CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT
MEMORANDUM
August 3, 2023
FROM: Tiffany Rosenthal, Calderwood & Harkness LLP
TO: Elaine Forsythe, Responsible Partner
CC: Howard Bellamy; Andrew Fitzpatrick
RE: Deposition Preparation — Marcus Ellsworth, CEO, Verimark Hospitality Group Inc.
MATTER: Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al., Case No. 2022-CA-031547 (Eleventh Judicial Circuit, Miami-Dade County; Hon. Catherine Embry)
ENGAGEMENT NO.: 1021-00003
DEPOSITION DATE: August 7, 2023
LOCATION: Calderwood & Harkness LLP, 333 SE 2nd Avenue, Suite 4400, Miami, FL 33131
EXAMINING COUNSEL:
Gregory Stanton, Partner, Fendowell Rourke & Stanton LLP (counsel for Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc.)
Patricia Kraus, Partner, Delvecchio & Kraus LLP (counsel for Montclair Assurance Company and Sovereign Re Ltd.)
DEFENDING COUNSEL:
Elaine Forsythe (lead); Tiffany Rosenthal (second chair)
COURT REPORTER: To be arranged
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I. PURPOSE AND OVERVIEW
This memorandum is prepared for the purpose of organizing and guiding the preparation of Marcus Ellsworth, Chief Executive Officer of Verimark Hospitality Group Inc. ("VHG" or the "Company"), for his deposition noticed by defendants and scheduled for Monday, August 7, 2023. The deposition will be taken pursuant to Florida Rules of Civil Procedure, Rule 1.310, at our offices in Miami. This memorandum is protected by the attorney-client privilege and the attorney work-product doctrine and should not be disclosed to any person outside the attorney-client relationship.
Mr. Ellsworth serves as Chief Executive Officer of VHG (Nasdaq: VMRK), a Delaware corporation headquartered at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. VHG is a publicly traded hospitality and real-estate company that owns and operates luxury resort hotels and conference centers throughout the southeastern United States, with its primary concentration of assets located in coastal Florida. For fiscal year 2021, VHG reported total revenue of approximately $412 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $78 million. VHG's portfolio includes properties in the Florida Keys, Southwest Florida, and the Tampa Bay area, among other locations. As CEO, Mr. Ellsworth is the most senior executive of the Company and exercises ultimate authority over strategic and operational decisions affecting VHG's business.
The deposition arises from VHG's pending lawsuit against its insurance carriers seeking recovery of approximately $60 million in business-interruption ("BI") losses sustained as a consequence of Hurricane Callista, which made landfall in the Florida Keys on September 18, 2022, as a Category 4 hurricane. The storm caused catastrophic damage to three VHG properties, forcing their closure for extended periods. VHG submitted a timely claim for BI losses under its all-risk property and business-interruption insurance program, which claim was denied by the primary carrier, Ironclad Indemnity Corporation ("Ironclad"), on February 3, 2023. Pinnacle Surplus Lines Inc. ("Pinnacle"), the first-excess carrier, issued a follow-on denial on February 10, 2023. VHG initiated this action on March 1, 2023.
Defense counsel will examine Mr. Ellsworth as the senior executive with ultimate authority over the evacuation decision, the closure and restoration timeline, the allocation of corporate resources to restoration, and the strategic business decisions relating to the three affected properties. As CEO, Mr. Ellsworth was the decision-maker on matters including guest and employee evacuation, authorization of restoration expenditures, engagement of contractors, and the decision to reopen each property. Defense counsel is expected to probe whether VHG unreasonably delayed restoration of its properties, whether VHG failed to take adequate steps to mitigate its BI losses, and whether VHG used the closure period as an opportunity to effect elective improvements rather than restoring properties to their pre-loss condition.
Mr. Ellsworth's testimony is critical to this case. He will be the most senior VHG witness deposed, and defendants will likely attempt to use his testimony to establish their affirmative defenses of failure to mitigate and unreasonable delay in restoration. Gregory Stanton, who represents both Ironclad and Pinnacle, is an experienced and aggressive examiner. Patricia Kraus, who represents the upper-layer carriers Montclair Assurance Company and Sovereign Re Ltd., is also highly capable and is likely to focus on the overall quantum of the claim and any arguments that the BI loss calculation is inflated. Both examining counsel can be expected to employ leading questions, hypotheticals, and document-intensive examination techniques.
It is important to note that Mr. Ellsworth's deposition will be the first of three VHG executive depositions. Diane Calder, VHG's Chief Financial Officer, is scheduled for deposition on August 8, 2023, and Sandra Pellegrini, VHG's Vice President of Risk Management, is scheduled for deposition on August 14, 2023. Coordination of testimony across all three witnesses is essential. As discussed below, Mr. Ellsworth should consistently defer detailed financial questions to Ms. Calder and detailed insurance-program questions to Ms. Pellegrini, while providing credible, general testimony on matters within his personal knowledge as CEO.
II. GENERAL DEPOSITION GUIDELINES AND INSTRUCTIONS
A. Conduct Rules
The following rules of conduct are standard deposition instructions that should be reviewed carefully with Mr. Ellsworth during the preparation session. Adherence to these rules is critical to minimizing the risk that defense counsel will extract damaging testimony.
1. Listen to the full question before answering. Mr. Ellsworth should not anticipate where a question is going or begin formulating a response before the question is complete. Interrupting the examiner or answering a question before it is fully stated can result in Mr. Ellsworth answering a different—and potentially more harmful—question than the one the examiner intended to ask.
2. Answer only the question asked. Mr. Ellsworth should not volunteer information beyond the scope of the question. A deposition is not a narrative opportunity; it is a question-and-answer proceeding. Each answer should be responsive, concise, and complete—but no more than that. If the examiner wants additional detail, he or she will ask follow-up questions.
3. If the question is unclear or compound, ask for clarification. Mr. Ellsworth should not attempt to interpret an ambiguous question or answer a compound question that embeds multiple inquiries. He should simply state, "I don't understand the question. Could you rephrase it?" or "That question seems to contain several parts. Could you break it down?"
4. Avoid speculation. If Mr. Ellsworth does not know the answer to a question, he should say, "I don't know." If he does not recall a specific fact, he should say, "I don't recall." He should not guess, estimate, or speculate. This is particularly important when asked about specific dates, dollar amounts, contract terms, or engineering or technical matters. A truthful "I don't know" or "I don't recall" is always preferable to an inaccurate or imprecise answer that defense counsel can later exploit.
5. Do not guess at dates, dollar amounts, or other specifics unless certain. If Mr. Ellsworth is asked about a specific date, amount, or other quantitative fact and is not certain of the answer, he should say so. He may provide an approximation only if he clearly qualifies it as an approximation (e.g., "I believe it was sometime in late October, but I'm not certain of the exact date"). Even then, caution is warranted.
6. Refer to documents only when shown them. Mr. Ellsworth should not quote from memory or paraphrase documents he believes he has seen. If the examiner wishes to question Mr. Ellsworth about a particular document, the examiner should produce the document and allow Mr. Ellsworth to review it. Testifying about document contents from memory creates a risk of inaccuracy and may inadvertently disclose privileged documents.
7. Pause briefly before answering. After the examiner completes each question, Mr. Ellsworth should pause for approximately two to three seconds before beginning his response. This pause serves two purposes: it allows defending counsel to interpose objections where appropriate, and it provides Mr. Ellsworth with time to consider the question carefully before committing to an answer.
8. Beware of compound questions, questions with embedded factual premises, and characterizations. Defense counsel will frequently attempt to embed factual assertions into their questions (e.g., "Given that VHG delayed restoration for several months, why…"). Mr. Ellsworth should not accept the factual premise of a question if it is inaccurate or misleading. He should challenge the premise (e.g., "I don't agree with the premise of your question. VHG did not delay restoration.") or ask the examiner to rephrase. Similarly, he should not accept defense counsel's characterizations of events without first considering whether those characterizations are accurate.
B. Privilege Reminders
Preservation of the attorney-client privilege and work-product protection is of paramount importance during this deposition. Mr. Ellsworth should be mindful of the following:
1. Do not disclose any communications with Calderwood & Harkness LLP. This includes any conversations, memoranda, emails, or other communications with Elaine Forsythe, Tiffany Rosenthal, Howard Bellamy, Andrew Fitzpatrick, or any other attorney or employee of Calderwood & Harkness.
2. Do not disclose privileged communications with in-house counsel. Nathaniel Driscoll serves as VHG's General Counsel and, in that capacity, provides legal advice to Mr. Ellsworth and other VHG executives. Communications with Mr. Driscoll in his capacity as legal counsel are privileged and should not be disclosed. If a question asks about a communication with Mr. Driscoll, Mr. Ellsworth should pause to allow defending counsel to assert the privilege. Note that Mr. Driscoll may also have had communications with VHG executives in a non-legal capacity (e.g., operational matters unrelated to legal advice); those communications may not be privileged. During the preparation session, we will discuss with Mr. Ellsworth which Driscoll communications are likely privileged and which are not.
3. If a question seeks privileged information, pause. Defending counsel will object and, where appropriate, instruct Mr. Ellsworth not to answer. Mr. Ellsworth should not attempt to determine on his own whether a question invades the privilege; that is counsel's role.
4. Do not waive privilege by summarizing legal advice. Mr. Ellsworth should not describe the "gist" or "substance" of legal advice he received, even in general terms. Statements such as "My lawyers told me that…" or "Based on legal advice, I decided to…" may constitute waiver of the privilege. If asked why VHG took a particular action, Mr. Ellsworth should explain the business reasons for the action without reference to legal advice.
C. Document Handling
1. Read documents carefully before answering. If the examiner places a document before Mr. Ellsworth and asks questions about it, Mr. Ellsworth should take the time to read the document thoroughly—or at least the relevant portions—before answering any question about its contents. He should not allow the examiner to rush him through this process.
2. Do not assume documents are complete or authentic. If a document appears to be missing pages, appears to be a partial excerpt, or otherwise appears incomplete, Mr. Ellsworth should note that on the record. He should not assume that the document the examiner shows him is the complete document.
3. If you have not seen a document before, say so. Mr. Ellsworth should not pretend familiarity with a document he has never seen. If the examiner shows him a document and asks about it, and Mr. Ellsworth does not recognize the document, he should say, "I don't believe I've seen this document before" or "I don't recall seeing this document."
III. ANTICIPATED TOPIC AREAS
Based on our review of the defendants' deposition notice, the prior depositions in this case (Victor Haddon, July 10, 2023; Denise Whitford, July 24, 2023), and the issues raised in Ironclad's coverage denial letter of February 3, 2023, we anticipate that defense counsel will examine Mr. Ellsworth on the following topic areas. For each topic area, we provide background, anticipated lines of questioning, and key instructions for Mr. Ellsworth.
A. Background and Role at VHG
Defense counsel will begin with background questions designed to establish Mr. Ellsworth's role, responsibilities, and authority within VHG. These questions are typically straightforward, but Mr. Ellsworth should remain disciplined and avoid volunteering information beyond what is asked.
Background for Mr. Ellsworth:
Mr. Ellsworth holds the title of Chief Executive Officer of Verimark Hospitality Group Inc. He should be prepared to testify regarding the duration of his tenure in that role, his reporting structure (reports to VHG's Board of Directors), and his general responsibilities as CEO. Those responsibilities include overall strategic direction, capital allocation, executive leadership, and oversight of all VHG business operations. He is not, however, involved in the day-to-day management of individual hotel properties; that function is performed by property-level general managers who report through VHG's Chief Operating Officer.
Mr. Ellsworth should describe VHG's business as the ownership and operation of luxury resort hotels and conference centers, primarily in the southeastern United States. The three properties at issue in this litigation are:
1. Verimark Grand Key Resort — Located at Mile Marker 48, Marathon, Florida 33050. This is VHG's flagship Florida Keys property, featuring 312 rooms in a luxury resort setting with a full-service marina, spa, multiple restaurants, and water-sports facilities. The property's pre-loss average daily rate ("ADR") was $389, with an occupancy rate of approximately 82%. The Grand Key Resort is VHG's most profitable Florida property and a significant driver of the Company's revenues, particularly during the winter high season (November through April).
2. Verimark Harborview Hotel & Conference Center — Located at 1400 Estero Boulevard, Fort Myers Beach, Florida 33931. This property features 224 guest rooms and a 40,000-square-foot conference and events facility. The Harborview is a significant venue for corporate retreats, regional conferences, and group events. Its pre-loss ADR was $295, with an occupancy rate of approximately 74%. The conference facility generates substantial ancillary revenue from event bookings, food and beverage services, and audio-visual rentals.
3. Verimark Sunset Shores — Located at 7200 Gulf Boulevard, St. Pete Beach, Florida 33706. This is a 186-room boutique resort catering to leisure travelers. Its pre-loss ADR was $342, with an occupancy rate of approximately 79%. Although the smallest of the three affected properties, Sunset Shores is a high-margin asset due to its boutique positioning and premium pricing.
Defense counsel may also ask about VHG's organizational structure as it relates to the key functions at issue in this litigation. Mr. Ellsworth should be prepared to identify the following individuals and their roles:
• Sandra Pellegrini — Vice President of Risk Management. Ms. Pellegrini is responsible for VHG's insurance program, including policy procurement, renewal negotiations (in coordination with VHG's insurance broker), claims management, and risk-mitigation protocols. Ms. Pellegrini reports to the CFO but has a dotted-line reporting relationship to Mr. Ellsworth on significant risk matters.
• Diane Calder — Chief Financial Officer. Ms. Calder is responsible for VHG's financial reporting, accounting, treasury, and investor-relations functions. She was the primary VHG executive responsible for assembling the financial data underlying the BI loss calculation.
• Nathaniel Driscoll — General Counsel. Mr. Driscoll is VHG's in-house legal officer and oversees all legal matters, including contracts, regulatory compliance, and litigation. Mr. Driscoll served as the primary internal legal resource following Hurricane Callista and coordinated with Calderwood & Harkness after the firm was engaged.
• Franklin Orde — Account Executive at Tidewater Risk Advisors LLC, VHG's insurance broker of record, located at 2600 S. Bayshore Drive, Suite 800, Miami, Florida 33133. Mr. Orde is the primary broker contact for VHG's property and casualty insurance program.
Key Instruction: Mr. Ellsworth should testify truthfully that he was not personally involved in the granular details of insurance policy placement, renewals, or endorsement negotiations. Those matters were handled by Sandra Pellegrini in coordination with Tidewater Risk Advisors (Franklin Orde). Mr. Ellsworth's role with respect to insurance was limited to approving the overall annual premium budget and receiving high-level reports on VHG's coverage from Ms. Pellegrini and, on occasion, Mr. Orde. He did not participate in underwriting negotiations or review individual policy endorsements. This is an important framing point, because defense counsel will likely attempt to pin Mr. Ellsworth down on the specific terms of the insurance policies—particularly the disputed windstorm sub-limit—and it is critical that he defer those questions to the witnesses best positioned to address them.
B. Hurricane Callista — Pre-Storm Preparations and Evacuation Decision
Defense counsel will explore VHG's response to Hurricane Callista in the days leading up to landfall, with particular focus on the timeline of the evacuation decision and the closure of properties. This topic area is relevant to the defendants' argument that VHG's closure of its properties was, at least in part, a voluntary business decision rather than a compelled response to a covered peril.
Background for Mr. Ellsworth:
Hurricane Callista was named by the National Hurricane Center on September 12, 2022, as a tropical storm in the central Caribbean. The storm intensified rapidly and was upgraded to a hurricane on September 14, 2022, and to a major hurricane (Category 3) on September 15, 2022. By September 17, 2022, Callista had strengthened to Category 4 status with sustained winds of 145 miles per hour. The storm made landfall in the lower Florida Keys near Big Pine Key at approximately 1:30 PM EDT on September 18, 2022, as a Category 4 hurricane. Storm surge in Monroe County was measured at 8 to 14 feet; storm surge in Lee County was measured at 6 to 10 feet. The storm caused widespread catastrophic damage throughout the Florida Keys, Southwest Florida, and portions of the Tampa Bay area.
VHG initiated its hurricane-preparedness protocols as the storm developed. Mr. Ellsworth should be prepared to testify about VHG's storm-monitoring procedures and the internal discussions that led to the evacuation decision. Specifically:
• VHG's operations team began monitoring Callista on September 12, 2022, when it was named.
• By September 14–15, 2022, as the storm strengthened and its projected track shifted toward the Florida Keys and Southwest Florida, VHG activated its hurricane-preparedness plans at the three properties in the projected path.
• On September 16, 2022, Monroe County issued a mandatory evacuation order for the Florida Keys, including Marathon (the location of Grand Key Resort). This mandatory evacuation order compelled the closure and evacuation of Grand Key Resort.
• On September 17, 2022, Lee County issued a mandatory evacuation order for barrier islands and low-lying coastal areas, including Fort Myers Beach (the location of Harborview Hotel). This mandatory evacuation order compelled the closure and evacuation of Harborview Hotel.
• Mr. Ellsworth authorized the evacuation of guests and staff at all three properties, including Sunset Shores in St. Pete Beach.
Key Instruction: Mr. Ellsworth should emphasize that VHG followed mandatory evacuation orders issued by county authorities. The decision to evacuate and close Grand Key Resort and Harborview Hotel was not discretionary — it was compelled by government orders. This point is critical to rebutting any defense argument that VHG prematurely or voluntarily closed its properties. The closures were required by law, and VHG had no choice but to comply.
Anticipated Difficulty — Sunset Shores: Defense counsel will likely probe whether the Verimark Sunset Shores property in St. Pete Beach (Pinellas County) was subject to a mandatory evacuation order or whether VHG chose to close it voluntarily. Pinellas County did issue evacuation orders for certain zones, and we are confirming the specific zone applicable to the Sunset Shores property. Regardless, Mr. Ellsworth should explain that even if a mandatory order did not specifically require closure of the Sunset Shores property, the approach of a Category 4 hurricane with the potential for life-threatening storm surge and destructive winds made closure essential for guest and employee safety. Any prudent hotel operator would have taken the same action. Mr. Ellsworth should frame the decision in terms of guest safety, employee safety, and responsible crisis management. He should also note that Sunset Shores was the first of the three properties to partially reopen (November 30, 2022), which demonstrates that VHG was not inclined to keep properties closed any longer than necessary.
C. Property Damage and Closure Timeline
Defense counsel will focus extensively on the duration of closure at each property, as the "period of restoration" is one of the central disputed issues in this case. Ironclad's denial letter of February 3, 2023, expressly asserts that VHG unreasonably extended the period of restoration and that BI coverage terminates when repairs "could have been completed with reasonable speed."
Background for Mr. Ellsworth:
All three properties were closed on September 18, 2022, the date of Hurricane Callista's landfall. The closure and reopening timeline for each property is as follows:
1. Verimark Grand Key Resort: Closed for 178 days, from September 18, 2022, through March 15, 2023. Grand Key sustained the most severe damage of the three properties. The storm surge of 8 to 14 feet in Monroe County caused catastrophic flooding of the ground-floor guest rooms, lobby, restaurants, and spa facilities. The marina was substantially destroyed, with piers, docks, and fuel facilities rendered inoperable. High winds caused significant structural damage, including partial roof loss, destruction of building envelope components, and damage to the mechanical, electrical, and plumbing systems. The estimated BI loss for Grand Key Resort is $31.4 million.
2. Verimark Harborview Hotel & Conference Center: Closed for 135 days, from September 18, 2022, through January 31, 2023. The primary damage to the Harborview property was wind damage to the roofing systems, the building envelope (including curtain wall and window systems), and the conference facility. The 40,000-square-foot conference center sustained particularly significant damage, including loss of the roof membrane, water intrusion throughout the space, and damage to audio-visual and communications infrastructure. The estimated BI loss for Harborview is $18.7 million, which includes substantial lost conference and group-event revenue.
3. Verimark Sunset Shores: Partially closed. The property was fully closed for 73 days, from September 18, 2022, through November 30, 2022. Beginning on November 30, 2022, VHG partially reopened the property, operating at reduced capacity while restoration continued on damaged areas. The property reached full operational capacity on February 28, 2023. The estimated BI loss for Sunset Shores is $9.9 million.
The total claimed BI loss across all three properties is $60 million.
Key Instruction: Mr. Ellsworth should have a clear and confident understanding of the closure and reopening dates for each property. These dates are critical facts that will be tested during the deposition. However, Mr. Ellsworth should defer all detailed financial calculations — including the methodology for calculating the BI loss at each property, the allocation between lost revenue, saved expenses, and extra expenses, and the derivation of the $60 million total — to Diane Calder (CFO) and Dr. Helen Vasquez of Meridian Forensic Economics LLC, VHG's retained forensic-economics expert. Mr. Ellsworth is not an accountant, and he should not attempt to explain the financial details of the claim.
Anticipated Difficulty: Defense counsel will attempt to draw a distinction between the date each property became "operational" (i.e., capable of receiving guests at any capacity) and the date each property was "fully restored" to its pre-loss condition. The purpose of this line of questioning is to argue that VHG could have reopened properties sooner — perhaps at reduced capacity — and that the period of restoration should be measured from the date the property first could have accommodated any guests, not the date it was fully restored. Mr. Ellsworth should resist this framing and explain that for luxury resort properties, "operational" and "fully restored" are essentially the same thing: guests at a luxury resort expect a complete, high-quality experience, and opening with ongoing construction, limited amenities, and reduced service levels would have been inconsistent with VHG's brand standards, would have resulted in negative guest experiences and reputational harm, and would have been commercially counterproductive. The one exception is Sunset Shores, where VHG did partially reopen at reduced capacity on November 30, 2022, because the undamaged portions of that smaller property could be operated without exposing guests to active construction areas. VHG's willingness to partially reopen Sunset Shores demonstrates its good-faith commitment to mitigating losses wherever feasible.
D. Restoration Decisions and Timeline
This is one of the most critical topic areas in the deposition. Ironclad's denial letter of February 3, 2023, identifies "unreasonable delay in restoration" as one of its four bases for denial. Ironclad asserts that the period of restoration should be measured not by the time VHG actually took to complete repairs, but by the time in which repairs "could have been completed with reasonable speed." This standard requires VHG to demonstrate that its restoration timeline was reasonable under the circumstances and that any delays were attributable to external constraints, not to VHG's own inaction or strategic choices.
Background for Mr. Ellsworth:
Mr. Ellsworth should be prepared to testify in detail about the restoration process at each property, including:
1. The scope of physical damage at each property. As described above, the Grand Key Resort sustained catastrophic damage from both wind and storm surge; the Harborview sustained significant wind damage, particularly to the roofing and conference facility; and Sunset Shores sustained more moderate damage, primarily to exterior cladding, landscaping, and certain guest rooms on the upper floors.
2. Challenges in obtaining contractors and building materials. Hurricane Callista devastated the entire Florida Keys and Gulf Coast region. The demand for contractors, skilled construction labor, and building materials in the aftermath of the storm far exceeded available supply. VHG was competing with thousands of other property owners — residential, commercial, and governmental — for the same limited pool of contractors and materials. Mr. Ellsworth should be specific about the practical difficulties VHG encountered, including multiple-week lead times for contractor mobilization, extended delivery times for materials, and the inability to secure sufficient labor.
3. Supply-chain delays for specialized materials. The restoration of luxury resort properties requires specialized materials that are not available from general building-supply distributors. Examples include hurricane-rated impact-resistant windows and glazing systems, commercial-grade roofing membranes rated for high-wind zones, marine-grade materials for marina reconstruction, and specialized interior finishes and furnishings. Many of these materials had extended lead times under normal circumstances, which were further exacerbated by the post-hurricane demand surge and broader supply-chain disruptions.
4. Permitting delays. The local building departments in Monroe County, Lee County, and Pinellas County were overwhelmed by the volume of permit applications following Hurricane Callista. Processing times for building permits, which normally require days to a few weeks, extended to many weeks or even months. VHG could not commence certain categories of restoration work without the requisite permits, and VHG had no ability to expedite the governmental permitting process.
5. Labor shortages in the construction trades. The Category 4 hurricane displaced thousands of construction workers from the affected regions. Many construction workers themselves lost homes and were unable to work. The available labor pool was insufficient to meet the extraordinary demand for construction services across the region. VHG worked with its contractors to secure labor from outside the immediate area, but this introduced additional logistical challenges and costs.
6. VHG's affirmative efforts to accelerate restoration. Mr. Ellsworth should be prepared to testify that VHG did not passively wait for restoration to be completed. VHG took affirmative steps to accelerate the process, including: retaining additional contractors beyond its initial general contractor; engaging specialty subcontractors for specific scopes of work; expediting material procurement by sourcing from out-of-state suppliers; authorizing premium pricing for materials and labor where necessary to accelerate delivery; working with local building authorities to prioritize permit applications; and conducting regular progress meetings to identify and address bottlenecks.
Key Instruction: Mr. Ellsworth should emphasize that VHG acted diligently and in good faith to restore its properties as quickly as reasonably possible. The 178-day closure at Grand Key Resort was driven by the extraordinary severity of the physical damage and by external constraints entirely beyond VHG's control — not by any decision by VHG to delay restoration. The same is true of the 135-day closure at Harborview and the phased reopening timeline at Sunset Shores. VHG committed substantial financial and management resources to the restoration effort and did everything within its power to reopen its properties and resume revenue generation.
Anticipated Difficulty — Partial Operations: Defense counsel will likely ask whether VHG explored temporary or partial operations during the restoration period — for example, whether VHG could have opened undamaged wings or floors at Grand Key or Harborview while restoration continued in other areas of the property. Mr. Ellsworth should explain that this option was carefully considered but was determined to be infeasible at Grand Key and Harborview for the following reasons:
• Structural and safety concerns: Active construction areas adjacent to occupied guest rooms present safety hazards (falling debris, electrical work, heavy equipment) and would not be permitted by local building authorities.
• Building-system dependencies: The HVAC, plumbing, electrical, and fire-suppression systems at both properties served the entire building, not individual wings. Damage to these systems rendered the entire property uninhabitable, not just the areas with visible damage.
• Guest-experience standards: VHG operates luxury resort properties. Opening with ongoing construction — noise, dust, limited amenities, restricted access to facilities — would have resulted in a deeply substandard guest experience, negative online reviews, reputational damage to the VHG brand, and ultimately lower revenue than if VHG waited to reopen when the property could deliver its full luxury experience.
• Practical demonstration at Sunset Shores: VHG did partially reopen Sunset Shores on November 30, 2022, because the physical layout and systems configuration of that smaller property allowed a portion of the rooms to be operated independently from the areas under restoration. This demonstrates that VHG was willing to pursue partial operations where feasible and did so.
Anticipated Difficulty — Upgrades vs. Restoration: Defense counsel will ask pointed questions about whether VHG used the closure period as an opportunity to "upgrade" or "improve" the properties beyond their pre-loss condition. This line of questioning is designed to support an argument that any delay in reopening was attributable to VHG's elective decision to enhance its properties, not to the time required to restore them to their pre-loss condition. Mr. Ellsworth should testify clearly and unequivocally that VHG restored its properties to their pre-loss condition and did not undertake elective improvements during the restoration period. To the extent any elements of the restored properties differ from their pre-loss configuration — for example, upgraded window systems, enhanced roofing materials, or improved structural connections — those changes were mandated by the Florida Building Code. When a property sustains damage exceeding certain thresholds, the Florida Building Code requires that the repaired or rebuilt components comply with current code standards, which may be more stringent than the standards in effect when the property was originally constructed. These code-required upgrades were not elective; they were mandatory, and failure to comply would have prevented VHG from obtaining a certificate of occupancy.
E. Mitigation Efforts
Ironclad's fourth stated basis for denial is VHG's alleged "failure to mitigate" its business-interruption losses. This is a significant defense theory, and Mr. Ellsworth should be thoroughly prepared to rebut it.
Background for Mr. Ellsworth:
Under Florida law and the terms of the insurance policies, VHG has an obligation to take reasonable steps to mitigate its losses. However, this obligation requires only reasonable efforts — VHG is not required to undertake extraordinary, impractical, or uneconomical measures. Mr. Ellsworth should be prepared to describe VHG's mitigation efforts in detail:
1. Immediate post-storm securing of properties. Within hours of the storm's passage, VHG deployed emergency response teams to each property to assess damage and secure the buildings. This included boarding broken windows and openings, tarping damaged roofs to prevent further water intrusion, initiating water extraction and dehumidification in flooded areas, and securing loose debris to prevent additional damage.
2. Engagement of emergency restoration contractors. VHG engaged professional emergency restoration contractors (water-damage remediation, debris removal, temporary stabilization) within the first week following the storm. These contractors were on-site at all three properties performing emergency stabilization work while VHG simultaneously worked to engage general contractors for the full restoration scope.
3. Redirection of group bookings and conference events. Where feasible, VHG's sales and events teams worked to redirect group bookings and conference events that had been scheduled at affected properties to non-affected VHG properties or to partner facilities operated by other hospitality companies with which VHG had existing relationships. Mr. Ellsworth should note that this effort was only partially successful, because many group clients preferred to cancel or postpone rather than relocate to a different venue, and VHG's non-affected properties had limited available capacity during the peak season.
4. Retention of key staff. VHG made the strategic decision to retain key management and operational staff at each property during the closure period, even though those employees were not generating revenue. This was done to ensure that each property would be able to reopen rapidly once restoration was complete, without the delays that would result from having to recruit, hire, and train new staff. Retaining experienced staff was a significant mitigation measure that shortened the effective period of restoration.
5. Communication with guests. VHG's guest-services teams proactively communicated with guests who had existing reservations at affected properties, offering rebooking at other VHG properties, providing referrals to partner hotels, and processing refunds as appropriate. This effort helped preserve guest goodwill and protect VHG's brand reputation.
6. Procurement of temporary facilities. At the Harborview property, VHG explored the feasibility of erecting temporary conference facilities (e.g., tented or modular structures) to accommodate scheduled events during the restoration period. Ultimately, this option was determined to be impractical due to the cost, the limited availability of temporary-structure providers in the post-hurricane environment, and the logistical challenges of operating temporary facilities adjacent to an active construction site. VHG's exploration of this option, however, demonstrates its diligent consideration of all available mitigation strategies.
Key Instruction: Mr. Ellsworth should not concede that there were additional mitigation steps that VHG could or should have taken. If the examiner asks about specific hypothetical mitigation measures (e.g., "Why didn't VHG rent another hotel to operate as a temporary replacement?"), Mr. Ellsworth should explain what VHG actually did, why those steps were reasonable and appropriate, and why the hypothetical alternative was impractical or would not have meaningfully reduced the BI loss. He should avoid speculating about alternatives he did not consider at the time. The goal is to present VHG as a company that took every reasonable step to mitigate its losses while dealing with the aftermath of a catastrophic natural disaster.
F. Insurance Program and Communications with Insurers
Defense counsel will examine Mr. Ellsworth about VHG's insurance program, the terms of the insurance policies, and Mr. Ellsworth's personal knowledge of the coverage in place at the time of Hurricane Callista. This is a critical topic area because of the central dispute regarding the existence and deletion of the named-windstorm sub-limit in the Ironclad primary policy.
Background for Mr. Ellsworth:
VHG's insurance broker of record is Tidewater Risk Advisors LLC, with offices at 2600 S. Bayshore Drive, Suite 800, Miami, Florida 33133. The primary VHG contact at Tidewater is Franklin Orde, Account Executive. Mr. Orde has served as VHG's account executive at Tidewater for approximately five years and has been the principal intermediary between VHG and its property and casualty insurance carriers during that period.
VHG's property and business-interruption insurance program consists of a layered tower of coverage, structured as follows:
The total tower provides $60 million in coverage above a $500,000 per-occurrence deductible. The annual aggregate premium for the full tower is $1,840,000. The policy period is July 1, 2022, through July 1, 2023. The program provides all-risk property and business-interruption coverage, meaning it covers all risks of direct physical loss or damage unless specifically excluded.
Mr. Ellsworth's involvement in the insurance program was at a high, strategic level. As CEO, he may have approved the overall annual budget for insurance premiums as part of VHG's general operating budget. He may have received periodic updates from Sandra Pellegrini or Franklin Orde regarding the status of the insurance program. However, the detailed work of policy placement — including the selection of carriers, the negotiation of policy terms, the review and approval of endorsements, and the management of the renewal process — was handled by Sandra Pellegrini in her capacity as VP of Risk Management, working with Franklin Orde at Tidewater.
The Windstorm Sub-Limit Issue: This is the single most important coverage dispute in this case. Ironclad's coverage denial asserts that the primary policy (IIC-PRP-2022-07541) contains a $15 million named-windstorm sub-limit, which would cap VHG's recovery under the primary layer at $15 million rather than the full $25 million policy limit. VHG's position, supported by the testimony we expect from Sandra Pellegrini and Franklin Orde, is that this sub-limit existed in the prior policy year but was deleted at the July 2022 renewal as part of the renewal negotiations between Tidewater (Orde) and Ironclad's underwriting department. VHG paid a corresponding premium increase to secure the deletion of the sub-limit. The evidentiary record regarding the deletion of the sub-limit — including correspondence between Tidewater and Ironclad's underwriters, the renewal binder, and the policy endorsement schedule — will be addressed in detail by Ms. Pellegrini and Mr. Orde. Mr. Ellsworth may have limited direct knowledge of this specific negotiation.
Key Instruction: If asked about the windstorm sub-limit, Mr. Ellsworth should explain that he relied on Sandra Pellegrini and Tidewater Risk Advisors to procure appropriate coverage for VHG's properties, that VHG's understanding and expectation was that the named-windstorm sub-limit had been removed at the July 2022 renewal, and that VHG believed it had full BI coverage up to the $25 million primary-layer limit for named-windstorm events. He should defer to Pellegrini and Orde for the specific details of the underwriting negotiation, the correspondence with Ironclad's underwriters, and the policy endorsement language. He should not speculate about the specific policy language or attempt to parse endorsement wording. The most powerful testimony Mr. Ellsworth can provide on this point is that VHG paid $1,840,000 in annual premiums for $60 million in all-risk coverage, that VHG understood it had that coverage, and that the insurers' attempt to invoke a sub-limit that was deleted at renewal is fundamentally inconsistent with the bargain VHG struck with its carriers.
G. Notice of Loss and Claim Submission
Defense counsel will explore the timeline and mechanics of VHG's notice of loss and claim submission to establish the record of VHG's claim and to probe for any deficiencies in the notice or proof-of-loss process.
Background for Mr. Ellsworth:
The timeline of the claim-submission process is as follows:
• September 22, 2022: VHG submitted its initial notice of loss to Ironclad Indemnity Corporation, four days after Hurricane Callista's landfall. The notice was submitted by Sandra Pellegrini in coordination with Franklin Orde at Tidewater. The notice identified the three affected properties, described the nature and extent of the loss in general terms, and reserved VHG's rights under the policy.
• October 5, 2022: Arbor Claims Services LLC, the independent adjusting firm retained by Ironclad, conducted its initial on-site inspection of the three properties. The lead independent adjuster was Denise Whitford.
• October 12, 2022: Ironclad issued a reservation of rights letter, advising VHG that Ironclad was investigating the claim under a reservation of rights and identifying certain potential coverage defenses, including the named-windstorm sub-limit, concurrent causation/flood exclusion, and period-of-restoration limitations.
• November 15, 2022: VHG submitted its sworn statement in proof of loss to Ironclad, claiming $60 million in business-interruption losses across the three affected properties. The proof of loss was prepared by Diane Calder (CFO) with input from Sandra Pellegrini and was reviewed by Nathaniel Driscoll (General Counsel). The financial analysis underlying the proof of loss was subsequently validated by Dr. Helen Vasquez of Meridian Forensic Economics LLC, VHG's retained forensic-economics expert.
• February 3, 2023: Ironclad issued its formal coverage denial letter, denying VHG's claim on four grounds: (1) the $15 million named-windstorm sub-limit; (2) the period of restoration (unreasonable delay); (3) concurrent causation/flood exclusion (arguing that a substantial portion of the damage was caused by storm surge/flooding, which is excluded); and (4) failure to mitigate.
• February 10, 2023: Pinnacle Surplus Lines issued a follow-on denial, adopting Ironclad's denial and declining coverage under the first-excess layer.
Mr. Ellsworth's involvement in the claim-submission process was likely at a supervisory level. He was kept informed of the progress of the claim by Pellegrini, Calder, and Driscoll, and he may have participated in discussions regarding the overall claim strategy. However, he likely did not personally draft or review in detail the proof of loss or the underlying financial calculations.
Key Instruction: If asked whether Mr. Ellsworth reviewed the sworn proof of loss before it was submitted, he should answer truthfully. If he did review it, he should confirm that and explain his level of review (e.g., he reviewed the final document and the overall claim amount but did not verify the underlying financial calculations, which were prepared by Ms. Calder's finance team). If he did not review it, he should say so and explain that he entrusted the preparation and submission of the proof of loss to the appropriate functional executives (Pellegrini and Calder) and to VHG's legal team (Driscoll). In either case, he should defer detailed questions about the financial methodology to Calder and Vasquez.
H. Communications with Ironclad, Adjusters, and Other Insurers
Defense counsel will ask about Mr. Ellsworth's direct communications with representatives of the defendant insurers and the independent adjusting firm. The purpose of these questions is twofold: to identify any statements by Mr. Ellsworth that could be construed as admissions, and to probe the boundaries of the attorney-client privilege.
Background for Mr. Ellsworth:
Mr. Ellsworth may have had direct communications with the following individuals:
• Victor Haddon — Senior Vice President of Claims at Ironclad Indemnity Corporation. Mr. Haddon is Ironclad's most senior claims executive responsible for the VHG claim. Mr. Ellsworth may have had one or more high-level telephone conversations or exchanged correspondence with Mr. Haddon regarding the status of the claim, VHG's frustration with the pace of the adjustment, or the ultimate denial of coverage. Any such communications are not privileged and are discoverable.
• Denise Whitford — Lead Independent Adjuster at Arbor Claims Services LLC. Ms. Whitford conducted the on-site inspections of the three properties and prepared the independent adjuster's report for Ironclad. Mr. Ellsworth may have met Ms. Whitford during her site visits or had limited communication with her regarding property access and logistics. However, the substantive interaction between VHG and Arbor Claims was primarily through Pellegrini.
• Franklin Orde — Account Executive at Tidewater Risk Advisors. Mr. Orde was VHG's primary broker contact and served as an intermediary between VHG and the carriers during the claims process. Mr. Ellsworth likely had communications with Mr. Orde regarding the claim status and the carriers' positions.
After Calderwood & Harkness was engaged to represent VHG in the coverage dispute (which occurred after receipt of Ironclad's reservation of rights in October 2022), communications with the carriers regarding coverage issues were routed through counsel. Communications that occurred through or at the direction of counsel may be protected by the attorney-client privilege or work-product doctrine.
Key Instruction: Mr. Ellsworth should not testify to the substance of any communications with Calderwood & Harkness or with Nathaniel Driscoll in his capacity as legal counsel providing legal advice. If a question asks about a communication that involved or was directed by counsel, Mr. Ellsworth should pause to allow defending counsel to assert the privilege. If communications with Ironclad, Arbor Claims, or Tidewater were routed through counsel or occurred at counsel's direction, the privilege should be asserted as to the content of those communications.
Defense counsel will be particularly interested in identifying any oral statements by Mr. Ellsworth to Haddon, Whitford, or Orde that could be construed as admissions against VHG's interests — for example, statements regarding the cause of damage (wind vs. flood), the timeline of restoration, the adequacy of VHG's mitigation efforts, or the reasonableness of the claim amount. During the preparation session, we will review with Mr. Ellsworth his recollection of all direct communications with insurer representatives and identify any potentially problematic statements.
I. Financial Impact on VHG
Defense counsel will explore the financial impact of Hurricane Callista on VHG, including the Company's financial condition during and after the closure period, the impact on VHG's stock price, and VHG's public disclosures regarding the hurricane losses. The purpose of this line of questioning is multifaceted: defense counsel may attempt to argue that VHG's BI claim is inflated, that VHG was not as severely impacted as it claims, or that VHG had sufficient financial resources to fund restoration without insurance proceeds (thereby undermining VHG's claim of urgency and bad-faith delay by the insurers).
Background for Mr. Ellsworth:
VHG is a publicly traded company with substantial annual revenues ($412 million in FY 2021) and healthy profitability ($78 million EBITDA in FY 2021). The $60 million BI claim, while significant, represents a portion of VHG's overall enterprise. Defense counsel may attempt to use VHG's overall financial strength to argue that the BI loss was not as impactful as VHG suggests, or that VHG could have and should have funded restoration more aggressively from its own resources rather than relying on insurance proceeds that were subject to dispute.
Mr. Ellsworth will likely be asked about:
• VHG's financial condition during the closure period (FY 2022 and early FY 2023).
• The impact of the hurricane losses on VHG's stock price. VHG's shares are traded on the Nasdaq exchange under the ticker symbol VMRK. The stock price may have declined in the weeks following Hurricane Callista, and defense counsel may introduce stock-price charts or analyst reports.
• VHG's public disclosures regarding the hurricane losses and insurance claim. As a public company, VHG is required to file periodic reports with the SEC (10-K, 10-Q, 8-K) and to disclose material events. The hurricane losses and insurance claim would have been disclosed in VHG's SEC filings, and VHG's CEO and CFO may have discussed the hurricane impact on earnings calls with analysts and investors.
• VHG's ability to fund restoration without insurance proceeds — i.e., whether VHG had sufficient cash reserves, credit facilities, or other financial resources to pay for restoration out of pocket.
Key Instruction: Mr. Ellsworth should defer detailed financial questions to Diane Calder (CFO). Mr. Ellsworth can testify to the general financial impact of the hurricane on VHG — that it was significant, that it affected VHG's operations, financial performance, and stock price — but he should not speculate on specific financial figures without reference to documents or Calder's testimony. Most importantly, Mr. Ellsworth should avoid any suggestion that VHG was not materially harmed by the loss, that the insurance recovery is immaterial to VHG, or that VHG had sufficient reserves to render the insurance recovery unnecessary. Those arguments play directly into the defense narrative. At the same time, Mr. Ellsworth should not overstate VHG's financial distress, as any exaggeration will undermine his credibility.
Regarding SEC filings and investor communications, Mr. Ellsworth should be prepared for questions about specific statements he may have made on earnings calls or in investor presentations regarding the hurricane losses and insurance claim. During the preparation session, we will review any relevant earnings-call transcripts and investor presentations with Mr. Ellsworth to ensure he is familiar with his prior public statements and can testify consistently.
J. Decision to Litigate
Defense counsel may ask about VHG's decision to file this lawsuit, including who made the decision, when it was made, and what factors were considered. This line of questioning implicates the attorney-client privilege, and Mr. Ellsworth should be cautious.
Background for Mr. Ellsworth:
After Ironclad's formal denial on February 3, 2023, and Pinnacle's follow-on denial on February 10, 2023, VHG evaluated its options and ultimately filed this lawsuit on March 1, 2023. The decision to litigate was made by Mr. Ellsworth, in consultation with VHG's Board of Directors, based on legal advice from Calderwood & Harkness LLP and in-house counsel Nathaniel Driscoll.
Key Instruction: Mr. Ellsworth should not describe the content of the legal advice he received from Calderwood & Harkness or Driscoll regarding the decision to file suit. The substance of that advice is privileged. If asked why VHG decided to file suit, Mr. Ellsworth should explain that VHG believed its claims were valid, that VHG had paid substantial premiums for insurance coverage that was designed to protect against precisely the kind of catastrophic loss VHG suffered, and that VHG pursued litigation after the insurers wrongfully denied coverage. He should not go further and describe what his lawyers told him about the merits of the case, the likelihood of success, or the litigation strategy. If the examiner presses for the content of legal advice, defending counsel will object and instruct Mr. Ellsworth not to answer.
IV. KEY DOCUMENTS FOR MR. ELLSWORTH TO REVIEW
Mr. Ellsworth should review the following documents prior to the preparation session scheduled for August 5, 2023. We will make these documents available to Mr. Ellsworth in a secure document room at our offices. Some of these documents are confidential, privileged, or subject to the protective order entered in this case, and Mr. Ellsworth should not retain copies outside the document room.
A. VHG Internal Documents
1. Hurricane preparedness plans and emergency protocols for each of the three affected properties (Grand Key Resort, Harborview Hotel & Conference Center, Sunset Shores). These documents establish that VHG had pre-existing hurricane-response protocols and followed them.
2. Internal communications (emails, memos) regarding the evacuation decision during the period September 16–18, 2022. These communications document the timeline of VHG's decision to evacuate and close the properties and the basis for that decision (mandatory evacuation orders, storm severity, guest and employee safety).
3. Board of directors minutes or presentations referencing Hurricane Callista, property damage, restoration progress, and the insurance claim. Defense counsel may seek to examine board-level discussions regarding the claim, the restoration timeline, and the decision to litigate. Mr. Ellsworth should be familiar with what was presented to the Board and what the Board discussed, recognizing that board-level discussions that occurred in the presence of counsel or were conducted for the purpose of obtaining legal advice may be privileged.
4. SEC filings (10-K, 10-Q, 8-K) referencing Hurricane Callista losses, the insurance claim, or the business-interruption impact on VHG's financial results. Defense counsel will compare Mr. Ellsworth's deposition testimony against VHG's public disclosures, so consistency is essential.
5. Investor presentations or earnings-call transcripts discussing the hurricane impact. As with SEC filings, Mr. Ellsworth should review any statements he made on earnings calls or in investor presentations to ensure consistency with his deposition testimony.
B. Insurance Documents
6. Sworn statement in proof of loss (November 15, 2022) — claiming $60 million in BI losses across the three properties. Mr. Ellsworth should review this document to understand what was represented to the insurers.
7. Initial notice of loss to Ironclad (September 22, 2022). Mr. Ellsworth should review the notice to confirm his familiarity with its contents and timing.
8. Ironclad reservation of rights letter (October 12, 2022). This letter identifies the coverage defenses Ironclad was investigating and provides important context for the subsequent denial.
9. Ironclad formal coverage denial letter (February 3, 2023). This is the operative denial document and identifies Ironclad's four bases for denial: (i) the $15 million named-windstorm sub-limit; (ii) the period of restoration / unreasonable delay; (iii) concurrent causation / flood exclusion; and (iv) failure to mitigate. Mr. Ellsworth should be thoroughly familiar with these four grounds so that he can respond effectively to questions based on them.
10. Pinnacle follow-on denial (February 10, 2023). This letter adopts Ironclad's denial and declines coverage under the first-excess layer.
11. Policy declarations page for Ironclad primary policy IIC-PRP-2022-07541. Mr. Ellsworth should review the declarations page to have a general familiarity with the policy structure, limits, and deductible, recognizing that detailed questions about policy terms should be deferred to Pellegrini.
12. Endorsements related to the named-windstorm sub-limit — specifically, the disputed deletion endorsement that VHG contends was issued at the July 2022 renewal. This is the central document in the coverage dispute. Mr. Ellsworth should review it to understand VHG's position but should defer specific questions about its negotiation to Pellegrini and Orde.
C. Correspondence.
13. Direct correspondence between Mr. Ellsworth and Victor Haddon (Ironclad), Denise Whitford (Arbor Claims), or Franklin Orde (Tidewater). Any letters, emails, or other written communications between Mr. Ellsworth and insurer or adjuster representatives should be reviewed carefully. Defense counsel will likely mark these as exhibits and examine Mr. Ellsworth about them.
14. Communications with Montclair or Sovereign Re. These are likely limited, as VHG's communications with the upper-layer carriers were primarily conducted through Tidewater and, after counsel was engaged, through Calderwood & Harkness.
D. Restoration and Contractor Records
15. Summary timeline of restoration activities at each property. Mr. Ellsworth should review a consolidated timeline showing key milestones in the restoration of each property, including dates of damage assessment, contractor engagement, material procurement, permit applications, commencement and completion of major work phases, and reopening dates.
16. Key contractor agreements or change orders — to the extent Mr. Ellsworth was involved in approving major contractor engagements or authorizing significant change orders during the restoration process.
17. Reports or updates Mr. Ellsworth received regarding restoration progress. These may include weekly or monthly progress reports from VHG's construction management team, property-level general managers, or third-party contractors. Mr. Ellsworth's receipt of these repor