PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Diane Calder, Chief Financial Officer, Verimark Hospitality Group Inc.
FROM: Tiffany Rosenthal, Calderwood & Harkness LLP Elaine Forsythe, Calderwood & Harkness LLP
DATE: August 4, 2023
RE: Preparation for Deposition — August 8, 2023
MATTER: Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al., Case No. 2022-CA-031547 (Eleventh Judicial Circuit of Florida, Miami-Dade County)
ENGAGEMENT NO.: 1021-00003
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I. INTRODUCTION AND PURPOSE
This memorandum has been prepared by Calderwood & Harkness LLP to assist you, Diane Calder, in preparing for your deposition, which is currently scheduled for August 8, 2023. The deposition will be taken by defense counsel in the above-referenced matter and is expected to last a full day. This memorandum is protected by the attorney-client privilege and the work-product doctrine, and its contents should not be disclosed to anyone outside of the attorney-client relationship.
As you are aware, Verimark Hospitality Group Inc. ("VHG") initiated this litigation against its property and business-interruption insurers following their denial of VHG's $60 million business-interruption claim arising from Hurricane Callista, which struck the Florida Gulf Coast and Florida Keys in September 2022. The named defendants in this action are:
•  Ironclad Indemnity Corporation ("Ironclad") — primary insurer;
•  Pinnacle Surplus Lines Inc. ("Pinnacle") — first excess insurer;
•  Montclair Assurance Company ("Montclair") — second excess insurer; and
•  Sovereign Re Ltd. ("Sovereign Re") — third excess insurer.
Your deposition will be taken by two sets of defense counsel:
•  Gregory Stanton and Meredith Liang of Fendowell Rourke & Stanton LLP, who represent Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc.; and
•  Patricia Kraus and Raymond Cho of Delvecchio & Kraus LLP, who represent Montclair Assurance Company and Sovereign Re Ltd.
Because VHG faces four defendants represented by two separate law firms, you should expect that questioning may come from multiple attorneys, each with somewhat different priorities. Gregory Stanton, as lead defense counsel for the primary insurer, is expected to conduct the majority of the examination, with Patricia Kraus or Raymond Cho supplementing with additional questions on behalf of the excess carriers.
The deposition is expected to focus heavily on VHG's financial data, the composition and calculation of the $60 million business-interruption claim, revenue projections and the "but-for" analysis methodology, the saved-expense calculations, VHG's financial condition during the closure period, and the mitigation efforts undertaken by VHG to reduce its losses and accelerate the reopening of its properties. As VHG's Chief Financial Officer, you are the primary custodian of VHG's financial records and the individual most knowledgeable about the financial aspects of the claim.
For context, the deposition schedule in this matter is as follows:
•  Marcus Ellsworth (CEO) — deposed August 7, 2023 (the day before your deposition);
•  Diane Calder (CFO) — scheduled for August 8, 2023;
•  Sandra Pellegrini (VP Risk Management) — scheduled for August 14, 2023; and
•  Franklin Orde (Tidewater Risk Advisors, account executive) — scheduled for August 28, 2023.
Because Mr. Ellsworth's deposition will have taken place the day before yours, defense counsel may attempt to reference or characterize his testimony. You should testify based solely on your own personal knowledge and should not attempt to confirm, deny, or reconcile statements attributed to Mr. Ellsworth unless you have independent, firsthand knowledge of the facts at issue.
Finally, please note that this deposition is being taken in advance of the Honorable Catherine Embry's fact discovery deadline of September 30, 2023. The defense will be attempting to lock in your testimony on key financial issues before the close of discovery. It is therefore essential that your testimony be accurate, precise, and consistent with VHG's documented financial records and public filings.
II. GENERAL DEPOSITION GUIDELINES
A. Fundamental Rules
The following rules are critical to an effective deposition. While you have participated in business proceedings and corporate presentations throughout your career, a deposition is fundamentally different from a board meeting or an earnings call. In a deposition, the opposing attorneys are not seeking information to understand your position — they are seeking to build a record that can be used against VHG at trial or in dispositive motions. Every answer you give will be transcribed, and you will be under oath.
1.  Listen to the full question before answering. Do not begin formulating your answer while the question is still being asked. Allow the attorney to finish the question completely, pause briefly, and then answer. This serves two purposes: it ensures you understand the question and it gives our counsel time to interpose any necessary objections.
2.  Answer only the question asked. Do not volunteer information beyond what is necessary to answer the specific question posed. If the question calls for a "yes" or "no" answer, provide that answer. You may add a brief explanation if necessary to avoid a misleading answer, but do not launch into extended narratives or offer information on topics not raised by the question.
3.  If you do not understand a question, say so and ask for clarification. You are under no obligation to answer a question you do not understand. Phrases such as "I'm not sure I understand your question — could you please rephrase it?" are entirely appropriate. Do not attempt to interpret an ambiguous question and then answer your own interpretation.
4.  If you do not know or do not remember, say so honestly. There is nothing wrong with answering "I don't know" or "I don't recall." These are honest answers and are far preferable to guessing. Do not speculate or estimate when you do not have actual knowledge. If you have a general recollection but not specific details, you may say so — for example, "I have a general recollection that the figure was in that range, but I would need to review the records to confirm the specific number."
5.  Do not speculate about what documents may exist or what others may have said. If defense counsel asks you whether a particular document exists or what another individual may have communicated, testify only to your own knowledge. Do not theorize about what records may or may not be in VHG's files, and do not attribute statements to other individuals unless you have a clear, personal recollection of the conversation.
6.  Calderwood & Harkness counsel will be present. Either Tiffany Rosenthal or Elaine Forsythe, or both, will be present at the deposition and will interpose objections as appropriate. When you hear an objection being made, stop speaking immediately and wait for the objection to be stated. In most cases, you will then be instructed to answer the question notwithstanding the objection, because depositions in Florida proceed subject to objections that are preserved for ruling at trial. However, in certain circumstances — particularly if the question calls for privileged information — counsel may instruct you not to answer. Follow counsel's instructions in those instances.
7.  You may request breaks at any time. If you need a break to use the restroom, collect your thoughts, or confer with counsel, you may request one. However, there is one important limitation: if a question is pending (i.e., it has been asked but you have not yet answered), you should generally answer the question before taking a break, unless counsel instructs otherwise. Do not answer a question if you feel you need to confer with counsel first — simply state that you would like to take a break.
8.  Be careful with compound questions, questions containing assumed facts, and characterizations of documents you have not been shown. Defense counsel may embed factual assumptions into questions — for example, "After VHG decided to delay the Grand Key reopening, what happened next?" This question assumes VHG made a decision to "delay" the reopening, which may not be accurate. If a question contains an assumption you do not agree with, do not accept the premise. You may say, "I don't agree with the characterization in your question" or "I'm not sure that accurately describes what happened."
B. Privilege Reminders
The attorney-client privilege is a critically important protection in this litigation, and it is essential that you do not inadvertently waive it during your deposition. Please keep the following principles in mind:
1.  Do not disclose the substance of any communications with Calderwood & Harkness attorneys — including Tiffany Rosenthal, Elaine Forsythe, or any other attorney or staff member at the firm — regarding the coverage dispute, litigation strategy, case evaluation, or any other aspect of this matter.
2.  Do not disclose the substance of any communications with Nathaniel Driscoll, VHG's General Counsel, to the extent those communications were made in his capacity as legal counsel providing legal advice regarding the insurance claim, coverage dispute, or litigation. Mr. Driscoll wears multiple hats within VHG, and some of his communications may relate to business matters rather than legal advice. As a general rule, if a communication with Mr. Driscoll involved legal analysis, legal strategy, or legal advice about the claim or litigation, it is privileged and should not be disclosed.
3.  Do not disclose the substance of any communications with any other VHG counsel retained in connection with this matter.
4.  If defense counsel asks you about communications with any attorney, state that the communication is privileged and look to Calderwood & Harkness counsel for guidance. A simple statement such as "I had communications with counsel, but I believe those are privileged" is appropriate. Counsel will then handle the objection.
5.  Do not discuss this preparation memorandum or its contents. If you are asked whether you reviewed any documents in preparation for the deposition, you may state that you reviewed certain documents at the direction of counsel, but you should not describe the substance of any discussions you had with counsel during preparation or identify this memorandum.
C. Document Review Protocol
Defense counsel will likely present you with a number of documents during the deposition, including VHG's financial statements, internal memoranda, correspondence, the proof of loss, insurance policy documents, and potentially SEC filings and earnings call transcripts. When presented with a document:
1.  Take time to read the document fully before answering any questions about it. Do not allow defense counsel to rush you through a document. You are entitled to review the entire document, including any attachments, footnotes, or related materials, before answering questions. If the document is lengthy, take the time you need.
2.  Confirm whether you have seen the document before and in what context. If you recognize the document, state when you first saw it and the circumstances under which you received or reviewed it. If you do not recognize the document, say so. If you recognize it but are not certain it is the same version you previously reviewed, note that uncertainty.
3.  Do not assume a document is complete or authentic simply because it is presented to you. Defense counsel may present excerpts of documents, draft versions, or documents that have been reformatted. If you are shown an excerpt, note that you are only reviewing a portion of the document and that your answers are based on that portion alone. If a document looks different from what you recall, say so.
III. ANTICIPATED AREAS OF EXAMINATION
The following sections outline the principal areas where we expect defense counsel to focus during your deposition. For each area, we have provided the key facts and financial data you should be prepared to discuss, along with guidance on how to approach certain sensitive or difficult questions.
A. Background and Role at VHG
Defense counsel will likely begin the deposition with background questions about your professional history, qualifications, and current role at VHG. This is standard practice and serves to establish your foundation of knowledge for the substantive questioning that follows.
You should be prepared to discuss the following:
•  Current title and position. You are the Chief Financial Officer of Verimark Hospitality Group Inc., a position you have held since your appointment. Be prepared to state how long you have served in this role.
•  Tenure at VHG. How long you have been employed at VHG in any capacity, including any prior positions you held before becoming CFO.
•  Prior positions and career history. Your professional background before joining VHG, including prior employers, positions, and relevant experience in finance, accounting, and the hospitality industry.
•  Educational background. Your undergraduate and graduate degrees, including the institutions attended and fields of study.
•  Professional certifications. Whether you hold a CPA license, CFA designation, or any other professional certifications. If you are a licensed CPA, be prepared to state the issuing state, the license number, and whether the license is currently active.
•  Reporting structure. You report directly to Marcus Ellsworth, CEO. You oversee VHG's finance, accounting, treasury, and investor relations functions. Be prepared to describe the departments and personnel who report to you.
•  Responsibilities relevant to this litigation. Your responsibilities relating to financial reporting, insurance claim administration (from the financial side), budgeting, and financial planning for VHG's resort properties, including the three properties at issue: Grand Key Resort, Harborview Hotel & Conference Center, and Sunset Shores.
•  Familiarity with property-level financial data. Confirm that you are familiar with the property-level financial data — revenue, expenses, occupancy, average daily rate, EBITDA — for each of the three properties at issue.
•  VHG's corporate details. VHG is a publicly traded company listed on the Nasdaq Stock Market under the ticker symbol VMRK. The company is incorporated in the State of Delaware and is headquartered at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. VHG's Employer Identification Number is 59-3841276.
B. VHG Financial Overview (Pre-Loss Baseline)
Defense counsel will seek to establish VHG's overall financial profile and the financial performance of the three properties at issue prior to Hurricane Callista. This baseline data forms the foundation for the "but-for" revenue analysis underlying the business-interruption claim. You should be prepared to discuss the following financial metrics and be comfortable explaining them in detail:
Company-Level Financial Data:
•  FY 2021 Revenue: $412 million. This figure represents VHG's consolidated revenue for the fiscal year ended December 31, 2021, as reported in VHG's Form 10-K filed with the Securities and Exchange Commission.
•  FY 2021 EBITDA: $78 million. This is VHG's earnings before interest, taxes, depreciation, and amortization for FY 2021.
•  FY 2020 and FY 2022 Revenue and EBITDA. Be prepared to discuss these figures as well, as defense counsel will likely seek to establish revenue trends over the multi-year period. FY 2020 was significantly impacted by the COVID-19 pandemic, which depressed hospitality industry revenue nationally. FY 2022 was impacted by Hurricane Callista in September. Defense counsel may attempt to use the FY 2020 data to argue that VHG's revenue projections were unreliable or that the FY 2021 recovery was anomalous. You should be prepared to explain the FY 2021 revenue figure in the context of the post-pandemic recovery and industry-wide trends.
Property-Level Financial Data:
•  Be prepared to discuss the revenue contribution of each of the three properties at issue — Grand Key Resort, Harborview Hotel & Conference Center, and Sunset Shores — as a component of VHG's total revenue. You should know the approximate percentage of VHG's total revenue attributable to each property.
Seasonal Revenue Patterns:
•  Florida Keys and Gulf Coast resort properties experience significant seasonal variation in revenue. The peak season for these properties is typically the winter months, running from approximately November through April, when tourism to Southern Florida is at its highest levels. Shoulder seasons and the off-peak summer months generate lower revenue. This seasonality is important because Hurricane Callista struck in September 2022, at the beginning of the transition from off-peak to peak season. The closure of the properties therefore coincided with the start of the most lucrative revenue period of the year, which is a significant factor in the magnitude of the business-interruption loss.
Conference and Event Revenue at Harborview:
•  The Harborview Hotel & Conference Center generates a distinct revenue stream from its 40,000-square-foot conference facility. Conference and event revenue is separate from and additive to room revenue. Be prepared to discuss the relative magnitude of conference revenue at Harborview and its seasonal patterns, which may differ from leisure tourism patterns.
Ancillary Revenue Streams:
•  Beyond room revenue, VHG's properties generate significant ancillary revenue from food and beverage operations, the marina at Grand Key Resort (berthing fees and charter services), spa services, and retail operations. These ancillary revenue streams are included in the business-interruption claim and should be discussed as part of the total revenue picture.
Capital Expenditures:
•  Be prepared to discuss capital expenditures at the three properties in 2021 and 2022 prior to the storm. Defense counsel may use this information to assess the pre-storm condition of the properties or to argue that certain repairs were deferred maintenance rather than storm-related damage.
C. The $60 Million Business-Interruption Claim — Overall Composition
This is the central financial issue in the litigation, and you should expect extensive questioning in this area. The total claimed business-interruption loss is $60,000,000, broken down by property as follows:
The claim was submitted to Ironclad via a sworn statement in proof of loss on November 15, 2022. You should be prepared to discuss the following aspects of the claim:
Your involvement in preparing or reviewing the proof of loss. Be prepared to describe your role in the preparation of the sworn proof of loss. What financial data was compiled, and by whom? What internal VHG personnel were involved in the process? To the extent that Sandra Pellegrini (VP Risk Management), Nathaniel Driscoll (General Counsel), or other individuals participated in the process, describe their roles. If outside consultants were involved at the proof-of-loss stage, describe their involvement as well.
Relationship between VHG's internal calculations and the work of Dr. Helen Vasquez. Dr. Helen Vasquez of Meridian Forensic Economics LLC was retained by Calderwood & Harkness on April 20, 2023 — approximately five months after the proof of loss was submitted and two months after this litigation was filed. It is important to be precise about the distinction between (a) VHG's internal financial calculations that formed the basis of the sworn proof of loss, which was submitted in November 2022, and (b) the independent forensic economic analysis performed by Dr. Vasquez, whose expert report was served on September 15, 2023 (after the date of this memorandum, but for which data was compiled during the spring and summer of 2023).
Caution: Do not conflate the sworn proof of loss with the expert report. The proof of loss was prepared based on VHG's internal financial data and analysis. Dr. Vasquez subsequently performed an independent analysis that validated VHG's claim. Defense counsel may try to blur this distinction in order to argue either that the proof of loss was unreliable because it was prepared without expert review, or that Dr. Vasquez's conclusions were not truly independent because she relied on VHG's data. You should maintain the clear distinction between these two processes.
D. Grand Key Resort — Financial Detail ($31.4M)
Grand Key Resort is the largest single component of VHG's business-interruption claim and will receive the most scrutiny from defense counsel. You should be thoroughly familiar with the following details:
Property Profile:
•  312-room luxury resort and marina
•  Located at Mile Marker 48, Marathon, Florida 33050
•  Monroe County, Florida
Pre-Loss Financial Metrics:
•  Average Daily Rate (ADR): $389
•  Occupancy Rate: 82%
Closure Period:
•  Full closure: September 18, 2022 through March 15, 2023
•  Total closure duration: 178 days
Basis of BI Loss Calculation:
The $31.4 million BI loss for Grand Key was calculated based on the following core formula, with adjustments for ancillary revenue and saved expenses:
312 rooms × $389 ADR × 82% occupancy × 178 days = approximately $17.7 million in room revenue alone, to which ancillary revenue (marina berthing fees, charter services, food and beverage, spa, retail) and continuing fixed expenses were added, and from which saved variable expenses were deducted. The total gross lost revenue, when combined with ancillary revenue losses and adjusted for saved expenses, yields the claimed $31.4 million BI loss.
Ancillary Revenue at Grand Key: The marina at Grand Key is a significant revenue generator, providing berthing fees for visiting yachts and sailboats, charter fishing and diving services, and related marine services. In addition, Grand Key operates multiple restaurants, a full-service spa, and retail shops. All of these revenue streams were completely interrupted during the 178-day closure period, and the lost ancillary revenue is included in the $31.4 million claim.
Key Question Areas — The 178-Day Closure:
Defense counsel will heavily scrutinize the 178-day closure period at Grand Key, because the duration of the interruption is the single largest driver of the BI loss. Expect questions such as:
•  Why did Grand Key remain closed for 178 days?
•  What drove the reopening timeline?
•  Was there any delay in commencing or completing repairs?
•  What contractors were engaged, and when were they retained?
•  What was the status of repairs at various milestones during the closure period?
•  Could Grand Key have reopened sooner with different management decisions?
Guidance: Many of these questions — particularly those relating to construction scheduling, contractor procurement, and repair timelines — are operational questions that fall outside your primary area of responsibility as CFO. You should refer operational and construction timeline questions to the appropriate operations personnel and testify that while you were aware of the general reopening timelines and their financial implications, the specific decisions regarding construction sequencing, contractor selection, and repair prioritization were made by property operations leadership and VHG's construction management team. Your testimony should focus on the financial data — the revenue impact, the cost of repairs, and the financial analysis supporting the BI claim — rather than on the operational details of the restoration process.
Storm Surge and the Flood Exclusion:
Grand Key is located in Monroe County, which experienced 8 to 14 feet of storm surge during Hurricane Callista. Ironclad has asserted a flood exclusion and a concurrent-causation defense with respect to portions of the Grand Key damage, arguing that some or all of the business interruption was caused by flood/storm surge rather than wind, and that the flood exclusion in the policy bars coverage for the storm surge component.
You should be prepared to discuss whether VHG's internal financial records segregated wind damage losses from storm surge losses at Grand Key. The likely answer is that the BI loss was calculated based on the total period of interruption without regard to the specific physical peril (wind versus storm surge) that caused the property to close. The property was entirely closed and inoperable regardless of whether the damage in any particular area was caused by wind, storm surge, or a combination of the two. The segregation of physical damage causes is a coverage issue and an engineering issue, not a financial accounting issue. You should be clear that the financial analysis addresses the total period and magnitude of the interruption, not the physical cause-of-loss allocation.
E. Harborview Hotel & Conference Center — Financial Detail ($18.7M)
Property Profile:
•  224-room hotel with 40,000-square-foot conference facility
•  Located at 1400 Estero Boulevard, Fort Myers Beach, Florida 33931
•  Lee County, Florida
Pre-Loss Financial Metrics:
•  Average Daily Rate (ADR): $295
•  Occupancy Rate: 74%
Closure Period:
•  Full closure: September 18, 2022 through January 31, 2023
•  Total closure duration: 135 days
Basis of BI Loss Calculation:
The $18.7 million BI loss for Harborview was calculated based on:
224 rooms × $295 ADR × 74% occupancy × 135 days, plus conference and event revenue lost during the closure period, adjusted for ancillary revenue losses and saved expenses.
Conference and Event Revenue:
Conference and event revenue is a significant and distinct component of the Harborview BI claim. The 40,000-square-foot conference facility generates revenue from corporate meetings, conventions, weddings, social events, and other group bookings. This revenue stream has its own seasonal patterns that may differ from leisure room revenue patterns.
You should be prepared to discuss the following:
•  Historical booking data for the conference facility, including the number and value of events booked during the comparable period in prior years.
•  Specific events and bookings that were cancelled or lost as a direct result of Hurricane Callista and the resulting closure. VHG maintained records of confirmed bookings that were cancelled, and these specific lost bookings form part of the BI claim.
•  The seasonal booking pattern for conferences — corporate events may be concentrated in certain months, while social events (weddings, galas) may follow different patterns.
•  The methodology used to project conference revenue that would have been earned absent the hurricane, including whether projections were based on confirmed bookings, historical averages, or a combination.
Evacuation Orders:
Monroe County issued its evacuation order on September 16, 2022. Lee County, where Harborview is located, issued its evacuation order on September 17, 2022. Both properties closed on September 18, 2022, in advance of Hurricane Callista's landfall. These evacuation orders are relevant to the question of when the business interruption commenced and whether any pre-storm closures are covered under the policy.
Storm Surge in Lee County:
Storm surge in Lee County was reported at 6 to 10 feet, which was significant but somewhat less severe than the 8-to-14-foot surge experienced in Monroe County. The extent of storm surge damage at Harborview is relevant to Ironclad's flood exclusion and concurrent-causation defense.
F. Sunset Shores — Financial Detail ($9.9M)
Property Profile:
•  186-room boutique resort
•  Located at 7200 Gulf Boulevard, St. Pete Beach, Florida 33706
•  Pinellas County, Florida
Pre-Loss Financial Metrics:
•  Average Daily Rate (ADR): $342
•  Occupancy Rate: 79%
Closure Periods:
Sunset Shores has a more complex closure and reopening history than the other two properties:
•  Full closure: September 18, 2022 through November 30, 2022 — 73 days
•  Partial reopening: November 30, 2022, at reduced capacity
•  Reduced-capacity operation: November 30, 2022 through February 28, 2023
•  Full capacity restored: February 28, 2023
Basis of BI Loss Calculation:
The $9.9 million BI loss for Sunset Shores encompasses both the full-closure period and the reduced-capacity period. During the full-closure period (73 days), the loss is calculated based on the total projected revenue that would have been earned absent the hurricane. During the reduced-capacity period, the loss is calculated as the difference between projected full-capacity revenue and the actual revenue earned at reduced capacity.
Key Question Areas:
Defense counsel will probe the partial-reopening analysis at Sunset Shores in particular, because it involves a more nuanced calculation than a simple full-closure loss. Expect questions such as:
•  How was the partial-closure revenue loss calculated?
•  What was the actual occupancy and capacity during the reduced-capacity period?
•  What was the basis for determining that full capacity was not restored until February 28, 2023?
•  How many rooms were available during the partial-reopening period, and what was the occupancy rate for those available rooms?
•  What specific repairs or conditions prevented full-capacity operations between November 30, 2022 and February 28, 2023?
•  Could full capacity have been restored earlier?
You should be prepared to explain the financial methodology clearly, distinguishing between the straightforward full-closure calculation and the more complex reduced-capacity calculation.
G. Saved-Expense Calculations
Under the business-interruption coverage provision of VHG's insurance policy, VHG is entitled to recover lost net income plus continuing expenses, minus expenses that did not continue (i.e., saved expenses) during the period of interruption. The saved-expense calculation is a critical component of the BI claim, and defense counsel will scrutinize it closely. Ironclad's coverage denial and the defense expert's analysis are both expected to argue that VHG understated its saved expenses, thereby overstating the net BI loss.
Categories of Saved Expenses (expenses that decreased during closures):
You should be prepared to discuss each of the following categories of saved expenses and the amounts deducted:
•  Reduced payroll and benefits: Temporary layoffs and furloughs of hourly and non-management staff during the closure periods, including housekeeping staff, front desk staff, food and beverage servers, marina personnel, spa staff, and retail staff.
•  Reduced utility costs: Decreased electricity, water, and gas consumption during periods when the properties were closed and not serving guests.
•  Reduced cost of goods sold: Decreased expenditures on food and beverage inventory, retail merchandise, marina supplies, and other consumable goods.
•  Reduced housekeeping supplies and linen service costs: Decreased expenditures on cleaning supplies, guest amenities, laundry services, and linen replacement.
•  Other variable operating expenses: Any other expenses that decreased as a direct result of the closures, including guest transportation, entertainment, and other guest-service costs.
Categories of Continuing Expenses (expenses that persisted despite closures):
Many significant expense categories continued during the closure periods and are therefore included in the BI claim as continuing expenses:
•  Fixed payroll: Management salaries, security staff, and essential maintenance personnel who remained employed during the closures to oversee the properties and manage the restoration process.
•  Debt service: Mortgage payments, equipment lease payments, and other fixed debt obligations that continued regardless of whether the properties were generating revenue.
•  Insurance premiums: VHG's property and casualty insurance premiums, which continued to accrue during the closures.
•  Property taxes: Real property taxes on the three properties, which are assessed regardless of operational status.
•  Marketing commitments: Contracted advertising and marketing obligations that could not be cancelled or deferred.
•  Maintenance of grounds and structures during closure: Costs of maintaining the properties during the closure period, including grounds maintenance, structural preservation, mold prevention, and security.
Extra Expenses Incurred to Mitigate Losses:
In addition to continuing fixed expenses, VHG incurred significant extra expenses to mitigate the interruption loss and accelerate the reopening of its properties. These include:
•  Temporary repairs and emergency stabilization measures
•  Emergency staffing for storm recovery operations
•  Debris removal and site clearance
•  Expedited procurement of building materials and contractor services
•  Temporary structures and equipment
These extra expenses are recoverable under the policy to the extent they reduced the overall BI loss.
Methodology:
You should be prepared to explain that saved expenses were calculated based on VHG's internal accounting records, comparing actual expenses incurred during the closure periods to budgeted or projected expenses for the same periods absent Hurricane Callista. The difference between the projected expenses and the actual expenses represents the saved expenses, which were deducted from the gross BI loss to arrive at the net BI claim.
Defense Expert — Dr. Warren Birk:
Defense expert Dr. Warren Birk of Graystone Consulting Group LLC is expected to testify that VHG understated its saved expenses. His analysis is likely to argue that VHG should have achieved greater expense reductions during the closures — for example, by furloughing additional personnel, cancelling more marketing commitments, or reducing other expenses more aggressively. You should be prepared to defend VHG's saved-expense calculations and explain why the expense reductions reflected in the claim were reasonable and consistent with prudent business practices. In many cases, VHG continued incurring expenses (such as management payroll and security) because those expenses were necessary to protect the properties, manage the restoration process, and prepare for reopening.
H. Revenue Projections and "But-For" Analysis
The business-interruption claim is fundamentally based on a comparison between (a) the actual revenue earned by VHG's three properties during the interruption periods and (b) the projected revenue that would have been earned "but for" Hurricane Callista. The "but-for" revenue projection is the single most important — and most contested — element of the BI claim.
Basis for Revenue Projections:
VHG's revenue projections were based on the following data sources and methodologies:
•  Historical performance data (FY 2019 through FY 2022 pre-storm): Actual revenue, occupancy, and ADR data for each property over the preceding three-plus fiscal years, providing a robust baseline for projecting future performance.
•  Industry benchmarks for Florida hospitality: Publicly available data on Florida hospitality industry performance, including STR (Penmark Enterprises) reports and other industry metrics, to confirm that VHG's projections were consistent with market conditions.
•  Seasonal adjustments: The projections incorporated seasonal revenue patterns specific to each property, reflecting the fact that the interruption period coincided with the transition from off-peak to peak season (Q4 2022 and Q1 2023).
•  Confirmed reservations and bookings that were cancelled: VHG maintained records of reservations and bookings — both leisure and group/conference — that were confirmed prior to the hurricane and subsequently cancelled as a result of the closures. These confirmed bookings provide direct evidence of revenue that would have been earned.
•  Growth trends at VHG properties: VHG's properties had demonstrated consistent revenue growth in FY 2021 and pre-storm FY 2022, reflecting the post-pandemic recovery in Florida tourism. The projections incorporated these growth trends to the extent supported by verifiable data.
COVID-19 Impact on Historical Baseline:
Defense counsel will undoubtedly focus on the COVID-19 pandemic's impact on VHG's historical financial data. FY 2020 and early FY 2021 were significantly depressed due to the pandemic, which caused widespread shutdowns and travel restrictions across the hospitality industry. FY 2021 represented a strong recovery year, with VHG achieving $412 million in consolidated revenue. Defense counsel may argue that the FY 2021 figures represent an anomalous "bounce-back" year and that using FY 2021 as a baseline inflates the revenue projections.
You should be prepared to explain that the projection methodology accounted for the COVID-19 anomaly. FY 2021 was not used in isolation as the sole baseline; rather, the projections were based on a multi-year analysis that considered pre-pandemic performance (FY 2019), pandemic-impacted performance (FY 2020), recovery performance (FY 2021), and pre-storm FY 2022 trends. The FY 2021 revenue figure of $412 million was consistent with — and in some cases below — pre-pandemic trajectory, reflecting the strong recovery in Florida tourism that was widely documented across the industry.
Key Guidance:
You should testify that VHG used conservative, supportable projections based on verifiable historical data and confirmed bookings. You should further note that Dr. Helen Vasquez of Meridian Forensic Economics independently validated these projections using established forensic accounting methodologies. Do not overstate the projections or characterize them as guaranteed outcomes; rather, emphasize that they represent a reasonable and well-supported estimate of VHG's expected financial performance absent the hurricane.
I. VHG's Financial Condition During Closure Periods
Defense counsel will probe VHG's overall financial condition during and after the closure periods, seeking information about the financial impact of the hurricane on VHG as a whole. This line of questioning serves multiple purposes: it provides context for the BI claim, it may support arguments about mitigation, and it may be used to assess VHG's settlement leverage.
You should be prepared to discuss:
•  Impact on overall financial performance in FY 2022 and FY 2023: The hurricane's effect on VHG's consolidated revenue, EBITDA, and net income for these fiscal years.
•  Cash flow challenges: Whether VHG experienced cash flow difficulties during the closure periods as a result of lost revenue from the three properties.
•  Credit facilities and bridge financing: Whether VHG drew on existing credit facilities, obtained bridge financing, or otherwise accessed capital markets to manage its cash position during the closures. If VHG did draw on credit facilities, be prepared to discuss the amounts, terms, and timing.
•  Stock price impact: The impact, if any, of Hurricane Callista on VHG's stock price (Nasdaq: VMRK). Defense counsel may present stock price data showing declines following the hurricane and ask you to explain the relationship between the storm, the BI claim, and investor sentiment.
•  Investor disclosures: VHG's disclosures to investors regarding the hurricane's financial impact, including any SEC filings and earnings call discussions.
SEC Filings:
As a Nasdaq-listed public company, VHG is required to file periodic reports with the SEC. Defense counsel will have reviewed all of VHG's public filings in detail and will attempt to use them to cross-reference your deposition testimony. The relevant filings include:
•  Form 10-K (annual report) for FY 2021 and FY 2022
•  Form 10-Q (quarterly reports) for Q3 2022, Q4 2022, Q1 2023, and Q2 2023
•  Form 8-K filings relating to Hurricane Callista, the insurance claim, and related material events
•  Earnings call transcripts for Q3 2022, Q4 2022, and any subsequent quarters in which the storm's impact was discussed
•  Press releases regarding the storm, property closures, reopenings, and insurance matters
Caution: It is essential that your deposition testimony be consistent with VHG's public filings. Any inconsistency between your testimony and VHG's SEC filings will be exploited by defense counsel. Before the deposition, you should review all relevant public filings and be familiar with the specific language used to describe the hurricane's financial impact, the expected insurance recovery, and VHG's loss estimates. If a public filing described the expected insurance recovery or loss estimates in terms that differ from the $60 million claim, you should be prepared to explain the basis for any discrepancy — for example, that earlier estimates were preliminary and have been refined as additional data became available.
J. Mitigation Efforts and Related Expenditures
Ironclad has asserted a failure-to-mitigate defense, alleging that VHG did not take reasonable steps to reduce the period of interruption and minimize the BI loss. This defense puts VHG's mitigation efforts squarely at issue.
VHG's Position:
VHG undertook prompt and diligent mitigation efforts at all three properties. Any delays in restoration and reopening were attributable to:
•  The severity of the physical damage inflicted by Hurricane Callista, which was a Category 4 hurricane at landfall
•  Extreme contractor and labor shortages throughout the Florida Gulf Coast and Keys region in the post-hurricane environment, as thousands of properties were simultaneously competing for the same limited pool of contractors
•  Supply chain disruptions affecting building materials, furnishings, and equipment
•  Permitting requirements and building code compliance, which required governmental inspections and approvals before reopening
•  Environmental and safety considerations, including mold remediation and structural assessments
Extra Expenses Incurred:
VHG incurred significant extra expenses to accelerate the reopening of its properties, including the costs of emergency repairs, temporary structures, expedited contractor procurement (including premium pricing for accelerated timelines), and temporary staffing for restoration operations. These extra expenses demonstrate VHG's good-faith effort to mitigate its losses and reopen as quickly as possible.
Alternative Revenue-Generating Activities:
Defense counsel may ask whether VHG explored temporary relocation of operations or alternative revenue-generating activities during the closures. You should be prepared to discuss whether any such alternatives were considered and, if so, why they were or were not feasible. For resort and conference properties with unique, location-specific amenities, temporary relocation is generally impractical.
Cost-Benefit Analysis:
You should be prepared to discuss the cost-benefit analysis of mitigation expenditures from a financial perspective. In some cases, VHG incurred premium costs (for example, expedited shipping of materials or overtime labor) to accelerate reopening timelines. These expenditures were justified because the cost of the expedited work was less than the additional BI loss that would have been incurred from a delayed reopening. You should be able to articulate this cost-benefit rationale.
K. Insurance Program and Premium Payments
Defense counsel may inquire about VHG's insurance program and premium payments, both to establish the framework of coverage and to probe your knowledge of specific policy terms.
Insurance Program Structure:
VHG's property and business-interruption insurance program was placed through Tidewater Risk Advisors LLC, with Franklin Orde serving as VHG's account executive. The program is structured as a layered tower with the following carriers:
The policy period is July 1, 2022 through July 1, 2023. Hurricane Callista occurred on September 18, 2022, well within the policy period.
Your Involvement in Insurance Matters:
Be prepared to discuss your involvement in approving or budgeting the insurance premiums listed above. As CFO, you likely had a role in reviewing and approving the annual insurance budget, including the $1.84 million total premium for the property/BI program.
Defense counsel may also ask whether you were involved in or aware of the July 2022 renewal negotiations, specifically discussions regarding the named-windstorm sub-limit. The named-windstorm sub-limit is a contested issue in this litigation — Ironclad has taken the position that a sub-limit applies to named-windstorm losses, while VHG's position is that the sub-limit was deleted during the renewal negotiations.
Guidance: Your involvement in the specific policy terms and renewal negotiations may have been limited. Sandra Pellegrini, as VP of Risk Management, handled the day-to-day management of VHG's insurance program in coordination with Tidewater Risk Advisors. If your knowledge of the sub-limit deletion negotiations is limited, you should say so clearly and not speculate about the details of those discussions. Ms. Pellegrini's deposition on August 14, 2023 will address the insurance program and policy-term negotiations in detail. Similarly, Franklin Orde of Tidewater will be deposed on August 28, 2023, and the broker's communications regarding the sub-limit deletion will be thoroughly explored during that deposition.
If you do have knowledge of the renewal negotiations — for example, if you participated in meetings or reviewed correspondence regarding the renewal terms — you should testify to what you know. But do not guess or fill gaps in your knowledge with assumptions about what Pellegrini or Orde may have communicated.
The primary policy number is IIC-PRP-2022-07541.
L. Relationship with Dr. Helen Vasquez / Meridian Forensic Economics
Dr. Helen Vasquez of Meridian Forensic Economics LLC was retained by Calderwood & Harkness on April 20, 2023, at a rate of $625 per hour (with supporting analysts at $375 per hour). Dr. Vasquez was retained as an expert to perform an independent forensic economic analysis of VHG's business-interruption losses and to prepare an expert report for use in this litigation.
Defense counsel will seek to probe what data and documents VHG provided to Dr. Vasquez and what interactions you had with her or her team. You should be prepared to discuss:
•  What financial records you or your team provided to Dr. Vasquez. This likely includes historical financial statements, property-level P&L data, occupancy and ADR reports, budgets and forecasts, saved-expense worksheets, and other financial data. The factual data provided to Dr. Vasquez is likely discoverable as information relied upon by the expert.
•  Whether you reviewed Dr. Vasquez's draft or final report. If you reviewed the report, you may be asked about your review and whether you identified any errors or areas of disagreement.
•  Whether you agreed with Dr. Vasquez's conclusions. You may state that Dr. Vasquez's conclusions are consistent with VHG's internal financial analysis.
Caution: While the factual data provided to Dr. Vasquez is likely discoverable, communications between Calderwood & Harkness and Dr. Vasquez about the substance, strategy, or presentation of the expert report are protected as attorney work product. Similarly, communications between you and Calderwood & Harkness regarding the expert engagement, the direction of the analysis, or the litigation strategy are protected by the attorney-client privilege. If defense counsel asks about communications you had with Calderwood & Harkness attorneys about the expert report, look to counsel before answering.
M. Prior Claims History
Defense counsel may ask about VHG's prior insurance claims history. This line of questioning may be designed to establish VHG's familiarity with the claims process, its knowledge of policy terms and conditions, or to identify prior claims that may reflect on the credibility or methodology of the current claim.
You should be prepared to discuss:
•  Whether VHG has previously submitted any property or business-interruption claims. If so, describe the circumstances, amounts, and outcomes in general terms.
•  If VHG has no significant prior claims history, state that clearly.
•  Any prior hurricane or natural disaster impacts on VHG properties and whether insurance claims were filed in connection with those events.
•  Whether any prior claims were disputed, denied, or litigated.
If you do not have detailed knowledge of VHG's entire claims history, say so. Sandra Pellegrini, as VP Risk Management, may have more detailed knowledge of the historical claims file.
IV. KEY DOCUMENTS TO REVIEW BEFORE DEPOSITION
Before the deposition, you should review the following documents to refresh your recollection of the key facts and financial data. Copies will be provided to you during your pre-deposition preparation session on August 7, 2023:
1.  VHG's sworn statement in proof of loss submitted to Ironclad on November 15, 2022, claiming $60 million in business-interruption losses.
2.  Ironclad's reservation of rights letter dated October 12, 2022.
3.  Ironclad's formal coverage denial letter dated February 3, 2023.
4.  VHG's FY 2021 and FY 2022 annual financial statements (Form 10-K filings with the SEC).
5.  VHG's quarterly reports (Form 10-Q) for Q3 2022, Q4 2022, Q1 2023, and Q2 2023.
6.  Any Form 8-K filings relating to Hurricane Callista, the insurance claim, or related material events.
7.  Earnings call transcripts for Q3 2022 and Q4 2022, and any subsequent earnings calls in which the storm's impact was discussed.
8.  Property-level profit and loss statements for Grand Key Resort, Harborview Hotel & Conference Center, and Sunset Shores for FY 2021 and FY 2022.
9.  Monthly revenue and occupancy reports for each property from January 2021 through the respective reopening dates.
10.  Saved-expense worksheets and supporting documentation prepared by VHG's finance team.
11.  Capital expenditure records for storm-related repairs at each property.
12.  Correspondence with Tidewater Risk Advisors LLC regarding the Hurricane Callista claim.
13.  Insurance policy declarations pages for Ironclad policy number IIC-PRP-2022-07541.
14.  Any internal VHG memoranda or presentations regarding the financial impact of Hurricane Callista.
15.  VHG's budgets and forecasts for FY 2022 and FY 2023, as prepared prior to the hurricane and as revised post-storm.
If you identify any additional documents during your review that you believe would be helpful to refresh your recollection, please bring that to our attention during the preparation session.
V. POTENTIAL DIFFICULT QUESTIONS AND SUGGESTED APPROACHES
The following section identifies questions that defense counsel is likely to ask and provides guidance on how to approach them. These are not scripted answers — you must testify truthfully and in your own words at all times. Rather, these are frameworks for thinking about how to address specific challenging topics.
A. "Isn't it true that VHG's claim is inflated?"
Guidance: Reject this characterization firmly but professionally. You should state that VHG's claim of $60 million is based on a thorough analysis of actual financial data, historical performance, confirmed bookings, and established forensic accounting methodology. The claim was prepared using VHG's internal financial records, reviewed and validated by an independent expert — Dr. Helen Vasquez of Meridian Forensic Economics LLC — and submitted in a sworn statement in proof of loss. You do not agree with the characterization that the claim is inflated. The claimed amount represents VHG's good-faith calculation of its actual business-interruption losses.
B. "Why did Grand Key remain closed for 178 days when other properties in the area reopened sooner?"
Guidance: Grand Key sustained the most severe damage of VHG's three properties, consistent with its location in Monroe County, where storm surge reached 8 to 14 feet during Hurricane Callista. The 178-day closure period was driven by the extent of the physical damage, which required comprehensive structural repairs, interior reconstruction, and restoration of the marina facility. In addition, the post-hurricane environment in the Florida Keys and Gulf Coast presented extraordinary challenges, including severe contractor and labor shortages (as thousands of properties throughout the region were simultaneously competing for the same limited pool of qualified contractors), supply chain disruptions affecting building materials and furnishings, and permitting and inspection requirements imposed by Monroe County and the State of Florida. VHG acted diligently to reopen Grand Key as quickly as possible and incurred significant extra expenses to expedite the restoration process. If defense counsel presses further on why "other properties" reopened sooner, note that each property is unique — different properties sustained different levels of damage, have different structural characteristics, and face different permitting requirements.
C. "Did VHG consider reopening portions of Grand Key before March 15, 2023?"
Guidance: If you have knowledge of discussions about partial reopening of Grand Key, explain what was considered and why it was or was not feasible. Factors that may have precluded a partial reopening include the interconnected nature of resort systems (water, electrical, HVAC), the fact that common areas and guest amenities (restaurants, pool, spa, marina) serve all rooms and cannot operate for only a portion of the property, health and safety concerns with operating a resort while active construction is underway, and the negative guest-experience impact of opening a partially damaged property. If this is primarily an operational question outside your direct area of responsibility, state that while you were generally aware of the reopening timeline and its financial implications, the specific operational decisions regarding partial versus full reopening were made by property operations leadership. You can speak to the financial analysis that informed those decisions.
D. "How did VHG calculate saved expenses, and isn't the saved-expense deduction too low?"
Guidance: Explain the methodology clearly and specifically. Saved expenses were calculated by comparing actual expenses incurred during the closure periods to the budgeted or projected expenses that would have been incurred absent the hurricane. The difference represents saved expenses, which were deducted from the gross BI loss. You should emphasize that many of VHG's most significant expense categories — including debt service (mortgage and equipment leases), management payroll, insurance premiums, property taxes, and contracted marketing obligations — continued in full during the closures. These are fixed expenses that do not vary with occupancy or revenue and could not be reduced during the closure periods. Variable expenses — including housekeeping labor, food and beverage cost of goods sold, laundry and linen services, and certain utility costs — were properly reduced and credited as saved expenses. The methodology is consistent with industry standards for business-interruption loss calculations and was independently validated by Dr. Vasquez. You do not agree with the suggestion that the saved-expense deduction is "too low."
E. "Were VHG's revenue projections adjusted for the fact that Hurricane Callista may have depressed tourism across the entire Florida Keys region, reducing the 'but-for' revenue for all hotels?"
Guidance: This is one of the most important defense arguments and requires a careful, precise answer. The defense theory is that even if VHG's properties had not been damaged, VHG would have experienced reduced revenue because the hurricane depressed tourism demand across the entire Florida Keys and Gulf Coast region — infrastructure damage, road closures, reputational impact, and reduced visitor traffic would have reduced demand at all hotels in the area, not just those that were physically damaged.
VHG's position is as follows: The business-interruption coverage in VHG's insurance policy covers loss of income resulting from physical damage to VHG's insured properties. The "but-for" analysis is designed to measure the revenue VHG would have earned if its properties had not been physically damaged and had remained operational. Regional market-wide demand impacts are not a valid basis for reducing the insured BI loss, because the policy insures VHG against the consequences of physical damage to its own properties, not against general market conditions.
However, you should be prepared to discuss whether VHG's revenue projections considered area-wide demand impacts. If the projections incorporated regional tourism data, explain how and why. If the projections were based primarily on VHG's historical performance and confirmed bookings rather than regional demand forecasts, explain that methodology. The key point is that VHG's "but-for" revenue projections appropriately reflect VHG's expected financial performance absent the physical damage to its properties, and that the projections are well-supported by historical data and confirmed bookings.
F. Questions About SEC Disclosures
Guidance: Any answers you provide about VHG's financial condition, expected insurance recovery, or loss estimates must be consistent with VHG's public filings. Defense counsel will have reviewed all of VHG's SEC filings — including 10-K annual reports, 10-Q quarterly reports, 8-K current reports, and earnings call transcripts — and will compare your deposition testimony to the language used in those filings. If a public filing described the expected insurance recovery in terms different from the $60 million claim, or if loss estimates were stated differently in different filings, you should be prepared to explain the basis for any differences. Common explanations include the fact that earlier filings contained preliminary estimates that were subsequently refined as additional data became available, or that accounting and disclosure conventions required certain information to be presented differently from a litigation claim.
Before the deposition, you should review all relevant public filings and be familiar with the specific language and figures used in each. This is critical.
G. "What is VHG's current financial condition, and can VHG survive without the insurance recovery?"
Guidance: This question is designed to assess VHG's settlement leverage and financial pressure. Defense counsel wants to determine whether VHG is financially desperate and therefore willing to accept a settlement far below the $60 million claim. You should answer truthfully about VHG's financial condition — you are under oath and VHG's financial data is publicly available — but you should frame your answer in a way that emphasizes VHG's financial strength and viability. VHG is a going concern with diversified operations, access to capital markets, and adequate financial resources. While the hurricane caused significant financial disruption, VHG has managed through the period and continues to operate successfully.
Avoid any suggestion that VHG is desperate for settlement funds, in financial distress, or unable to continue operations without the insurance recovery. At the same time, do not understate the financial impact of the hurricane or the importance of the insurance claim — doing so could undermine the BI claim itself.
If the question probes into privileged settlement discussions or litigation strategy — for example, "Has VHG's board discussed what amount it would accept in settlement?" — look to counsel immediately. Such questions implicate attorney-client privilege and litigation strategy.
VI. COORDINATION WITH OTHER DEPOSITIONS
As noted above, the defense has noticed depositions of multiple VHG witnesses and third parties. Understanding the deposition schedule and the areas likely to be covered in each deposition will help you understand the scope of your own testimony and appropriately defer cert