr. Co., 254 F.3d 987 (11th Cir. 2001) (applying Florida law). The insurer must demonstrate not only that the insured failed to take reasonable steps, but also that such failure actually increased the loss. Ironclad's mitigation defense is, in our assessment, largely a negotiating posture rather than a substantive coverage defense.
Assessment: Weak defense for insurers. We estimate the likelihood that this defense will significantly reduce VHG's recovery at only 15–25%. VHG's mitigation efforts appear reasonable and well-documented under the catastrophic circumstances of Hurricane Callista. This defense is unlikely to materially affect the outcome of the litigation.
IV. POTENTIAL CAUSES OF ACTION
Based on the foregoing analysis, we recommend that VHG's complaint assert the following causes of action against the defendant insurers:
A. Breach of Contract (All Defendants)
VHG holds valid, enforceable all-risk property and business-interruption insurance policies with each of the four carriers in its insurance tower. Hurricane Callista constitutes a covered occurrence under each policy — it is an all-risk form, meaning that all causes of loss are covered unless specifically excluded, and windstorm is not an excluded peril. VHG has complied with all conditions precedent to coverage, including providing timely notice of loss (September 22, 2022), cooperating with the insurers' investigations, and submitting a sworn statement in proof of loss (November 15, 2022).
Each insurer's refusal to pay its respective policy limits — or, in Ironclad's case, anticipated formal refusal — constitutes a breach of the insurer's contractual obligation to indemnify VHG for covered business-interruption losses. The damages for breach of contract are the unpaid policy proceeds under each carrier's layer:
• Ironclad Indemnity Corporation: $24,500,000 (primary layer limit of $25,000,000 less $500,000 deductible)
• Pinnacle Surplus Lines Inc.: $15,000,000 (first excess layer)
• Montclair Assurance Company: $10,000,000 (second excess layer)
• Sovereign Re Ltd.: $10,500,000 (third excess layer, capped at the remaining unpaid loss of $10,000,000 subject to the layer limit)
The total damages sought for breach of contract are $59,500,000 ($60,000,000 in total BI losses less the $500,000 deductible), subject to each carrier's individual layer limits.
B. Declaratory Judgment (All Defendants)
In addition to the breach-of-contract claims, VHG should seek a judicial declaration resolving the contested coverage issues in VHG's favor. Specifically, the declaratory judgment count should seek declarations that:
(a) The named-windstorm sub-limit of $15 million was deleted from the Ironclad primary policy during the July 2022 renewal, and no such sub-limit applies to VHG's Hurricane Callista BI claim;
(b) The policy's flood exclusion does not bar recovery for business-interruption losses caused by wind-driven damage, and to the extent storm surge contributed to the loss, the efficient proximate cause of the business interruption was the covered peril of wind;
(c) VHG's claimed periods of restoration are reasonable under the circumstances and represent the period during which the properties "should be repaired, rebuilt or replaced with reasonable speed" within the meaning of the policy;
(d) VHG has satisfied all conditions precedent to coverage, including its duty to mitigate; and
(e) Each insurer is obligated to pay its full policy limits in connection with VHG's Hurricane Callista BI claim.
The declaratory judgment cause of action serves both substantive and tactical purposes. Substantively, it allows the court to issue a definitive ruling on the contested coverage issues that will bind all parties. Tactically, it puts the coverage issues squarely before the court on VHG's terms and may facilitate early resolution through summary judgment.
C. Bad Faith (Ironclad; Potentially Pinnacle)
Under Florida Statutes § 624.155, an insurer may be liable for bad faith in handling a first-party insurance claim. A bad-faith action under § 624.155 allows the insured to recover damages in excess of the policy limits, including consequential damages, attorney's fees, and costs. This is a powerful remedy that significantly enhances VHG's litigation leverage.
To pursue a statutory bad-faith claim under § 624.155, VHG must comply with the following prerequisites:
(a) Filing a Civil Remedy Notice. VHG must file a Civil Remedy Notice ("CRN") with the Florida Department of Financial Services, identifying the specific acts or omissions by the insurer that constitute bad faith. The CRN gives the insurer 60 days to cure the violation (i.e., to pay the claim or otherwise resolve the dispute) before the insured may file suit on the bad-faith claim.
(b) Determination of Coverage. Under Florida law, a bad-faith claim generally requires a predicate determination that the insurer was obligated to pay the underlying claim — i.e., that coverage existed and the claim was valid. This determination may be obtained through a favorable judgment on the breach-of-contract claim, a settlement, or other means.
Ironclad's conduct in handling VHG's claim raises significant bad-faith concerns. Specifically:
• Ironclad's reliance on the named-windstorm sub-limit as a basis for denial, when the evidence strongly suggests that the sub-limit was deleted during the 2022 renewal, may constitute an unreasonable coverage determination.
• Ironclad's delayed investigation — nearly four months have elapsed since VHG submitted its sworn proof of loss, and Ironclad has yet to issue a formal coverage determination — may constitute an unreasonable delay in resolving the claim.
• Ironclad's apparent failure to give adequate weight to the broker correspondence and renewal binder, which support deletion of the sub-limit, may reflect a failure to conduct a fair and balanced coverage evaluation.
• Ironclad's compressed restoration-period estimates, as communicated through Arbor Claims Services, may reflect an outcome-oriented approach to the adjustment rather than an objective evaluation.
Timing Consideration: The timing of VHG's filing is critical to preserving and maximizing the bad-faith claim. If Ironclad issues a formal denial before VHG files the coverage action, VHG should promptly file a Civil Remedy Notice under § 624.155 and commence the 60-day cure period. Filing the coverage action before or contemporaneously with the formal denial puts pressure on Ironclad and signals VHG's intent to pursue all available remedies, including bad faith, if the claim is not resolved promptly.
Pinnacle's Exposure: Pinnacle's follow-form denial may also expose it to bad-faith liability, although the case against Pinnacle is somewhat weaker given its reliance on Ironclad's lead. To the extent Pinnacle conducted no independent investigation and simply adopted Ironclad's coverage determination without independent analysis, Pinnacle may be vulnerable to the argument that it failed to exercise independent judgment in evaluating the claim. We recommend including Pinnacle in the bad-faith claim on a contingent basis, subject to further development of the facts.
Montclair and Sovereign Re: Neither Montclair nor Sovereign Re has issued a formal denial to date. Both have reserved rights but have not affirmatively refused to pay. These carriers are therefore less likely targets for bad-faith claims at this stage, although their posture could change depending on how the litigation develops.
V. FORUM SELECTION AND JURISDICTIONAL ANALYSIS
A. Recommended Forum
We recommend that VHG file this action in the Eleventh Judicial Circuit of Florida, in and for Miami-Dade County (state court). This recommendation is based on the following considerations:
Policyholder-Favorable Jurisprudence. Florida state courts have a well-established body of pro-policyholder insurance jurisprudence. Florida courts consistently apply the contra proferentem doctrine to construe policy ambiguities against the insurer, recognize the efficient proximate cause doctrine as a framework for analyzing concurrent-causation disputes, and place the burden on the insurer to establish the applicability of exclusions. These doctrinal foundations favor VHG's position on each of the contested coverage issues, particularly the windstorm sub-limit ambiguity and the concurrent causation / flood exclusion issue.
VHG's Headquarters. VHG is headquartered in Miami at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. The Company's principal place of business and its corporate decision-making center are in Miami-Dade County. Filing in the county where VHG is headquartered provides a natural and convenient forum for the litigation.
Situs of the Losses. The insured properties are located in Monroe, Lee, and Pinellas Counties, all within the State of Florida. The policies at issue were negotiated and placed through a Miami-based broker (Tidewater Risk Advisors) and cover Florida-located risks. Florida is the natural forum for this dispute, and the losses giving rise to the claim occurred entirely within the state.
Avoidance of Federal Court. Filing in state court allows VHG to litigate in a forum that may be more favorable to policyholder claims than the federal courts. While Florida substantive law governs regardless of the forum, state court judges and juries in Miami-Dade County may have greater familiarity with and sympathy for hurricane-related coverage disputes. State court also avoids certain procedural complexities associated with federal court, including potentially more restrictive discovery practices under the Federal Rules of Civil Procedure.
B. Jurisdictional Considerations
Because the four defendant carriers are domiciled in four different jurisdictions (Connecticut, Texas, New York, and Bermuda), VHG must establish personal jurisdiction over each defendant in the Florida courts. Our assessment is as follows:
Ironclad Indemnity Corporation (Hartford, Connecticut). Personal jurisdiction over Ironclad is readily established. Ironclad is an admitted insurance carrier in the State of Florida, authorized to transact insurance business in the state. Ironclad issued a primary property and business-interruption policy covering three Florida-located properties, collected premium from a Florida-based policyholder, appointed a Florida-based independent adjuster, and conducted claim-handling activities within the state. These contacts far exceed the minimum contacts required for both general and specific personal jurisdiction under Florida's long-arm statute and the Due Process Clause of the Fourteenth Amendment.
Pinnacle Surplus Lines Inc. (Austin, Texas). Pinnacle is authorized as a surplus-lines insurer in the State of Florida, pursuant to Florida Statutes Chapter 626, Part VIII. Pinnacle's issuance of a surplus-lines excess policy covering Florida risks, its collection of premium, and its participation in the claim-handling process through its designated counsel establish sufficient minimum contacts for personal jurisdiction. Florida's long-arm statute provides specific jurisdiction over any person who operates, conducts, engages in, or carries on a business venture in the state, and surplus-lines insurers that issue policies covering Florida risks fall squarely within this provision.
Montclair Assurance Company (New York, New York). Montclair is an admitted carrier in Florida, authorized to transact insurance business in the state. Like Ironclad, Montclair issued an excess policy covering Florida-located risks, collected premium from a Florida policyholder, and participated in the claim-handling process. Personal jurisdiction is established on the same bases as Ironclad.
Sovereign Re Ltd. (Hamilton, Bermuda). Personal jurisdiction over Sovereign Re presents the most challenging analysis, as Sovereign Re is domiciled in Bermuda and does not maintain physical offices in the State of Florida. However, we believe personal jurisdiction can be established under Florida's long-arm statute, Fla. Stat. § 48.193, on the basis of Sovereign Re's issuance of an excess insurance policy specifically covering three Florida-located resort properties, its collection of an annual premium of $185,000 from a Florida-based policyholder, and its participation in the claim-handling process (including its issuance of a reservation of rights letter directed to VHG in Florida). These contacts constitute the "transaction of business" within the state and establish a sufficient nexus between Sovereign Re and the State of Florida for purposes of specific personal jurisdiction. Alternatively, service of process may be effected on Sovereign Re through Florida's long-arm statute, with service directed to Sovereign Re's registered agent or, if necessary, through the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents (as Bermuda is a territory to which the Convention applies through the United Kingdom's ratification). We anticipate that Sovereign Re may challenge personal jurisdiction and service of process, and we are prepared to brief this issue fully if necessary.
Venue. Venue is proper in Miami-Dade County under Florida's venue statutes, as VHG's principal place of business is located in Miami-Dade County and substantial policy negotiations occurred there, including meetings with Tidewater Risk Advisors and communications with the carriers' Florida-based representatives.
C. Federal Court Considerations
There is a material risk that one or more defendants will attempt to remove this action to the United States District Court for the Southern District of Florida, Miami Division, based on diversity jurisdiction under 28 U.S.C. § 1332. The prerequisites for diversity jurisdiction appear to be satisfied: VHG is a Delaware corporation with its principal place of business in Florida; the four defendant carriers are citizens of Connecticut, Texas, New York, and Bermuda, respectively; and the amount in controversy ($60 million) far exceeds the $75,000 jurisdictional threshold. Complete diversity of citizenship exists, as no defendant shares VHG's state of citizenship (Delaware or Florida).
The presence of Sovereign Re, a Bermuda-domiciled entity, adds a foreign-citizen dimension to the jurisdictional analysis. Under 28 U.S.C. § 1332(a)(2), federal courts have jurisdiction over civil actions between citizens of a state and citizens or subjects of a foreign state. Sovereign Re's Bermuda domicile thus supports, rather than undermines, diversity jurisdiction.
If the defendants remove the action, we recommend preparing and filing a motion to remand, arguing that state-law claims predominate, that VHG specifically chose a state-court forum for its policyholder-friendly jurisprudence, and that the interests of judicial economy and comity favor adjudication in state court. We acknowledge, however, that the prospects for remand are uncertain given the clear satisfaction of the diversity-jurisdiction requirements. If the case remains in federal court, the substantive outcome should not be materially affected, as the federal court will apply Florida substantive law (including the contra proferentem doctrine and efficient proximate cause standards) to the coverage dispute.
We recommend that VHG prepare its litigation strategy to succeed in either forum, while making every reasonable effort to retain the state-court forum.
VI. DEFENDANTS' ANTICIPATED AFFIRMATIVE DEFENSES
Based on the insurers' communications to date, including Ironclad's reservation of rights letter, Pinnacle's follow-form correspondence, and the Firm's experience in insurance coverage litigation, we anticipate the following affirmative defenses from each defendant:
A. Ironclad Indemnity Corporation
Ironclad is expected to assert the following defenses in its answer to the complaint:
1. Named Windstorm Sub-Limit. Ironclad will contend that the $15 million named-windstorm sub-limit was not deleted from the 2022–2023 policy and that VHG's BI recovery is capped at $15 million. For the reasons discussed in Section III.A above, we believe this defense will not prevail.
2. Flood Exclusion / Anti-Concurrent Causation. Ironclad will argue that the flood exclusion, as amplified by the ACC clause, bars or substantially reduces recovery for storm-surge-related losses. For the reasons discussed in Section III.B above, we believe this defense has limited merit, particularly in light of the forensic engineering evidence.
3. Period of Restoration. Ironclad will argue that VHG's claimed restoration periods are unreasonable and overstated, and that BI losses should be calculated using the shorter restoration periods estimated by Arbor Claims Services. For the reasons discussed in Section III.C above, we believe VHG's restoration timelines are reasonable and defensible.
4. Failure to Mitigate. Ironclad will argue that VHG failed to take reasonable steps to reduce the period and extent of its business interruption. For the reasons discussed in Section III.D above, this is a weak defense that is unlikely to succeed.
5. Late Notice. Ironclad may raise a late-notice defense, although this is unlikely to succeed. VHG provided notice of loss on September 22, 2022 — only four days after Hurricane Callista's landfall on September 18, 2022. Given the catastrophic conditions in the immediate aftermath of the storm, including power outages, road closures, and communications disruptions, four-day notice is not only reasonable but commendable. Florida courts generally require the insurer to demonstrate actual prejudice from late notice to prevail on this defense, and Ironclad will be unable to show prejudice from a four-day delay.
B. Pinnacle Surplus Lines Inc.
Pinnacle is expected to adopt a follow-form posture, asserting all of Ironclad's defenses as its own. In addition, Pinnacle will raise the following defense specific to its layer position: