IN THE CIRCUIT COURT OF THE ELEVENTH JUDICIAL CIRCUIT IN AND FOR MIAMI-DADE COUNTY, FLORIDA
GENERAL JURISDICTION DIVISION
Case No.: 2022-CA-031547
VERIMARK HOSPITALITY GROUP INC.,
Plaintiff,
v.
IRONCLAD INDEMNITY CORPORATION; PINNACLE SURPLUS LINES INC.; MONTCLAIR ASSURANCE COMPANY; and SOVEREIGN RE LTD.,
Defendants.
PLAINTIFF VERIMARK HOSPITALITY GROUP INC.'S VERIFIED RESPONSES TO DEFENDANT IRONCLAD INDEMNITY CORPORATION'S FIRST SET OF INTERROGATORIES
Date Served: July 5, 2023
Plaintiff Verimark Hospitality Group Inc. ("VHG"), by and through its undersigned counsel, Calderwood & Harkness LLP, hereby responds to Defendant Ironclad Indemnity Corporation's ("Ironclad") First Set of Interrogatories (the "Interrogatories"), served on or about June 5, 2023, pursuant to Rule 1.340 of the Florida Rules of Civil Procedure. VHG provides the following responses and objections based on information presently available to it and its counsel.
These responses are made based on information currently known to VHG and its counsel after reasonable investigation and inquiry, and VHG expressly reserves the right to supplement, amend, or correct these responses as additional information becomes available during the course of discovery in this action, including but not limited to information obtained through depositions, document productions, and expert analysis. VHG's investigation into the facts and circumstances underlying this action is ongoing, and no response herein should be construed as a complete statement of all facts known or positions held by VHG.
VHG's responses are subject to and made without waiver of any applicable objections, including but not limited to objections based on the attorney-client privilege, work-product doctrine, relevance, proportionality, undue burden, and any other applicable evidentiary privilege, protection, or limitation. The provision of a substantive response to any interrogatory does not constitute a waiver of any objection stated herein or otherwise applicable, and VHG reserves all such objections in full. Where VHG provides a substantive response notwithstanding an objection, VHG does so solely in the interest of moving this litigation forward and without conceding the propriety of the interrogatory.
GENERAL OBJECTIONS
VHG asserts the following General Objections, which are incorporated by reference into each of the specific responses set forth below as if fully stated therein:
1. VHG objects to any interrogatory that seeks or calls for information, documents, or communications protected by the attorney-client privilege, work-product doctrine, or any other applicable privilege or protection, including without limitation communications between VHG and its counsel of record, Calderwood & Harkness LLP, and communications between VHG and any other attorney or legal advisor in connection with the matters at issue in this litigation. To the extent any interrogatory is susceptible to an interpretation that would require disclosure of privileged or protected information, VHG declines to provide such information and will identify such information on its privilege log to the extent required by the Florida Rules of Civil Procedure and applicable case law.
2. VHG objects to any interrogatory that is overly broad, unduly burdensome, or not proportional to the needs of this case, taking into account the importance of the issues at stake, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit, as contemplated by Rule 1.280(b) of the Florida Rules of Civil Procedure.
3. VHG objects to any interrogatory that seeks information equally or more readily available to Ironclad from its own files, records, and documents, including without limitation Ironclad's claims files, underwriting files, policy files, correspondence files, and communications with Arbor Claims Services LLC, its independent adjusting firm. To the extent Ironclad already possesses responsive information in its own records, the interrogatory is duplicative and imposes an unnecessary burden on VHG.
4. VHG objects to any interrogatory that assumes facts not in evidence, contains embedded legal conclusions, or is premised on a characterization of events, policies, or legal principles with which VHG does not agree. Any response to such an interrogatory should not be construed as an adoption of or agreement with the factual or legal premises underlying the interrogatory.
5. VHG objects to any definition or instruction set forth in the Interrogatories to the extent such definition or instruction purports to impose obligations on VHG beyond those required by the Florida Rules of Civil Procedure, including without limitation any instruction that seeks to expand the scope of VHG's duty to search for or compile information beyond what is reasonable and proportional under the circumstances.
6. VHG does not waive any objection, whether general or specific, by providing a substantive response to any interrogatory, and any response is made subject to and without prejudice to all stated objections. VHG reserves the right to assert additional objections as appropriate.
SPECIFIC RESPONSES TO INTERROGATORIES
INTERROGATORY NO. 1
State the full legal name of Plaintiff Verimark Hospitality Group Inc., its state of incorporation, its principal place of business, and identify all officers and directors of VHG who held such positions at any time during the period from July 1, 2022 to the present, including for each such person their title, the dates of their service, and their current business address.
RESPONSE TO INTERROGATORY NO. 1:
Subject to and without waiver of the General Objections stated above, VHG responds as follows:
Verimark Hospitality Group Inc. is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. VHG is a publicly traded company, and its shares of common stock are listed and traded on the Nasdaq Stock Market under the ticker symbol "VMRK." VHG's federal employer identification number (EIN) is 59-3841276.
The following individuals have served as officers and/or directors of VHG during the period from July 1, 2022 to the present:
Officers:
• Marcus Ellsworth — Chief Executive Officer. Mr. Ellsworth has served as CEO continuously throughout the relevant period and continues to serve in that capacity. Business address: 1900 Brickell Avenue, Suite 3200, Miami, FL 33129.
• Diane Calder — Chief Financial Officer. Ms. Calder has served as CFO continuously throughout the relevant period and continues to serve in that capacity. Business address: 1900 Brickell Avenue, Suite 3200, Miami, FL 33129.
• Nathaniel Driscoll — General Counsel and Corporate Secretary. Mr. Driscoll has served as General Counsel continuously throughout the relevant period and continues to serve in that capacity. Business address: 1900 Brickell Avenue, Suite 3200, Miami, FL 33129.
• Sandra Pellegrini — Vice President, Risk Management. Ms. Pellegrini has served as VP, Risk Management continuously throughout the relevant period and continues to serve in that capacity. Business address: 1900 Brickell Avenue, Suite 3200, Miami, FL 33129.
A complete list of all officers and directors of VHG during the relevant period, including non-executive directors and members of VHG's Board of Directors, is set forth in VHG's publicly available filings with the United States Securities and Exchange Commission, including VHG's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and its most recent proxy statement on Schedule 14A. VHG refers Ironclad to those publicly available filings for a complete listing and reserves the right to supplement this response if necessary to identify any additional officers or directors not reflected in the SEC filings.
INTERROGATORY NO. 2
Describe in detail each property for which VHG claims business-interruption losses arising from Hurricane Callista, including but not limited to the property's location, type of hospitality operation, number of guest rooms, and key pre-loss operational metrics such as average daily rate, occupancy rate, and revenue sources.
RESPONSE TO INTERROGATORY NO. 2:
Subject to and without waiver of the General Objections stated above, VHG responds as follows:
VHG claims business-interruption losses for the following three insured resort and hotel properties, each of which sustained physical damage and was rendered inoperable as a result of Hurricane Callista:
1. Verimark Grand Key Resort — Located at Mile Marker 48, Marathon, Monroe County, Florida 33050. The Grand Key Resort is a full-service luxury resort and marina facility comprising 312 guest rooms and suites situated across multiple low-rise and mid-rise structures on approximately 22 acres of waterfront property in the Florida Keys. The property includes guest accommodations, a full-service 85-slip marina, two restaurants and a poolside bar, a 12,000-square-foot spa and wellness center, a resort-style pool complex with cabanas, and various ancillary guest amenities. Pre-loss operational metrics for the twelve-month period preceding Hurricane Callista were as follows: average daily rate ("ADR") of approximately $389; average occupancy rate of approximately 82%; and revenue per available room ("RevPAR") of approximately $319. Revenue sources include room revenue, food and beverage revenue, marina slip rental and related marine services, spa services, and ancillary guest services and resort fees. The Grand Key Resort is VHG's flagship property and the single largest revenue-generating asset in VHG's portfolio.
2. Verimark Harborview Hotel & Conference Center — Located at 1400 Estero Boulevard, Fort Myers Beach, Lee County, Florida 33931. The Harborview Hotel & Conference Center is a 224-room hotel situated on beachfront property on Estero Island, featuring approximately 40,000 square feet of conference and event facilities, including a 15,000-square-foot grand ballroom, multiple breakout meeting rooms, and pre-function and reception areas. The property also includes a restaurant, a lounge and bar, an outdoor pool, and fitness facilities. Pre-loss operational metrics for the twelve-month period preceding Hurricane Callista were as follows: ADR of approximately $295; average occupancy rate of approximately 74%; and RevPAR of approximately $218. Revenue sources include room revenue, food and beverage revenue, conference center rental and audiovisual equipment fees, event catering income, and ancillary guest services. The conference center is a significant revenue driver, generating substantial group and corporate meeting business, particularly during the fall and winter seasons.
3. Verimark Sunset Shores — Located at 7200 Gulf Boulevard, St. Pete Beach, Pinellas County, Florida 33706. Sunset Shores is a 186-room boutique resort situated on the Gulf of Mexico, featuring a beachfront pool and sundeck, a restaurant and tiki bar, and various beach and water-sport amenities. Pre-loss operational metrics for the twelve-month period preceding Hurricane Callista were as follows: ADR of approximately $342; average occupancy rate of approximately 79%; and RevPAR of approximately $270. Revenue sources include room revenue, food and beverage revenue, pool and beach service charges, and ancillary guest services and resort fees.
Each of the three properties described above is identified as an insured location under the Ironclad primary policy, Policy No. IIC-PRP-2022-07541, and is covered for business-interruption and extra-expense losses under that policy and the excess policies identified in VHG's response to Interrogatory No. 7 below.
INTERROGATORY NO. 3
Set forth in detail the methodology and all calculations used to arrive at the claimed $60,000,000 in business-interruption losses, broken down by property. For each property, identify the period over which losses are claimed, the revenue assumptions used, the expense assumptions used, and any adjustments made.
RESPONSE TO INTERROGATORY NO. 3:
Subject to and without waiver of the General Objections stated above, VHG objects to this interrogatory on the grounds that it is compound, overly broad, and to the extent it calls for expert analysis and opinion, seeks information more properly addressed through expert disclosure under Rule 1.280(b)(5) of the Florida Rules of Civil Procedure. VHG further objects that the interrogatory as framed seeks disclosure of work-product and trial-preparation materials to the extent it encompasses the analytical work of VHG's retained experts. Notwithstanding these objections, VHG responds as follows:
VHG's total claimed business-interruption loss arising from Hurricane Callista is $60,000,000, consisting of the following amounts by property:
The methodology and key parameters underlying each property's claim are summarized below:
Verimark Grand Key Resort — $31,400,000: The business-interruption loss for the Grand Key Resort was calculated based on the property's 312 guest rooms, a pre-loss ADR of $389, and a pre-loss occupancy rate of 82%, applied over the 178-day period of full closure from September 18, 2022 (the date of Hurricane Callista's landfall) through March 15, 2023 (the date the property reopened following completion of structural repairs, interior restoration, and code inspections). The room-revenue component of the loss was calculated by multiplying the number of available room-nights during the closure period (312 rooms × 178 days = 55,536 room-nights) by the projected occupancy rate and the projected ADR, yielding projected lost room revenue. This figure was then adjusted upward to account for lost ancillary revenue streams, including marina revenue, food and beverage revenue, spa revenue, resort fees, and other guest-service income, which historically comprise a substantial portion of total property revenue at the Grand Key Resort. The gross revenue loss was then adjusted downward by deducting non-continuing or "saved" expenses — i.e., variable operating expenses that VHG did not incur during the period of closure — to arrive at the net business-interruption loss of $31,400,000. The property was completely closed for the entirety of the 178-day period of restoration, and no revenue was generated during that period.
Verimark Harborview Hotel & Conference Center — $18,700,000: The business-interruption loss for the Harborview was calculated based on the property's 224 guest rooms, a pre-loss ADR of $295, and a pre-loss occupancy rate of 74%, applied over the 135-day period of full closure from September 18, 2022 through January 31, 2023. The calculation follows the same general methodology as described above for the Grand Key Resort, with adjustments to account for the Harborview's specific revenue mix, which includes a substantial component of conference center rental and catering income. Lost conference and event revenue was estimated based on historical booking data for the fall and winter conference season, which is the peak period for group and corporate meeting business at the Harborview. The gross revenue loss was adjusted downward for saved expenses to arrive at the net business-interruption loss of $18,700,000.
Verimark Sunset Shores — $9,900,000: The business-interruption loss for Sunset Shores was calculated based on the property's 186 guest rooms, a pre-loss ADR of $342, and a pre-loss occupancy rate of 79%, applied over 73 days of full closure from September 18, 2022 through November 30, 2022, plus additional losses during a period of reduced capacity from December 1, 2022 through February 28, 2023, when the property operated at less than full capacity due to ongoing repairs to a portion of guest rooms and common areas. The property reached full operational capacity on February 28, 2023. The gross revenue loss was adjusted downward for saved expenses to arrive at the net business-interruption loss of $9,900,000.
VHG's methodology relies on historical financial performance data for each property, including property-level revenue, expense, and profitability data for fiscal years 2019, 2020, 2021, and year-to-date 2022. Company-wide, VHG's FY 2021 consolidated revenue was $412,000,000 and FY 2021 consolidated EBITDA was $78,000,000. The property-level data underlying the BI loss calculations has been compiled and is being produced in response to Ironclad's First Request for Production of Documents.
The detailed calculations supporting VHG's $60,000,000 BI loss claim are set forth in VHG's sworn statement in proof of loss, which was submitted to Ironclad on November 15, 2022. The calculations are further supported and refined in the expert report of Dr. Helen Vasquez, CPA, CFF, of Meridian Forensic Economics LLC, which was served on Ironclad on September 15, 2023. Dr. Vasquez's report sets forth a comprehensive forensic accounting analysis of VHG's BI losses, including detailed revenue projections, expense analyses, and loss quantification on a property-by-property and month-by-month basis.
VHG reserves the right to supplement this response upon completion of Dr. Vasquez's analysis and as additional financial data and discovery become available.
INTERROGATORY NO. 4
For each property for which VHG claims business-interruption losses, identify the date of closure, the date of reopening (or restoration to full capacity), and the basis for each such date.
RESPONSE TO INTERROGATORY NO. 4:
Subject to and without waiver of the General Objections stated above, VHG responds as follows:
1. Verimark Grand Key Resort:
Date of Closure: September 18, 2022. This was the date of Hurricane Callista's landfall. Hurricane Callista made landfall as a Category 4 hurricane with maximum sustained winds of approximately 145 miles per hour at approximately 1:30 PM Eastern Daylight Time in the Lower Florida Keys near Big Pine Key, Monroe County, Florida. The Monroe County Emergency Management Division issued a mandatory evacuation order for all residents and visitors in the Lower and Middle Florida Keys (Evacuation Zones 1 through 5) on September 16, 2022. In compliance with that order and in the exercise of prudent risk management, VHG commenced an orderly evacuation of all guests and non-essential staff from the Grand Key Resort on September 16, 2022. All guests and non-essential personnel had been evacuated prior to the storm's landfall. The property sustained catastrophic wind damage and storm-surge damage during the hurricane and was rendered completely inoperable.
Date of Reopening: March 15, 2023. The property reopened to guests on this date following the completion of structural repairs, roof replacement, interior restoration, mechanical and electrical system replacement, marina reconstruction, and all required building code inspections and certifications. The total period of closure was 178 days.
2. Verimark Harborview Hotel & Conference Center:
Date of Closure: September 18, 2022. Lee County issued a mandatory evacuation order for barrier island communities, including Fort Myers Beach and Estero Island, on September 17, 2022. VHG evacuated all guests and non-essential staff from the Harborview prior to the storm's landfall. The property sustained significant wind damage to the building structure, conference facilities, and grounds, as well as storm-surge-related flooding on the ground floor and lower levels.
Date of Reopening: January 31, 2023. The property reopened to guests and resumed conference center operations on this date following the completion of roof repair, conference center restoration, mechanical and electrical system replacement, interior renovation, and all required inspections. The total period of closure was 135 days.
3. Verimark Sunset Shores:
Date of Full Closure: September 18, 2022 through November 30, 2022 (73 days). The property was completely closed to guests and generated no revenue during this period.
Date of Partial Reopening: November 30, 2022. The property partially reopened on this date at reduced capacity, as ongoing repairs to a portion of guest rooms, common areas, and exterior facilities had not yet been completed.
Date of Full Capacity Restoration: February 28, 2023. The property reached full operational capacity on this date, at which point all guest rooms, restaurants, pool and beach facilities, and other amenities were fully restored and operational.
The dates of closure at each property correspond to the issuance of mandatory evacuation orders by the relevant county emergency management authorities and the onset of hurricane conditions rendering the properties unsafe and inoperable. The dates of reopening (or restoration to full capacity) correspond to the completion of physical repairs and restoration sufficient to resume safe hospitality operations and to satisfy all applicable building codes, safety codes, and regulatory requirements, including the issuance of certificates of occupancy or completion by local building officials.
VHG acted with reasonable speed under the circumstances to restore each property, including promptly engaging contractors, authorizing premium pricing for labor and materials, approving overtime and weekend work schedules, and sourcing building materials from outside the affected region. The restoration timelines were driven by factors beyond VHG's control, including the catastrophic scope of damage sustained, the post-hurricane environment in which thousands of structures across southwestern Florida and the Florida Keys required simultaneous repair, acute shortages of licensed contractors and skilled construction labor in the affected areas, supply chain disruptions for building materials, and the need to comply with updated building code requirements imposed by local authorities in the aftermath of the storm.
INTERROGATORY NO. 5
Describe in detail the physical damage sustained at each property as a result of Hurricane Callista, distinguishing to the extent possible between wind damage, water damage from storm surge or flooding, and any other types of damage.
RESPONSE TO INTERROGATORY NO. 5:
Subject to and without waiver of the General Objections stated above, VHG objects to this interrogatory to the extent it calls for expert engineering opinion or analysis that is more properly addressed through expert disclosure. VHG further notes that the full scope of physical damage at each property is extensively documented in engineering reports, damage assessment reports, photographs, video recordings, inspection records, contractor estimates, and repair invoices, which have been or will be produced in response to Ironclad's First Request for Production of Documents. Subject to these objections, VHG responds as follows:
Verimark Grand Key Resort: The Grand Key Resort sustained severe and catastrophic physical damage from Hurricane Callista. Wind damage included: extensive damage to roofing systems across multiple structures, including loss of roofing membrane, underlayment, and decking on the main resort building and ancillary structures; damage to the building envelope, including breach of exterior walls, loss of exterior cladding and siding, and destruction of windows and sliding glass doors in numerous guest rooms; and structural damage to framing, trusses, and load-bearing elements in certain areas. Storm surge in Monroe County reached estimated heights of 8 to 14 feet above normal tide levels at the Grand Key Resort location, causing extensive inundation of ground-level and lower-floor guest rooms, the hotel lobby and reception areas, back-of-house operational spaces, mechanical and electrical systems (including HVAC equipment, electrical panels, elevators, and emergency generators), the marina facility and associated structures, and the resort's landscape and hardscape features. Wind-driven rain penetrated the building envelope on upper floors, causing water damage to guest room interiors, corridors, and common areas. The marina sustained structural damage to floating docks, fixed piers, pilings, fueling infrastructure, and the harbormaster's building. Debris from the storm caused additional impact damage to building surfaces and vehicles.
Verimark Harborview Hotel & Conference Center: The Harborview sustained significant physical damage. Wind damage included: substantial damage to the roof, including loss of roofing material and penetration of the roof deck; damage to exterior cladding, windows, and balcony railings and enclosures; and damage to the conference center structure, including ceiling systems, interior finishes, and audiovisual and lighting equipment. Storm surge in Lee County reached estimated heights of 6 to 10 feet above normal tide levels at the Harborview location, causing flooding of the ground floor, including the grand ballroom, breakout meeting rooms, the restaurant and lounge, the hotel lobby and front desk area, and below-grade mechanical and electrical rooms. Mechanical and electrical systems were damaged or destroyed by flooding, including HVAC chillers, boilers, electrical switchgear, and elevator equipment. The property's landscape, parking areas, and exterior hardscape were extensively damaged by surge, debris, and erosion.
Verimark Sunset Shores: Sunset Shores sustained moderate-to-significant physical damage. Wind damage included: damage to the roof, including partial loss of roofing membrane and wind-driven debris penetration; window breakage and loss of exterior cladding on the windward side of the building; and damage to pool decking, cabana structures, tiki bar, and outdoor furniture and equipment. Storm-surge flooding was less severe at the St. Pete Beach location than at the other two properties but affected ground-level mechanical systems, including HVAC equipment and electrical panels, as well as some ground-floor guest rooms and storage areas. Wind-driven rain caused water intrusion in guest rooms and corridors on upper floors where windows or building envelope integrity was compromised.
VHG's forensic engineer, Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc. (located at 7900 NW 25th Street, Suite 210, Doral, Florida 33122), has conducted a detailed cause-of-loss analysis at each property, including on-site inspections, review of meteorological data, review of building plans and construction specifications, and forensic examination of damaged building components. Mr. Caldwell will opine in his expert report on the differentiation of wind damage versus storm-surge damage at each property, the causal mechanisms of the observed damage, and the reasonable period of restoration for each property. Mr. Caldwell's expert report was served on September 15, 2023.
INTERROGATORY NO. 6
Identify all communications between VHG and Ironclad (or any person acting on Ironclad's behalf, including any independent adjuster, consultant, or agent) from September 18, 2022 to the present, including for each communication the date, the method of communication (e.g., letter, email, telephone call, in-person meeting), the participants, and a brief description of the subject matter.
RESPONSE TO INTERROGATORY NO. 6:
Subject to and without waiver of the General Objections stated above, VHG objects to this interrogatory on the grounds that it is overly broad and unduly burdensome in that it seeks identification of "all communications" over a period of more than ten months without limitation as to subject matter, participants, or method. VHG further objects to the extent this interrogatory seeks the identification of communications protected by the attorney-client privilege or work-product doctrine, which VHG will not disclose but will identify on its privilege log as required by the Florida Rules of Civil Procedure. Notwithstanding these objections, and in the spirit of cooperation, VHG responds by identifying the following material communications known to VHG at this time:
• September 22, 2022: VHG submitted its initial notice of loss to Ironclad under Policy No. IIC-PRP-2022-07541, via written notice sent by certified mail and email, reporting physical damage and anticipated business-interruption losses at all three insured resort and hotel properties (Grand Key Resort, Harborview Hotel & Conference Center, and Sunset Shores) arising from Hurricane Callista. The notice was prepared and submitted by Sandra Pellegrini, VP, Risk Management, and was directed to Ironclad's claims department.
• October 5, 2022: Arbor Claims Services LLC ("Arbor"), acting as Ironclad's retained independent adjusting firm, conducted initial on-site inspections of all three insured properties. The inspections were led by Denise Whitford, Lead Adjuster at Arbor, and were accompanied by Sandra Pellegrini, VP, Risk Management of VHG, who provided access to all areas of each property and responded to questions from the Arbor inspection team. The inspections included visual assessment of damage, photographic documentation, and preliminary discussions regarding the scope of loss.
• October 12, 2022: Ironclad issued a reservation of rights letter to VHG, signed by Victor Haddon, Senior Vice President of Claims, Ironclad Indemnity Corporation. The reservation of rights letter asserted, among other things, potential applicability of a named-windstorm sub-limit of $15,000,000, potential application of the policy's flood exclusion to bar or limit coverage for storm-surge-related damage, potential limitations on the period of restoration, and a potential defense based on VHG's alleged failure to mitigate its losses. The letter was sent by certified mail to VHG's principal offices and by email to Sandra Pellegrini and Nathaniel Driscoll.
• October 25, 2022: Calderwood & Harkness LLP, on behalf of VHG, submitted a detailed written response to Ironclad's reservation of rights letter, disputing each of the stated bases for the reservation of rights. The response addressed the deletion of the named-windstorm sub-limit at the July 2022 renewal, the inapplicability of the flood exclusion under the efficient proximate cause doctrine, the reasonableness of the anticipated restoration timelines, and VHG's extensive mitigation efforts. The letter was authored by Elaine Forsythe, Esq. and sent to Victor Haddon at Ironclad's Hartford, Connecticut offices.
• November 15, 2022: VHG submitted its sworn statement in proof of loss to Ironclad, claiming total business-interruption losses of $60,000,000 across the three insured properties. The sworn statement was executed by Sandra Pellegrini on behalf of VHG and was submitted via certified mail and email to Ironclad's claims department, with a copy to Arbor Claims Services LLC.
• November 20, 2022: Calderwood & Harkness LLP, on behalf of VHG, sent a formal demand letter to Ironclad demanding timely payment of the full $25,000,000 primary layer policy limit under Policy No. IIC-PRP-2022-07541. The letter was authored by Elaine Forsythe, Esq. and sent to Victor Haddon by certified mail and email.
• February 3, 2023: Ironclad issued a formal written denial of coverage for VHG's business-interruption claim. The denial letter was signed by Victor Haddon on behalf of Ironclad and asserted multiple grounds for denial, including application of the named-windstorm sub-limit, the flood exclusion, and alleged deficiencies in VHG's proof of loss. The denial letter was sent by certified mail to VHG's principal offices and to Calderwood & Harkness LLP.
• February 15, 2023: Calderwood & Harkness LLP, on behalf of VHG, sent a letter to Ironclad addressing the bad-faith implications of Ironclad's wrongful denial of coverage, including notice of VHG's intent to pursue statutory and common-law bad-faith claims under Florida law. The letter was authored by Elaine Forsythe, Esq. and sent to Victor Haddon by certified mail with copies to Ironclad's in-house legal department.
VHG will supplement this response with a complete communication log as discovery continues and as additional communications are identified through document review and deposition testimony. VHG notes that many of its internal communications and communications with counsel of record regarding Ironclad's coverage positions, claims-handling conduct, and litigation strategy are protected by the attorney-client privilege and/or work-product doctrine and will be identified on VHG's privilege log to the extent required by applicable rules.
INTERROGATORY NO. 7
Identify all insurance policies under which VHG claims coverage for business-interruption losses arising from Hurricane Callista, including for each policy the identity of the issuing carrier, the policy number, the policy period, the limits of liability, any applicable sub-limits or deductibles, and the attachment point of each excess layer.
RESPONSE TO INTERROGATORY NO. 7:
Subject to and without waiver of the General Objections stated above, VHG responds as follows:
VHG's property and business-interruption insurance program for the policy period July 1, 2022 through July 1, 2023 was structured as a layered tower of coverage consisting of one primary policy and three successive excess policies, as follows:
The total available limit of the layered tower is $60,000,000 in the aggregate (above the $500,000 per-occurrence deductible under the primary policy). VHG's claimed business-interruption loss of $60,000,000 exhausts the full tower.
The total annual premium paid by VHG for the 2022-2023 policy year insurance program was $1,840,000, allocated as follows: $980,000 for the Ironclad primary policy; $410,000 for the Pinnacle first excess policy; $265,000 for the Montclair second excess policy; and $185,000 for the Sovereign Re third excess policy. All premiums were paid in full and on time.
All policies in the tower are "all risks" property insurance policies providing coverage for direct physical loss or damage to insured property from any cause of loss not specifically excluded, including coverage for business interruption (loss of business income), extra expense, and related time-element coverages. The excess policies follow form to the Ironclad primary policy with respect to terms, conditions, and exclusions, except to the extent otherwise stated in the excess policy forms.
The program was placed through VHG's insurance broker of record, Tidewater Risk Advisors LLC, with the account managed by Franklin Orde, Account Executive. Tidewater Risk Advisors LLC's business address is 2600 S. Bayshore Drive, Suite 800, Miami, Florida 33133.
Copies of all policies identified above have been produced or are being produced in response to Ironclad's First Request for Production of Documents.
INTERROGATORY NO. 8
State in detail VHG's contention that the $15,000,000 named-windstorm sub-limit was deleted from the Ironclad primary policy at the July 2022 renewal, and identify all documents, communications, and witnesses supporting that contention.
RESPONSE TO INTERROGATORY NO. 8:
Subject to and without waiver of the General Objections stated above, VHG responds as follows:
VHG contends that the $15,000,000 named-windstorm sub-limit that appeared in the prior-year Ironclad primary policy (for the policy period July 1, 2021 through July 1, 2022) was deleted as part of the July 2022 policy renewal. This deletion was a material term negotiated during the renewal process and was a key objective of VHG's renewal strategy for the 2022-2023 policy year.
The deletion of the named-windstorm sub-limit was negotiated by VHG's insurance broker, Franklin Orde of Tidewater Risk Advisors LLC, in direct communications with Ironclad's underwriting department during the renewal process in the spring and early summer of 2022. Ironclad's underwriter agreed to delete the named-windstorm sub-limit in exchange for an increased premium for the 2022-2023 policy year, which is reflected in the premium increase from the prior policy year. VHG paid the agreed-upon increased premium of $980,000 for the Ironclad primary policy, which represented a significant increase over the prior year's premium, in part to secure the removal of the sub-limit.
Sandra Pellegrini, VHG's VP of Risk Management, was actively involved in developing the renewal strategy and instructing Tidewater to negotiate for the removal of the named-windstorm sub-limit. Ms. Pellegrini understood, based on express representations from Franklin Orde of Tidewater, that the sub-limit had been successfully removed during the renewal negotiation and that the 2022-2023 Ironclad primary policy would provide full policy limits of $25,000,000 for named-windstorm events without a separate sub-limit.
The documents and communications supporting VHG's contention include, but are not limited to:
(a) Correspondence between Franklin Orde of Tidewater Risk Advisors LLC and Ironclad's underwriting department during the renewal process, including emails, letters, and renewal submissions;
(b) The renewal binder issued by Ironclad for the 2022-2023 policy period;
(c) Policy endorsements issued by Ironclad for the 2022-2023 policy period, including any endorsement reflecting the deletion of the named-windstorm sub-limit;
(d) Internal VHG communications between Sandra Pellegrini and other VHG personnel regarding the renewal terms and the removal of the windstorm sub-limit;
(e) Internal Tidewater Risk Advisors LLC communications and file notes regarding the renewal negotiation;
(f) The deposition testimony of Franklin Orde (deposed August 28, 2023), who testified regarding his negotiations with Ironclad's underwriting department and his understanding that the sub-limit was deleted; and
(g) The deposition testimony of Victor Haddon (deposed July 10, 2023), Senior VP of Claims at Ironclad, who addressed Ironclad's understanding of the policy terms.
VHG further contends that to the extent any ambiguity exists in the policy endorsements or other policy documents regarding the status of the named-windstorm sub-limit for the 2022-2023 policy year, such ambiguity must be construed against Ironclad as the drafter of the policy under the well-established Florida doctrine of contra proferentem. See, e.g., Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000) ("Insurance contracts are to be construed in accordance with the plain language of the policy as bargained for by the parties. When a genuine inconsistency, ambiguity, or uncertainty exists in the language, it must be construed against the insurer and in favor of coverage.").
INTERROGATORY NO. 9
Describe in detail all steps taken by VHG to mitigate its business-interruption losses at each property, including the timeline and cost of all mitigation measures, and the identity of all contractors, consultants, or vendors retained in connection with such mitigation efforts.
RESPONSE TO INTERROGATORY NO. 9:
Subject to and without waiver of the General Objections stated above, VHG responds as follows:
VHG undertook extensive and reasonable mitigation efforts at each insured property before, during, and after Hurricane Callista in order to minimize the scope and duration of physical damage and resulting business-interruption losses. These efforts are summarized below:
Pre-Storm Preparation (September 16–17, 2022):
Upon issuance of the Monroe County mandatory evacuation order on September 16, 2022 and the Lee County mandatory evacuation order on September 17, 2022, VHG immediately commenced orderly evacuation of all guests and non-essential personnel from each of the three insured properties. VHG's emergency management teams at each property implemented the company's pre-established hurricane preparedness plans, which had been developed, tested, and refined over multiple prior hurricane seasons.
Specific pre-storm mitigation measures included: deployment of hurricane shutters, storm panels, and other protective window and door coverings at all three properties; relocation of critical equipment, furnishings, and inventory from ground-level and flood-vulnerable areas to higher elevations within the structures where feasible; protection and backup of information technology systems, servers, and critical business data; securing of outdoor furniture, equipment, signage, and loose items that could become wind-borne debris; sandbagging and deployment of portable flood barriers at vulnerable entry points; shutdown of non-essential building systems to prevent damage from power surges and flooding; and coordination with local emergency management authorities regarding evacuation routes, shelter-in-place protocols for essential maintenance personnel, and emergency communication procedures.
Post-Storm Emergency Response (September 18, 2022 and following weeks):
VHG deployed emergency response teams to assess damage at each property as soon as conditions permitted safe access, which occurred on September 19–20, 2022, depending on the property. Initial damage assessments were conducted by VHG's on-site maintenance and engineering staff under the direction of Sandra Pellegrini, VP, Risk Management.
Emergency mitigation measures commenced immediately upon access to the properties and included: emergency tarping of damaged roof areas to prevent further water intrusion; water extraction and pump-out of flooded areas; deployment of industrial dehumidification and drying equipment to prevent mold growth; debris removal from interior and exterior areas; boarding of broken windows and openings in the building envelope; emergency stabilization of structurally compromised building elements; and coordination with local utility providers to restore electrical, water, and sewer service where safe to do so.
VHG retained specialized emergency response and remediation contractors within days of the storm, including contractors for emergency tarping, water mitigation, mold remediation, and debris removal. VHG coordinated with local authorities regarding building safety assessments, red-tag and yellow-tag determinations, and the issuance of permits for emergency and permanent repair work.
Restoration Efforts:
Grand Key Resort: Major restoration work included complete roof replacement across multiple structures, structural repair and reinforcement of wind-damaged framing and trusses, replacement of the building envelope (exterior cladding, windows, doors, and waterproofing systems), reconstruction of the 85-slip marina including docks, pilings, fueling systems, and the harbormaster's building, full replacement of flood-damaged mechanical, electrical, and plumbing (MEP) systems, interior renovation of guest rooms, lobby, restaurants, spa, and common areas, and restoration of landscape, pool complex, and hardscape. Restoration was completed and the property reopened on March 15, 2023, a total of 178 days after the storm. The extended timeline was attributable to the severity of the damage, the complexity of the marina reconstruction, building code compliance requirements (including updated wind-resistance standards enacted by Monroe County following the storm), extreme contractor and skilled-labor shortages in the Florida Keys where post-hurricane demand overwhelmed available supply, and disruptions in the supply chain for critical building materials such as impact-resistant windows, roofing materials, and MEP equipment.
Harborview Hotel & Conference Center: Restoration work included roof repair and partial replacement, conference center restoration including replacement of ceiling systems, interior finishes, and audiovisual and lighting equipment, repair and replacement of flood-damaged MEP systems, interior renovation of guest rooms, lobby, restaurant, and common areas, and restoration of landscape, parking areas, and exterior hardscape. Restoration was completed and the property reopened on January 31, 2023, a total of 135 days after the storm.
Sunset Shores: Restoration work included roof repair and re-roofing of damaged sections, replacement of broken windows and exterior cladding, repair of pool decking, cabana structures, and tiki bar, repair and replacement of flood-damaged MEP equipment, and partial guest room renovation. The property partially reopened at reduced capacity on November 30, 2022 (73 days), and reached full operational capacity on February 28, 2023.
VHG accelerated restoration timelines at each property wherever feasible, including paying premium rates and mobilization fees to secure contractor commitments in the post-hurricane construction environment, authorizing overtime and weekend work schedules for construction crews, sourcing building materials from suppliers outside the affected region (including from out of state) to circumvent local supply chain disruptions, and engaging multiple contractor teams to work concurrently on different building systems and areas of each property.
VHG categorically disputes Ironclad's contention that VHG failed to mitigate its losses or unreasonably delayed the restoration of the insured properties. The restoration timelines at each property were driven by the catastrophic scope of the damage, the extraordinary post-hurricane demand for construction services and materials throughout southwestern Florida and the Florida Keys, regulatory and permitting requirements imposed by local building authorities, and the inherent complexity of restoring large-scale hospitality facilities to pre-loss condition. These factors were entirely beyond VHG's control, and VHG's mitigation and restoration efforts were reasonable, diligent, and consistent with industry standards for post-catastrophe property restoration.
INTERROGATORY NO. 10
Identify all persons known to VHG who have knowledge of facts relevant to this action, including for each such person their name, title or position, current business address, and a brief description of the subject matter of each person's knowledge.
RESPONSE TO INTERROGATORY NO. 10:
Subject to and without waiver of the General Objections stated above, VHG responds as follows:
VHG Personnel:
• Marcus Ellsworth, Chief Executive Officer, Verimark Hospitality Group Inc., 1900 Brickell Avenue, Suite 3200, Miami, FL 33129. Mr. Ellsworth has knowledge of VHG's overall business operations and strategic direction, VHG's financial performance and the financial impact of Hurricane Callista on VHG's operations, hurricane preparation and emergency response decisions at the executive level, communications with VHG's Board of Directors regarding the insurance claims and litigation, restoration and reopening decisions for the insured properties, and VHG's relationship with its insurers.
• Diane Calder, Chief Financial Officer, Verimark Hospitality Group Inc., 1900 Brickell Avenue, Suite 3200, Miami, FL 33129. Ms. Calder has knowledge of VHG's consolidated and property-level financial performance, including revenue, expense, EBITDA, and net income data for fiscal years 2019 through 2022, the financial data and assumptions underlying VHG's business-interruption loss calculations, VHG's FY 2021 consolidated revenue of $412,000,000 and EBITDA of $78,000,000, the financial impact of the property closures on VHG's earnings and cash flow, and VHG's SEC filings containing financial disclosures.
• Nathaniel Driscoll, General Counsel and Corporate Secretary, Verimark Hospitality Group Inc., 1900 Brickell Avenue, Suite 3200, Miami, FL 33129. Mr. Driscoll has knowledge of VHG's insurance coverage and policy terms, VHG's notice of loss procedures and communications with Ironclad (to the extent not privileged), and VHG's litigation decisions and strategy (subject to attorney-client privilege and work-product protection). VHG notes that a substantial portion of Mr. Driscoll's knowledge relates to privileged communications with outside counsel and is protected from disclosure.
• Sandra Pellegrini, Vice President, Risk Management, Verimark Hospitality Group Inc., 1900 Brickell Avenue, Suite 3200, Miami, FL 33129. Ms. Pellegrini has knowledge of VHG's insurance program design and placement, including the negotiations with Tidewater Risk Advisors LLC and Ironclad regarding the deletion of the named-windstorm sub-limit at the July 2022 renewal; VHG's communications with Ironclad and Arbor Claims Services LLC regarding the Hurricane Callista claim, including the notice of loss, the proof of loss, and the claims adjustment process; VHG's pre-storm preparation, emergency response, and mitigation efforts at each property; and VHG's interactions with contractors, engineers, and other vendors retained for restoration work.
Insurance Broker:
• Franklin Orde, Account Executive, Tidewater Risk Advisors LLC, 2600 S. Bayshore Drive, Suite 800, Miami, FL 33133. Mr. Orde has knowledge of the placement and renewal of VHG's property and business-interruption insurance program, including the structure of the layered tower, the terms and conditions negotiated for the 2022-2023 policy year, and specifically the negotiations with Ironclad's underwriting department regarding the deletion of the $15,000,000 named-windstorm sub-limit. Mr. Orde also has knowledge of the representations made to VHG regarding the policy terms and the scope of coverage provided. Mr. Orde was deposed on August 28, 2023.
Insurer Personnel:
• Victor Haddon, Senior Vice President, Claims, Ironclad Indemnity Corporation, 55 Constitution Boulevard, Hartford, CT 06103. Mr. Haddon has knowledge of Ironclad's handling of VHG's Hurricane Callista claim, including the reservation of rights issued on October 12, 2022, the formal denial of coverage issued on February 3, 2023, the bases asserted by Ironclad for the denial of coverage, and Ironclad's internal claims-handling procedures and decision-making. Mr. Haddon signed both the reservation of rights letter and the denial letter on behalf of Ironclad. Mr. Haddon was deposed on July 10, 2023.
• Denise Whitford, Lead Independent Adjuster, Arbor Claims Services LLC, 3300 W. Cypress Street, Suite 400, Tampa, FL 33607. Ms. Whitford has knowledge of the independent adjustment of VHG's claim, including the on-site property inspections conducted on October 5, 2022, the damage assessment and documentation at each property, her analysis of the period of restoration, and her communications with Ironclad regarding the claim findings and recommendations.
Experts Retained by VHG:
• Dr. Helen Vasquez, CPA, CFF, Meridian Forensic Economics LLC, 1201 Peachtree Street NE, Suite 1000, Atlanta, GA 30361. Dr. Vasquez is VHG's retained forensic accounting and damages expert. She has knowledge of VHG's business-interruption loss quantification, including the methodology, assumptions, data, and calculations underlying the $60,000,000 BI loss claim. Her expert report was served on September 15, 2023.
• Jeffrey Caldwell, PE, Caldwell Engineering Associates Inc., 7900 NW 25th Street, Suite 210, Doral, FL 33122. Mr. Caldwell is VHG's retained forensic engineering and cause-of-loss expert. He has knowledge of the physical damage sustained at each insured property, the cause-of-loss differentiation between wind damage and storm-surge damage, the meteorological conditions during Hurricane Callista, and the reasonableness of the restoration timelines at each property. His expert report was served on September 15, 2023.
Expert Identified by Defendants:
• Dr. Warren Birk, Graystone Consulting Group LLC, 150 N. Michigan Avenue, Suite 2600, Chicago, IL 60601. Dr. Birk has been identified as Defendants' damages expert. VHG understands that Dr. Birk has knowledge of Defendants' competing business-interruption loss quantification and methodology.
VHG reserves the right to supplement this identification as additional persons with knowledge of relevant facts are identified through the ongoing course of discovery, including depositions, document productions, and expert analysis.
INTERROGATORY NO. 11
Identify and quantify all extra expenses VHG claims to have incurred as a result of Hurricane Callista, separate and apart from the claimed business-interruption losses, including a description of each category of extra expense, the amount incurred in each category, and the property to which each expense relates.
RESPONSE TO INTERROGATORY NO. 11:
Subject to and without waiver of the General Objections stated above, VHG responds as follows:
VHG incurred substantial extra expenses in connection with its emergency response to Hurricane Callista, the protection and preservation of the insured properties, and the acceleration of restoration efforts. These extra expenses include, but are not limited to, costs incurred for: emergency tarping and temporary weatherproofing; water extraction, dehumidification, and drying; mold assessment and remediation; debris removal and site clearing; emergency structural stabilization; temporary utility services and generators; guest relocation and transportation; temporary housing and meal expenses for essential on-site staff; security services to protect damaged properties; expedited shipping and premium pricing for building materials sourced outside the affected region; and premium labor costs associated with accelerated restoration schedules, including overtime, weekend rates, and mobilization fees for out-of-area contractors.
These extra expenses are included in VHG's overall claim to the extent they are covered under the business-interruption and extra-expense provisions of the Ironclad primary policy and the excess policies. The extra-expense coverage provisions of the policies provide coverage for necessary extra expenses incurred to reduce the loss that would otherwise have been payable under the business-interruption coverage, and to resume operations as quickly as possible.
A detailed breakdown of extra expenses by category and by property is set forth in VHG's sworn statement in proof of loss submitted to Ironclad on November 15, 2022. The extra expenses are further documented, analyzed, and quantified in the expert report of Dr. Helen Vasquez of Meridian Forensic Economics LLC, which was served on September 15, 2023. Supporting documentation, including invoices, receipts, contracts, and payment records for extra expenses, has been compiled and is being produced in response to Ironclad's First Request for Production of Documents.
VHG reserves the right to supplement this response with additional detail as its expert analysis is finalized and as additional documentation is compiled.
INTERROGATORY NO. 12
Identify all expenses that VHG did not incur or that were reduced during the periods of closure at each property as a result of Hurricane Callista ("saved expenses" or "non-continuing expenses"), and state the total amount of saved expenses for each property.
RESPONSE TO INTERROGATORY NO. 12:
Subject to and without waiver of the General Objections stated above, VHG responds as follows:
VHG acknowledges that certain variable operating expenses were reduced or eliminated during the periods of property closure resulting from Hurricane Callista. These non-continuing or "saved" expenses include, but are not limited to: variable labor costs (hourly wages and benefits for front-desk, housekeeping, food and beverage service, pool and beach service, spa, and other guest-facing staff who were temporarily laid off or furloughed during the closure periods); food and beverage cost of goods sold; housekeeping supplies and guest room consumables; guest amenity costs; laundry and linen service costs; certain variable utility expenses (such as electricity and water usage associated with guest occupancy); credit card processing fees attributable to guest-generated transactions; travel agent commissions; and other variable costs that fluctuate directly with occupancy and revenue levels.
These saved expenses have been identified, calculated, and accounted for in VHG's business-interruption loss calculations. The net BI loss figures for each property — $31,400,000 for the Grand Key Resort, $18,700,000 for the Harborview Hotel & Conference Center, and $9,900,000 for Sunset Shores — are stated net of all applicable saved expenses. In other words, the claimed BI losses represent the difference between VHG's projected revenue (absent the hurricane) and VHG's actual revenue during the period of restoration, reduced by the variable expenses that VHG did not incur as a result of the closures.
The specific saved-expense amounts for each property are calculated on a detailed, line-item basis and are set forth in the expert report of Dr. Helen Vasquez of Meridian Forensic Economics LLC. Dr. Vasquez's analysis identifies each category of expense, determines whether each expense is fixed or variable (or contains both fixed and variable components), and calculates the portion of each expense that was saved during the relevant closure period.
Certain categories of fixed costs continued to be incurred by VHG during the closure periods and are not treated as saved expenses. These continuing fixed costs include, but are not limited to: debt service (principal and interest payments on property-level mortgage financing); property taxes and assessments; insurance premiums; management salaries and benefits for retained management, administrative, and essential maintenance personnel; property-level general and administrative expenses; ongoing maintenance and security costs for the closed properties; and costs associated with maintaining essential building systems (such as fire suppression, security, and environmental monitoring).
INTERROGATORY NO. 13
Identify VHG's annual revenue, EBITDA, and net income for fiscal years 2019, 2020, 2021, and year-to-date 2022 (through September 18, 2022), broken down by property where available.
RESPONSE TO INTERROGATORY NO. 13:
Subject to and without waiver of the General Objections stated above, VHG objects to this interrogatory to the extent it is overly broad and seeks company-wide consolidated financial information that is not relevant to the three specific insured properties at issue in this action. VHG operates a portfolio of hospitality properties, the majority of which are not at issue in this litigation and whose financial performance is not relevant to the claims and defenses presented. Subject to that objection, VHG responds as follows:
VHG's FY 2021 consolidated revenue was approximately $412,000,000, and its FY 2021 consolidated EBITDA was approximately $78,000,000. These figures are derived from VHG's audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which is publicly available through the SEC's EDGAR database.
Property-level revenue, EBITDA, and net income data for the three insured properties (Grand Key Resort, Harborview Hotel & Conference Center, and Sunset Shores) for fiscal years 2019, 2020, 2021, and year-to-date 2022 (through September 18, 2022) have been compiled from VHG's internal financial records and accounting systems and are being produced in documentary form in response to Ironclad's First Request for Production of Documents. VHG's production will include property-level operating statements, revenue reports, and profitability analyses for each of the four periods requested.
VHG notes that FY 2020 financial data for all three properties reflects the significant adverse impact of the COVID-19 pandemic on the hospitality industry, including mandatory closures, travel restrictions, and dramatically reduced consumer demand for leisure and business travel. FY 2020 data is therefore not representative of VHG's normalized pre-loss financial performance and should not be used as a baseline for calculating business-interruption losses. VHG's BI loss calculations, and Dr. Vasquez's expert analysis, account for this anomaly and employ appropriate normalization adjustments.
VHG refers Iro