1021-00003 · Verimark Hospitality Group · Engagement & Client Administration

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PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

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

INTERNAL MEMORANDUM

DATE: January 10, 2023

FROM: Howard Bellamy, Billing Partner, Calderwood & Harkness LLP

TO: Elaine Forsythe, Responsible Partner, Calderwood & Harkness LLP

CC: Tiffany Rosenthal, Lead Associate; Andrew Fitzpatrick, Working Associate; Firm Accounting / Finance Department

RE: Revised Fee Arrangement and Staffing Plan — Verimark Hospitality Group Inc. Insurance-Coverage Dispute

ENGAGEMENT NO.: 1021-00003

CLIENT: Verimark Hospitality Group Inc. (Nasdaq: VMRK)

CLIENT CONTACT: Nathaniel Driscoll, General Counsel

I. PURPOSE AND BACKGROUND

The purpose of this memorandum is to memorialize the revisions to the fee arrangement agreed upon between Calderwood & Harkness LLP (the "Firm") and Verimark Hospitality Group Inc. ("VHG" or the "Client"), and to update the staffing expectations and expense projections in connection with the anticipated transition from the pre-litigation and coverage-analysis phase of this engagement to active litigation against VHG's insurers.

As background, this engagement was opened on August 30, 2022, pursuant to an original engagement letter of even date (the "Original Engagement Letter"), executed between the Firm and VHG and addressed to Nathaniel Driscoll, General Counsel, Verimark Hospitality Group Inc., at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. The Original Engagement Letter established the scope and terms of the Firm's representation of VHG in connection with the insurance-coverage dispute arising from property damage and business-interruption losses sustained at three of VHG's Florida resort properties as a consequence of Hurricane Callista, which made landfall in southern Florida in late July 2022.

The three affected properties, each owned and operated by VHG subsidiaries, are as follows:

• Grand Key Resort — Located in Key West, Florida. Total claimed business-interruption losses: $31,400,000.

• Harborview Hotel & Conference Center — Located in Miami Beach, Florida. Total claimed business-interruption losses: $18,700,000.

• Sunset Shores — Located in Naples, Florida. Total claimed business-interruption losses: $9,900,000.

VHG's total claimed business-interruption losses across the three properties amount to approximately $60,000,000. These losses are the subject of claims submitted under VHG's commercial property and business-interruption insurance program, which is structured as a layered tower with total aggregate limits of $60,000,000 above a $500,000 per-occurrence deductible, as follows:

At the time the engagement was opened, the Original Engagement Letter contemplated three principal phases of work: (i) pre-suit coverage analysis and policy interpretation; (ii) insurer negotiations and pre-suit demand; and (iii) potential litigation, if necessary. Over the ensuing four-and-a-half months, the Firm has completed its coverage analysis, submitted detailed proof-of-loss documentation to each insurer, and engaged in extensive pre-suit negotiations and formal demand correspondence.

Those efforts have not resulted in a satisfactory coverage determination. To the contrary, Ironclad Indemnity Corporation — the primary layer carrier and de facto lead insurer — has communicated through counsel its intention to formally deny coverage. That formal denial is anticipated to be issued on or about February 3, 2023, and was in fact issued on that date. The denial is premised on multiple coverage defenses, including the application of a windstorm sub-limit, the flood exclusion as applied to the Grand Key Resort losses, period-of-restoration disputes, and allegations of failure to mitigate. Pre-suit demand efforts directed to the excess carriers have likewise failed to produce any meaningful coverage commitments.

As a result, the matter has now progressed to the point where the filing of litigation is imminent. The Firm anticipates filing a multi-count complaint in the Eleventh Judicial Circuit of Florida, Miami-Dade County, naming all four insurers as defendants, with a target filing date of March 1, 2023. In light of this transition to active litigation — and the corresponding increase in the scope, intensity, and risk profile of the engagement — it is appropriate and necessary to formalize the revised fee arrangement and update the staffing and budgeting framework for the litigation phase.

II. SUMMARY OF ORIGINAL FEE ARRANGEMENT

For reference and as a baseline against which the revised arrangement should be understood, the terms of the Original Engagement Letter dated August 30, 2022 are summarized below.

The Original Engagement Letter established a blended hourly rate structure for the engagement team. The blended rate applicable to all timekeepers on the engagement was set at $785.00 per hour. The individual standard billing rates for each member of the engagement team, which informed the blended rate, are as follows:

The blended rate of $785.00 per hour was negotiated with VHG in recognition of the anticipated mix of partner and associate time across the engagement, and was designed to provide VHG with cost predictability while maintaining appropriate compensation for the Firm's work. The blended rate applies uniformly to all hours billed by any member of the engagement team, regardless of the billing individual's standard rate.

Billing is conducted on a monthly cycle. Invoices are prepared and transmitted to VHG's General Counsel's office on or about the fifteenth (15th) day of the month following the month in which services are rendered. Payment is due within thirty (30) days of the date of each invoice.

Expenses incurred in connection with the engagement — including but not limited to court filing fees, service of process costs, deposition transcript fees, expert witness fees and costs, travel expenses, document hosting and production costs, copying and courier charges, and other out-of-pocket disbursements — are advanced by the Firm and billed to VHG at cost. Expense reimbursement is invoiced alongside the monthly fee statements and is subject to the same thirty-day payment terms.

The Original Engagement Letter was addressed and delivered to Nathaniel Driscoll, General Counsel, Verimark Hospitality Group Inc., at the Client's principal offices located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129, and was executed on behalf of VHG by Mr. Driscoll.

All terms of the Original Engagement Letter not expressly modified by the revised arrangement described herein remain in full force and effect.

III. REVISED FEE ARRANGEMENT — CONTINGENCY ENHANCEMENT

A. Rationale for Contingency Enhancement

During discussions conducted in late December 2022 and early January 2023, VHG's General Counsel, Nathaniel Driscoll, and its Vice President of Risk Management, Sandra Pellegrini, requested that the fee arrangement be revised to include a success-based component. The expressed rationale for this request was to better align Calderwood & Harkness's economic incentives with VHG's recovery outcome, particularly as the matter transitions from the advisory and negotiation phase — where the fee structure primarily compensates for professional time — to the litigation phase, where the Firm's efforts will be directly focused on maximizing VHG's monetary recovery from its insurers.

Following arm's-length discussions between Mr. Driscoll and the undersigned, with input from Ms. Forsythe, the Firm and VHG have agreed to supplement the existing hourly fee arrangement with a contingency enhancement tied to the aggregate recovery achieved in the matter. It is important to emphasize that the existing blended hourly rate structure remains in place and is unchanged. The contingency enhancement is an additional fee component layered on top of the hourly arrangement; it does not replace, reduce, or otherwise modify the hourly fee structure or the Firm's entitlement to compensation for professional services rendered on an hourly basis.

The Firm believes that this hybrid structure — combining an ongoing hourly component with a results-based enhancement — appropriately aligns the interests of the Firm and the Client, provides the Client with meaningful downside protection (in that the enhancement is payable only upon a recovery exceeding a substantial threshold), and compensates the Firm for the increased risk and resource commitment associated with the litigation phase.

B. Terms of the Contingency Enhancement

The terms of the contingency enhancement, as agreed between the Firm and VHG, are as follows:

Enhancement Rate. The contingency enhancement rate is five percent (5%) of the net recovery to VHG in excess of $30,000,000.

Trigger. The contingency enhancement becomes payable upon the resolution of the matter — whether by settlement, judgment after trial or on motion, appellate resolution, or other final disposition — if, and only if, the aggregate net recovery to VHG exceeds Thirty Million Dollars ($30,000,000). If the aggregate net recovery is $30,000,000 or less, the enhancement is zero, and no additional fee beyond the hourly fees and expenses is payable.

Definition of "Net Recovery." For purposes of computing the contingency enhancement, "net recovery" means the total amount recovered by or on behalf of VHG from any or all of the four defendant insurers — Ironclad Indemnity Corporation, Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd. — whether by settlement, consent judgment, judgment after trial, arbitration award, or other means, net of any amounts required to be returned, refunded, or offset pursuant to court order, settlement agreement, or otherwise, but before deduction of attorneys' fees and litigation expenses. For the avoidance of doubt, pre-judgment or post-judgment interest awarded to VHG shall be included in the calculation of net recovery. The contingency enhancement is calculated on the aggregate recovery across all defendants and all layers; it is not calculated separately for each insurer or policy layer.

Illustrative Calculations. The following examples illustrate the operation of the contingency enhancement at various recovery levels:

These illustrations are provided for clarity of understanding only and are not intended to represent predictions or guarantees regarding the likely recovery in this matter.

Relationship to Hourly Fees. The contingency enhancement is payable in addition to all hourly fees billed and paid (or owed) under the Original Engagement Letter and all expenses advanced by the Firm and billed to VHG at cost. The hourly fee arrangement continues to apply without modification, and VHG remains obligated to pay all monthly invoices in accordance with the existing billing and payment terms throughout the pendency of the engagement, regardless of whether the contingency enhancement ultimately becomes payable.

Payment Terms. The contingency enhancement, if earned, is due and payable within thirty (30) days of VHG's actual receipt of the recovery proceeds giving rise to the enhancement. In the event that recovery is received in installments (as may occur in structured settlements), the enhancement shall be calculated on the cumulative net recovery and payable as the cumulative threshold is exceeded, with adjustments as appropriate to ensure that the total enhancement paid equals five percent of the total net recovery above $30,000,000.

C. Client Consent and Documentation

This revised fee arrangement was discussed with and expressly approved by Nathaniel Driscoll, General Counsel of VHG, with the concurrence of Marcus Ellsworth, Chief Executive Officer, and Diane Calder, Chief Financial Officer of VHG. Mr. Driscoll confirmed VHG's agreement to the contingency enhancement terms during a telephone conference with the undersigned on January 6, 2023, and reiterated that approval in a follow-up email exchange on January 9, 2023.

To formalize this arrangement, a supplemental engagement letter or formal amendment to the Original Engagement Letter dated August 30, 2022 (the "Amendment") will be prepared by the Firm and circulated to Mr. Driscoll for review and countersignature. A draft of the Amendment is referenced as Attachment A to this memorandum and will be circulated under separate cover. The Amendment will reference Engagement Number 1021-00003, set forth the contingency enhancement terms substantially as described in Section III.B above, and expressly incorporate all other terms and conditions of the Original Engagement Letter by reference. Upon execution, the Amendment will be maintained in the engagement file alongside the Original Engagement Letter.

It is the responsibility of the Billing Partner to ensure that the Amendment is circulated promptly, executed, and filed, and that the Firm's billing and finance systems are updated to reflect the contingency enhancement arrangement.

IV. UPDATED STAFFING PLAN FOR LITIGATION PHASE

A. Current Team Composition

The engagement team remains as constituted at the outset of the engagement in August 2022. The members of the team and their respective roles are as follows:

Elaine Forsythe — Responsible Partner. Ms. Forsythe will maintain overall strategic direction of the engagement and serve as the primary relationship contact for Nathaniel Driscoll and VHG's senior management team. Ms. Forsythe will be responsible for major strategic decisions, including litigation strategy, settlement posture, and trial presentation. She will review all significant pleadings, briefs, and correspondence before filing or transmission. Ms. Forsythe's primary practice is the Firm's Antitrust & Competition group; however, she has been cross-staffed to insurance-recovery matters and brings substantial experience in complex commercial litigation, having managed multiple eight- and nine-figure disputes over her career. Her familiarity with VHG's business operations and the Client's management team makes her well-suited to continue in the responsible partner role as the matter escalates.

Howard Bellamy — Billing Partner. The undersigned will continue to handle all billing, fee arrangement administration, and financial aspects of the engagement, including the preparation and review of monthly invoices, management of the expense budget, monitoring compliance with the fee arrangement terms, and coordination with the Firm's Finance Department on the contingency enhancement tracking. Mr. Bellamy will also serve as a secondary point of contact for the Client on fee-related matters and will assist with overall case management as needed. Like Ms. Forsythe, Mr. Bellamy's primary practice area is Antitrust & Competition, and he brings experience in managing the financial dimensions of complex, high-value commercial litigation.

Tiffany Rosenthal — Lead Associate. Ms. Rosenthal, who is seconded from the Firm's Mergers & Acquisitions practice for purposes of this engagement, will serve as the day-to-day litigation lead. She will be responsible for drafting the complaint and all subsequent pleadings, managing the discovery process (both propounding and responding to written discovery, and coordinating the deposition schedule), coordinating with retained expert witnesses, preparing motions for filing, and serving as the primary draftsperson for all substantive litigation filings. Ms. Rosenthal has demonstrated excellent analytical and drafting skills during the pre-litigation phase and has developed a thorough understanding of the policy language, the factual record, and the coverage issues in dispute. She will also serve as the primary day-to-day contact for opposing counsel on discovery and scheduling matters.

Andrew Fitzpatrick — Working Associate. Mr. Fitzpatrick, also seconded from the Mergers & Acquisitions practice, will handle legal research, document review and management, preparation of discovery responses, privilege log maintenance, and will assist Ms. Rosenthal with deposition preparation, motion practice, and trial preparation as the case progresses. Mr. Fitzpatrick's work during the pre-litigation phase — particularly his detailed analysis of the policy tower and his research memoranda on Florida insurance-coverage law — has been of high quality, and he is well-positioned to take on expanded responsibilities during the litigation phase.

B. Projected Staffing Needs for Litigation Phase

The transition to active litigation will result in a significant increase in the volume of professional hours dedicated to this matter. The litigation phase is expected to commence with the filing of the complaint in March 2023, with a target filing date of March 1, 2023. Based on the Firm's experience in comparable insurance-recovery disputes of this magnitude and complexity, the following phased projections of approximate hour allocations have been developed:

Complaint Drafting and Filing (February–March 2023): Approximately 200 hours. This phase encompasses the preparation, revision, and finalization of the multi-count complaint naming all four insurers as defendants; the assembly and verification of supporting exhibits; preparation of summonses and service packages; and coordination with VHG and its broker, Tidewater Risk Advisors, on factual verification. The bulk of the hours in this phase will be performed by Ms. Rosenthal and Mr. Fitzpatrick, with Ms. Forsythe providing substantive review and strategic input on the complaint's structure and legal theories.

Initial Motion Practice / Opposition to Anticipated Motions to Dismiss (March–May 2023): Approximately 150 hours. Based on the defense teams' likely litigation strategy (see Section VI below), the Firm anticipates that one or more of the defendant insurers will file motions to dismiss or other threshold challenges. This phase includes the preparation of oppositions to such motions, any related briefing, oral argument preparation, and potential supplemental briefing requested by the Court.

Fact discovery (June–September 2023): Approximately 1,200 hours. This will be the most labor-intensive phase of the litigation. It encompasses the preparation and service of interrogatories and requests for production to all defendants; the review and analysis of documents produced by the insurers (anticipated to be voluminous, including underwriting files, claims files, reinsurance correspondence, and loss adjuster reports); the preparation of VHG's own discovery responses and document productions (coordinating with VHG's in-house team and the broker); and the preparation for and attendance at up to eight to ten (8–10) fact depositions of key witnesses, including insurer claims handlers, underwriters, adjusters, and VHG personnel. The Firm anticipates that both Ms. Rosenthal and Mr. Fitzpatrick will be substantially dedicated to this engagement during the peak discovery months.

Expert Engagement and Report Review (April–October 2023): Approximately 400 hours. This phase overlaps with fact discovery and involves the retention, coordination, and management of VHG's testifying expert witnesses. The Firm has identified and begun preliminary discussions with two expert firms:

• Meridian Forensic Economics LLC — Dr. Helen Vasquez will serve as VHG's damages expert, providing analysis and testimony on the quantum of business-interruption losses at each of the three properties. Dr. Vasquez's billing rate is $625.00 per hour, with supporting analysts billing at $375.00 per hour.

• Caldwell Engineering Associates Inc. — Jeffrey Caldwell, P.E., will serve as VHG's forensic engineering and cause-of-loss expert, providing opinions on the nature and extent of physical damage attributable to Hurricane Callista and the causal relationship between the storm damage and the claimed business-interruption losses. Mr. Caldwell's engagement terms are to be confirmed.

This phase includes attorney time spent coordinating with experts, reviewing and commenting on draft expert reports, preparing experts for deposition, and reviewing opposing experts' reports and preparing for cross-examination.

Motions Practice / Summary Judgment (October–November 2023): Approximately 400 hours. This phase encompasses the preparation and filing of motions for summary judgment (full or partial) on VHG's claims, as well as opposition to any summary judgment motions filed by the defendants. Given the multiple coverage defenses anticipated (see Section VI), this phase may involve extensive briefing on questions of policy interpretation, the windstorm sub-limit dispute, and the concurrent causation issues at Grand Key Resort.

Mediation / Settlement Negotiations (November–December 2023, if applicable): Approximately 200 hours. Florida courts routinely order mediation in commercial insurance disputes, and the Firm anticipates that the Court will order the parties to mediation before trial. This phase includes the preparation of a mediation statement, pre-mediation strategy sessions with VHG's management, attendance at one or more full-day mediation sessions, and post-mediation follow-up negotiations. Even if the matter is not formally ordered to mediation, the parties may elect to engage in voluntary settlement discussions, which would similarly require substantial attorney time for preparation and participation.

Trial Preparation and Trial (if necessary): Approximately 800+ hours. In the event the matter does not resolve through settlement, mediation, or dispositive motions, the Firm anticipates that trial preparation and trial itself will require a minimum of 800 hours, and potentially significantly more depending on the scope of the trial (e.g., whether it involves all four defendant insurers or a subset) and the number of witnesses. Trial preparation includes the preparation of witness outlines, exhibit binders, demonstratives, pre-trial motions in limine, jury instructions (if applicable), and deposition designations.

Total Estimated Hours. Based on the foregoing projections, the total estimated hours for the full litigation lifecycle are approximately 3,000 to 3,500 hours. This estimate is subject to significant variation depending on the trajectory of the case, the pace and intensity of discovery, the extent of motion practice, settlement prospects, and whether the matter ultimately proceeds to trial. These projections will be revisited and updated periodically as the litigation progresses, and any material changes will be communicated to VHG.

At the blended rate of $785.00 per hour, the estimated fee range for the litigation phase is approximately $2,355,000 to $2,747,500, exclusive of expenses and exclusive of any contingency enhancement that may become payable.

C. Consideration of Additional Staffing

If the case proceeds to trial, the engagement team may need to be supplemented with one additional associate or a contract attorney to assist with document review, trial preparation support, and trial logistics. Any such staffing additions will be discussed with VHG in advance, including the applicable billing rate for the additional personnel, and will be documented by a further memorandum or amendment to the engagement letter. The Firm will endeavor to identify candidates with relevant insurance-litigation or complex commercial litigation experience to ensure efficient integration into the team.

In addition, depending on the volume of document production received during fact discovery, the Firm may recommend the engagement of a contract document review team for first-pass review, which would be billed at rates significantly below the engagement team's blended rate. Any such arrangement would be presented to VHG for approval before implementation.

V. EXPENSE BUDGET PROJECTIONS

In addition to the professional fee projections set forth in Section IV above, the Firm has developed the following preliminary expense budget for the litigation phase. All expenses will be advanced by the Firm and billed to VHG at cost, consistent with the terms of the Original Engagement Letter.

Expert Fees: $200,000–$300,000+. Expert witness costs are expected to constitute the single largest expense category. Dr. Helen Vasquez of Meridian Forensic Economics LLC, billing at $625.00 per hour with supporting analysts at $375.00 per hour, will require substantial engagement to analyze and quantify business-interruption losses across three properties, prepare a detailed expert report, and provide deposition and trial testimony. Jeffrey Caldwell, P.E. of Caldwell Engineering Associates Inc., the forensic engineering and cause-of-loss expert, will similarly require significant time for site inspections, analysis, report preparation, and testimony. The combined expert costs may exceed $300,000 depending on the complexity of the damages analysis and the extent to which the defendants challenge VHG's loss quantification.

Deposition Costs: $50,000–$75,000. Court reporter fees and transcript costs for up to eight to ten (8–10) fact depositions and two to four (2–4) expert depositions. This estimate includes original transcript fees, expedited delivery charges where necessary, videography costs for key depositions, and the cost of certified copies.

Court Filing Fees and Service Costs: $5,000–$10,000. This category includes the initial filing fee for the complaint in the Eleventh Judicial Circuit of Florida, service of process on all four defendants (including any necessary service through agents for service of process or registered agents), and subsequent filing fees for motions and other pleadings.

Mediation Fees: Approximately $15,000 per day. If the matter proceeds to mediation — which is common and often court-ordered in Florida insurance-coverage disputes — mediator fees for a retired judge mediator are estimated at approximately $15,000 per full day of mediation. A complex, multi-party insurance dispute of this magnitude may require two or more days of mediation, resulting in total mediation costs of $30,000 or more. Additionally, mediation facility and administrative costs may apply.

Travel: $20,000–$30,000. Although the Firm's Miami office at 333 SE 2nd Avenue, Suite 4400, Miami, Florida 33131, is located in the same jurisdiction as the forum court, travel will be necessary for depositions conducted at opposing counsel's offices (including potential travel to Hartford, Connecticut and New York, New York for depositions of insurer personnel), site inspections at the three affected properties (Key West, Miami Beach, and Naples), and meetings with expert witnesses. Travel costs include airfare, ground transportation, lodging, and meals in accordance with the Firm's standard travel expense policies.

Miscellaneous: $10,000–$15,000. This category includes document hosting platform fees (for discovery document management and review), large-format copying and printing costs, courier and delivery services, legal research database charges allocable to the engagement, and other incidental expenses.

Total Estimated Expenses. Based on the foregoing, the total estimated expenses through resolution of the matter are approximately $350,000 to $450,000. As with the hour projections, this estimate is subject to significant variation based on case trajectory, the volume and complexity of discovery, whether trial is necessary, and other factors. The Firm will provide VHG with updated expense projections on a quarterly basis and will seek advance approval from VHG before incurring any single expense item in excess of $25,000.

VI. DEFENDANTS' COUNSEL AND LITIGATION LANDSCAPE

In anticipation of the filing of litigation, the Firm has identified the defense counsel retained by the defendant insurers and has assessed the likely defense strategies, which will inform the Firm's litigation planning and resource allocation.

Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc. are represented jointly by Fendowell Rourke & Stanton LLP, with offices in Hartford, Connecticut and Tampa, Florida. The defense team is led by Partner Gregory Stanton, a well-known insurance-defense practitioner with extensive experience in first-party property coverage disputes. Mr. Stanton is supported by Senior Associate Meredith Liang and Junior Associate Colin Ashford. The Firm anticipates that the Fendowell Rourke team will mount a vigorous and well-resourced defense on behalf of both the primary and first excess carriers.

Montclair Assurance Company and Sovereign Re Ltd. are represented jointly by Delvecchio & Kraus LLP, based in New York, New York. The defense team is led by Partner Patricia Kraus, who has a national reputation in excess-layer and reinsurance coverage disputes. Ms. Kraus is assisted by Senior Associate Raymond Cho. While the excess carriers' liability is contingent on exhaustion of the lower layers, the Firm expects Delvecchio & Kraus to participate actively in the litigation from the outset, particularly given the policy limit implications and the potential for direct-action theories under Florida law.

Anticipated Defense Strategies. Based on the positions articulated by the insurers during the pre-suit phase and the formal coverage denial from Ironclad, the Firm anticipates vigorous defense on multiple coverage grounds, including the following:

1. Windstorm Sub-Limit. The insurers are expected to assert that the policies are subject to a $15,000,000 windstorm sub-limit, which would cap VHG's recovery for wind-related losses. VHG contends that this sub-limit was deleted at the July 2022 policy renewal pursuant to broker negotiations conducted by VHG's broker, Tidewater Risk Advisors, and that the policies as issued reflect the removal of the sub-limit. This is anticipated to be a central factual and contractual dispute, requiring detailed discovery into the placement process, broker communications, and the underwriting file.

2. Flood Exclusion / Concurrent Causation at Grand Key Resort. The insurers are expected to invoke the flood exclusion with respect to the Grand Key Resort losses ($31.4 million), arguing that a significant portion of the damage at that property was caused by storm surge and flooding rather than covered windstorm perils. Under the concurrent causation doctrine as applied in Florida, this defense raises complex questions regarding the apportionment of losses between covered and excluded perils. The forensic engineering analysis from Jeffrey Caldwell, P.E. will be critical to rebutting this defense.

3. Period of Restoration Disputes. The insurers are expected to challenge VHG's claimed period of restoration — the period during which business-interruption coverage applies — arguing that VHG's properties could have been restored to operational status more quickly than VHG contends. This defense will require detailed factual development regarding the actual restoration timeline, construction contractor availability, permitting delays, and comparable restoration timelines for similar properties in the affected area.

4. Failure to Mitigate. The insurers may assert that VHG failed to take reasonable steps to mitigate its business-interruption losses, such as by arranging temporary alternative facilities, implementing accelerated repair schedules, or redirecting bookings to unaffected properties. The Firm is prepared to demonstrate through documentary and testimonial evidence that VHG's mitigation efforts were reasonable and consistent with industry standards.

Forum and Governing Law. The complaint will be filed in the Eleventh Judicial Circuit of Florida, Miami-Dade County, which applies Florida substantive law to insurance-coverage disputes. Florida is generally regarded as a favorable jurisdiction for policyholders on many coverage issues, including the application of liberal notice-prejudice rules, the availability of statutory bad-faith remedies under Florida Statutes § 624.155, and well-developed precedent favoring broad construction of business-interruption coverage and narrow construction of policy exclusions. The Firm will assess the viability of statutory bad-faith and extra-contractual claims as the litigation develops.

VII. CLIENT COMMUNICATION AND APPROVAL PROCESS

A copy of this memorandum will be shared with Nathaniel Driscoll, General Counsel of VHG, for his records and for the records of VHG's legal department. This memorandum is intended to serve as an internal Firm document memorializing the revised fee arrangement and updated staffing plan, and is designated as Privileged and Confidential, Attorney-Client Communication, and Attorney Work Product. Sharing this memorandum with the Client does not waive any privilege protections, as VHG is the holder of the attorney-client privilege with respect to communications regarding this engagement.

The formal Amendment to the Original Engagement Letter incorporating the contingency enhancement terms described in Section III above will be prepared and circulated to Mr. Driscoll separately for review and execution. Upon execution, the Amendment will be filed in the engagement records alongside the Original Engagement Letter and this memorandum.

Monthly billing will continue to be prepared and transmitted to VHG's General Counsel's office in accordance with the existing billing schedule and payment terms. Invoices will reflect hours billed at the blended rate of $785.00 per hour and all expenses advanced at cost. The contingency enhancement, if and when earned, will be invoiced separately upon resolution of the matter and receipt of recovery proceeds by VHG, as set forth in Section III.B above.

The Firm will provide VHG with quarterly budget updates and will promptly communicate any material developments that may affect the fee or expense projections set forth in this memorandum. Significant litigation strategy decisions — including but not limited to settlement authority, mediation strategy, and decisions regarding trial — will be made in consultation with Mr. Driscoll and, as appropriate, VHG's senior management.

VIII. CONCLUSION

In summary, the key terms of the revised fee arrangement and updated staffing plan are as follows:

• The blended hourly rate of $785.00 per hour established by the Original Engagement Letter dated August 30, 2022 remains unchanged and continues to apply to all professional services rendered by the engagement team.

• A contingency enhancement of 5% of net recovery above $30,000,000 has been agreed upon with VHG and will be formalized by a supplemental Amendment to the Original Engagement Letter. The enhancement is payable in addition to all hourly fees and expenses, and is triggered only upon a recovery exceeding $30,000,000.

• The engagement is governed by Engagement Number 1021-00003.

• The staffing team remains as currently constituted — Elaine Forsythe (Responsible Partner), Howard Bellamy (Billing Partner), Tiffany Rosenthal (Lead Associate), and Andrew Fitzpatrick (Working Associate) — with the potential for additional associate or contract attorney support during trial preparation if the matter does not resolve earlier.

• The total estimated professional fees for the litigation phase are approximately $2,355,000 to $2,747,500 (based on 3,000–3,500 estimated hours at the blended rate), with estimated expenses of approximately $350,000 to $450,000.

I respectfully request that Elaine Forsythe confirm her agreement with the terms set forth in this memorandum and authorize the circulation of the supplemental engagement letter Amendment (Attachment A) to Nathaniel Driscoll at VHG for execution. Upon Elaine's authorization, I will finalize the Amendment and transmit it to Mr. Driscoll with an accompanying cover letter.

CALDERWOOD & HARKNESS LLP

By: ________

Howard Bellamy Partner

Date: January 10, 2023

ACKNOWLEDGED AND AGREED:

________________________________________

Elaine Forsythe Responsible Partner, Calderwood & Harkness LLP

Date: ________

Attachment A: Draft Amendment to Engagement Letter — Engagement No. 1021-00003 (Verimark Hospitality Group Inc.) — To be circulated under separate cover.

Layer	Insurer	Limits	Attachment
Primary	Ironclad Indemnity Corporation	$25,000,000	$500,000 deductible
First Excess	Pinnacle Surplus Lines Inc.	$15,000,000 xs $25,000,000
Second Excess	Montclair Assurance Company	$10,000,000 xs $40,000,000
Third Excess	Sovereign Re Ltd.	$10,000,000 xs $50,000,000
Timekeeper	Role	Standard Rate
Elaine Forsythe	Responsible Partner	$1,150.00/hr
Howard Bellamy	Billing Partner	$1,100.00/hr
Tiffany Rosenthal	Lead Associate	$625.00/hr
Andrew Fitzpatrick	Working Associate	$475.00/hr
Scenario	Total Net Recovery	Amount Above $30M	Enhancement (5%)
Full policy limits	$60,000,000	$30,000,000	$1,500,000
Partial recovery (high)	$45,000,000	$15,000,000	$750,000
Threshold recovery	$30,000,000	$0	$0
Below threshold	$20,000,000	$0	$0

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131
INTERNAL MEMORANDUM
DATE: January 10, 2023
FROM: Howard Bellamy, Billing Partner, Calderwood & Harkness LLP
TO: Elaine Forsythe, Responsible Partner, Calderwood & Harkness LLP
CC: Tiffany Rosenthal, Lead Associate; Andrew Fitzpatrick, Working Associate; Firm Accounting / Finance Department
RE: Revised Fee Arrangement and Staffing Plan — Verimark Hospitality Group Inc. Insurance-Coverage Dispute
ENGAGEMENT NO.: 1021-00003
CLIENT: Verimark Hospitality Group Inc. (Nasdaq: VMRK)
CLIENT CONTACT: Nathaniel Driscoll, General Counsel
I. PURPOSE AND BACKGROUND
The purpose of this memorandum is to memorialize the revisions to the fee arrangement agreed upon between Calderwood & Harkness LLP (the "Firm") and Verimark Hospitality Group Inc. ("VHG" or the "Client"), and to update the staffing expectations and expense projections in connection with the anticipated transition from the pre-litigation and coverage-analysis phase of this engagement to active litigation against VHG's insurers.
As background, this engagement was opened on August 30, 2022, pursuant to an original engagement letter of even date (the "Original Engagement Letter"), executed between the Firm and VHG and addressed to Nathaniel Driscoll, General Counsel, Verimark Hospitality Group Inc., at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. The Original Engagement Letter established the scope and terms of the Firm's representation of VHG in connection with the insurance-coverage dispute arising from property damage and business-interruption losses sustained at three of VHG's Florida resort properties as a consequence of Hurricane Callista, which made landfall in southern Florida in late July 2022.
The three affected properties, each owned and operated by VHG subsidiaries, are as follows:
•  Grand Key Resort — Located in Key West, Florida. Total claimed business-interruption losses: $31,400,000.
•  Harborview Hotel & Conference Center — Located in Miami Beach, Florida. Total claimed business-interruption losses: $18,700,000.
•  Sunset Shores — Located in Naples, Florida. Total claimed business-interruption losses: $9,900,000.
VHG's total claimed business-interruption losses across the three properties amount to approximately $60,000,000. These losses are the subject of claims submitted under VHG's commercial property and business-interruption insurance program, which is structured as a layered tower with total aggregate limits of $60,000,000 above a $500,000 per-occurrence deductible, as follows:
At the time the engagement was opened, the Original Engagement Letter contemplated three principal phases of work: (i) pre-suit coverage analysis and policy interpretation; (ii) insurer negotiations and pre-suit demand; and (iii) potential litigation, if necessary. Over the ensuing four-and-a-half months, the Firm has completed its coverage analysis, submitted detailed proof-of-loss documentation to each insurer, and engaged in extensive pre-suit negotiations and formal demand correspondence.
Those efforts have not resulted in a satisfactory coverage determination. To the contrary, Ironclad Indemnity Corporation — the primary layer carrier and de facto lead insurer — has communicated through counsel its intention to formally deny coverage. That formal denial is anticipated to be issued on or about February 3, 2023, and was in fact issued on that date. The denial is premised on multiple coverage defenses, including the application of a windstorm sub-limit, the flood exclusion as applied to the Grand Key Resort losses, period-of-restoration disputes, and allegations of failure to mitigate. Pre-suit demand efforts directed to the excess carriers have likewise failed to produce any meaningful coverage commitments.
As a result, the matter has now progressed to the point where the filing of litigation is imminent. The Firm anticipates filing a multi-count complaint in the Eleventh Judicial Circuit of Florida, Miami-Dade County, naming all four insurers as defendants, with a target filing date of March 1, 2023. In light of this transition to active litigation — and the corresponding increase in the scope, intensity, and risk profile of the engagement — it is appropriate and necessary to formalize the revised fee arrangement and update the staffing and budgeting framework for the litigation phase.
II. SUMMARY OF ORIGINAL FEE ARRANGEMENT
For reference and as a baseline against which the revised arrangement should be understood, the terms of the Original Engagement Letter dated August 30, 2022 are summarized below.
The Original Engagement Letter established a blended hourly rate structure for the engagement team. The blended rate applicable to all timekeepers on the engagement was set at $785.00 per hour. The individual standard billing rates for each member of the engagement team, which informed the blended rate, are as follows:
The blended rate of $785.00 per hour was negotiated with VHG in recognition of the anticipated mix of partner and associate time across the engagement, and was designed to provide VHG with cost predictability while maintaining appropriate compensation for the Firm's work. The blended rate applies uniformly to all hours billed by any member of the engagement team, regardless of the billing individual's standard rate.
Billing is conducted on a monthly cycle. Invoices are prepared and transmitted to VHG's General Counsel's office on or about the fifteenth (15th) day of the month following the month in which services are rendered. Payment is due within thirty (30) days of the date of each invoice.
Expenses incurred in connection with the engagement — including but not limited to court filing fees, service of process costs, deposition transcript fees, expert witness fees and costs, travel expenses, document hosting and production costs, copying and courier charges, and other out-of-pocket disbursements — are advanced by the Firm and billed to VHG at cost. Expense reimbursement is invoiced alongside the monthly fee statements and is subject to the same thirty-day payment terms.
The Original Engagement Letter was addressed and delivered to Nathaniel Driscoll, General Counsel, Verimark Hospitality Group Inc., at the Client's principal offices located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129, and was executed on behalf of VHG by Mr. Driscoll.
All terms of the Original Engagement Letter not expressly modified by the revised arrangement described herein remain in full force and effect.
III. REVISED FEE ARRANGEMENT — CONTINGENCY ENHANCEMENT
A. Rationale for Contingency Enhancement
During discussions conducted in late December 2022 and early January 2023, VHG's General Counsel, Nathaniel Driscoll, and its Vice President of Risk Management, Sandra Pellegrini, requested that the fee arrangement be revised to include a success-based component. The expressed rationale for this request was to better align Calderwood & Harkness's economic incentives with VHG's recovery outcome, particularly as the matter transitions from the advisory and negotiation phase — where the fee structure primarily compensates for professional time — to the litigation phase, where the Firm's efforts will be directly focused on maximizing VHG's monetary recovery from its insurers.
Following arm's-length discussions between Mr. Driscoll and the undersigned, with input from Ms. Forsythe, the Firm and VHG have agreed to supplement the existing hourly fee arrangement with a contingency enhancement tied to the aggregate recovery achieved in the matter. It is important to emphasize that the existing blended hourly rate structure remains in place and is unchanged. The contingency enhancement is an additional fee component layered on top of the hourly arrangement; it does not replace, reduce, or otherwise modify the hourly fee structure or the Firm's entitlement to compensation for professional services rendered on an hourly basis.
The Firm believes that this hybrid structure — combining an ongoing hourly component with a results-based enhancement — appropriately aligns the interests of the Firm and the Client, provides the Client with meaningful downside protection (in that the enhancement is payable only upon a recovery exceeding a substantial threshold), and compensates the Firm for the increased risk and resource commitment associated with the litigation phase.
B. Terms of the Contingency Enhancement
The terms of the contingency enhancement, as agreed between the Firm and VHG, are as follows:
Enhancement Rate. The contingency enhancement rate is five percent (5%) of the net recovery to VHG in excess of $30,000,000.
Trigger. The contingency enhancement becomes payable upon the resolution of the matter — whether by settlement, judgment after trial or on motion, appellate resolution, or other final disposition — if, and only if, the aggregate net recovery to VHG exceeds Thirty Million Dollars ($30,000,000). If the aggregate net recovery is $30,000,000 or less, the enhancement is zero, and no additional fee beyond the hourly fees and expenses is payable.
Definition of "Net Recovery." For purposes of computing the contingency enhancement, "net recovery" means the total amount recovered by or on behalf of VHG from any or all of the four defendant insurers — Ironclad Indemnity Corporation, Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd. — whether by settlement, consent judgment, judgment after trial, arbitration award, or other means, net of any amounts required to be returned, refunded, or offset pursuant to court order, settlement agreement, or otherwise, but before deduction of attorneys' fees and litigation expenses. For the avoidance of doubt, pre-judgment or post-judgment interest awarded to VHG shall be included in the calculation of net recovery. The contingency enhancement is calculated on the aggregate recovery across all defendants and all layers; it is not calculated separately for each insurer or policy layer.
Illustrative Calculations. The following examples illustrate the operation of the contingency enhancement at various recovery levels:
These illustrations are provided for clarity of understanding only and are not intended to represent predictions or guarantees regarding the likely recovery in this matter.
Relationship to Hourly Fees. The contingency enhancement is payable in addition to all hourly fees billed and paid (or owed) under the Original Engagement Letter and all expenses advanced by the Firm and billed to VHG at cost. The hourly fee arrangement continues to apply without modification, and VHG remains obligated to pay all monthly invoices in accordance with the existing billing and payment terms throughout the pendency of the engagement, regardless of whether the contingency enhancement ultimately becomes payable.
Payment Terms. The contingency enhancement, if earned, is due and payable within thirty (30) days of VHG's actual receipt of the recovery proceeds giving rise to the enhancement. In the event that recovery is received in installments (as may occur in structured settlements), the enhancement shall be calculated on the cumulative net recovery and payable as the cumulative threshold is exceeded, with adjustments as appropriate to ensure that the total enhancement paid equals five percent of the total net recovery above $30,000,000.
C. Client Consent and Documentation
This revised fee arrangement was discussed with and expressly approved by Nathaniel Driscoll, General Counsel of VHG, with the concurrence of Marcus Ellsworth, Chief Executive Officer, and Diane Calder, Chief Financial Officer of VHG. Mr. Driscoll confirmed VHG's agreement to the contingency enhancement terms during a telephone conference with the undersigned on January 6, 2023, and reiterated that approval in a follow-up email exchange on January 9, 2023.
To formalize this arrangement, a supplemental engagement letter or formal amendment to the Original Engagement Letter dated August 30, 2022 (the "Amendment") will be prepared by the Firm and circulated to Mr. Driscoll for review and countersignature. A draft of the Amendment is referenced as Attachment A to this memorandum and will be circulated under separate cover. The Amendment will reference Engagement Number 1021-00003, set forth the contingency enhancement terms substantially as described in Section III.B above, and expressly incorporate all other terms and conditions of the Original Engagement Letter by reference. Upon execution, the Amendment will be maintained in the engagement file alongside the Original Engagement Letter.
It is the responsibility of the Billing Partner to ensure that the Amendment is circulated promptly, executed, and filed, and that the Firm's billing and finance systems are updated to reflect the contingency enhancement arrangement.
IV. UPDATED STAFFING PLAN FOR LITIGATION PHASE
A. Current Team Composition
The engagement team remains as constituted at the outset of the engagement in August 2022. The members of the team and their respective roles are as follows:
Elaine Forsythe — Responsible Partner. Ms. Forsythe will maintain overall strategic direction of the engagement and serve as the primary relationship contact for Nathaniel Driscoll and VHG's senior management team. Ms. Forsythe will be responsible for major strategic decisions, including litigation strategy, settlement posture, and trial presentation. She will review all significant pleadings, briefs, and correspondence before filing or transmission. Ms. Forsythe's primary practice is the Firm's Antitrust & Competition group; however, she has been cross-staffed to insurance-recovery matters and brings substantial experience in complex commercial litigation, having managed multiple eight- and nine-figure disputes over her career. Her familiarity with VHG's business operations and the Client's management team makes her well-suited to continue in the responsible partner role as the matter escalates.
Howard Bellamy — Billing Partner. The undersigned will continue to handle all billing, fee arrangement administration, and financial aspects of the engagement, including the preparation and review of monthly invoices, management of the expense budget, monitoring compliance with the fee arrangement terms, and coordination with the Firm's Finance Department on the contingency enhancement tracking. Mr. Bellamy will also serve as a secondary point of contact for the Client on fee-related matters and will assist with overall case management as needed. Like Ms. Forsythe, Mr. Bellamy's primary practice area is Antitrust & Competition, and he brings experience in managing the financial dimensions of complex, high-value commercial litigation.
Tiffany Rosenthal — Lead Associate. Ms. Rosenthal, who is seconded from the Firm's Mergers & Acquisitions practice for purposes of this engagement, will serve as the day-to-day litigation lead. She will be responsible for drafting the complaint and all subsequent pleadings, managing the discovery process (both propounding and responding to written discovery, and coordinating the deposition schedule), coordinating with retained expert witnesses, preparing motions for filing, and serving as the primary draftsperson for all substantive litigation filings. Ms. Rosenthal has demonstrated excellent analytical and drafting skills during the pre-litigation phase and has developed a thorough understanding of the policy language, the factual record, and the coverage issues in dispute. She will also serve as the primary day-to-day contact for opposing counsel on discovery and scheduling matters.
Andrew Fitzpatrick — Working Associate. Mr. Fitzpatrick, also seconded from the Mergers & Acquisitions practice, will handle legal research, document review and management, preparation of discovery responses, privilege log maintenance, and will assist Ms. Rosenthal with deposition preparation, motion practice, and trial preparation as the case progresses. Mr. Fitzpatrick's work during the pre-litigation phase — particularly his detailed analysis of the policy tower and his research memoranda on Florida insurance-coverage law — has been of high quality, and he is well-positioned to take on expanded responsibilities during the litigation phase.
B. Projected Staffing Needs for Litigation Phase
The transition to active litigation will result in a significant increase in the volume of professional hours dedicated to this matter. The litigation phase is expected to commence with the filing of the complaint in March 2023, with a target filing date of March 1, 2023. Based on the Firm's experience in comparable insurance-recovery disputes of this magnitude and complexity, the following phased projections of approximate hour allocations have been developed:
Complaint Drafting and Filing (February–March 2023): Approximately 200 hours. This phase encompasses the preparation, revision, and finalization of the multi-count complaint naming all four insurers as defendants; the assembly and verification of supporting exhibits; preparation of summonses and service packages; and coordination with VHG and its broker, Tidewater Risk Advisors, on factual verification. The bulk of the hours in this phase will be performed by Ms. Rosenthal and Mr. Fitzpatrick, with Ms. Forsythe providing substantive review and strategic input on the complaint's structure and legal theories.
Initial Motion Practice / Opposition to Anticipated Motions to Dismiss (March–May 2023): Approximately 150 hours. Based on the defense teams' likely litigation strategy (see Section VI below), the Firm anticipates that one or more of the defendant insurers will file motions to dismiss or other threshold challenges. This phase includes the preparation of oppositions to such motions, any related briefing, oral argument preparation, and potential supplemental briefing requested by the Court.
Fact discovery (June–September 2023): Approximately 1,200 hours. This will be the most labor-intensive phase of the litigation. It encompasses the preparation and service of interrogatories and requests for production to all defendants; the review and analysis of documents produced by the insurers (anticipated to be voluminous, including underwriting files, claims files, reinsurance correspondence, and loss adjuster reports); the preparation of VHG's own discovery responses and document productions (coordinating with VHG's in-house team and the broker); and the preparation for and attendance at up to eight to ten (8–10) fact depositions of key witnesses, including insurer claims handlers, underwriters, adjusters, and VHG personnel. The Firm anticipates that both Ms. Rosenthal and Mr. Fitzpatrick will be substantially dedicated to this engagement during the peak discovery months.
Expert Engagement and Report Review (April–October 2023): Approximately 400 hours. This phase overlaps with fact discovery and involves the retention, coordination, and management of VHG's testifying expert witnesses. The Firm has identified and begun preliminary discussions with two expert firms:
•  Meridian Forensic Economics LLC — Dr. Helen Vasquez will serve as VHG's damages expert, providing analysis and testimony on the quantum of business-interruption losses at each of the three properties. Dr. Vasquez's billing rate is $625.00 per hour, with supporting analysts billing at $375.00 per hour.
•  Caldwell Engineering Associates Inc. — Jeffrey Caldwell, P.E., will serve as VHG's forensic engineering and cause-of-loss expert, providing opinions on the nature and extent of physical damage attributable to Hurricane Callista and the causal relationship between the storm damage and the claimed business-interruption losses. Mr. Caldwell's engagement terms are to be confirmed.
This phase includes attorney time spent coordinating with experts, reviewing and commenting on draft expert reports, preparing experts for deposition, and reviewing opposing experts' reports and preparing for cross-examination.
Motions Practice / Summary Judgment (October–November 2023): Approximately 400 hours. This phase encompasses the preparation and filing of motions for summary judgment (full or partial) on VHG's claims, as well as opposition to any summary judgment motions filed by the defendants. Given the multiple coverage defenses anticipated (see Section VI), this phase may involve extensive briefing on questions of policy interpretation, the windstorm sub-limit dispute, and the concurrent causation issues at Grand Key Resort.
Mediation / Settlement Negotiations (November–December 2023, if applicable): Approximately 200 hours. Florida courts routinely order mediation in commercial insurance disputes, and the Firm anticipates that the Court will order the parties to mediation before trial. This phase includes the preparation of a mediation statement, pre-mediation strategy sessions with VHG's management, attendance at one or more full-day mediation sessions, and post-mediation follow-up negotiations. Even if the matter is not formally ordered to mediation, the parties may elect to engage in voluntary settlement discussions, which would similarly require substantial attorney time for preparation and participation.
Trial Preparation and Trial (if necessary): Approximately 800+ hours. In the event the matter does not resolve through settlement, mediation, or dispositive motions, the Firm anticipates that trial preparation and trial itself will require a minimum of 800 hours, and potentially significantly more depending on the scope of the trial (e.g., whether it involves all four defendant insurers or a subset) and the number of witnesses. Trial preparation includes the preparation of witness outlines, exhibit binders, demonstratives, pre-trial motions in limine, jury instructions (if applicable), and deposition designations.
Total Estimated Hours. Based on the foregoing projections, the total estimated hours for the full litigation lifecycle are approximately 3,000 to 3,500 hours. This estimate is subject to significant variation depending on the trajectory of the case, the pace and intensity of discovery, the extent of motion practice, settlement prospects, and whether the matter ultimately proceeds to trial. These projections will be revisited and updated periodically as the litigation progresses, and any material changes will be communicated to VHG.
At the blended rate of $785.00 per hour, the estimated fee range for the litigation phase is approximately $2,355,000 to $2,747,500, exclusive of expenses and exclusive of any contingency enhancement that may become payable.
C. Consideration of Additional Staffing
If the case proceeds to trial, the engagement team may need to be supplemented with one additional associate or a contract attorney to assist with document review, trial preparation support, and trial logistics. Any such staffing additions will be discussed with VHG in advance, including the applicable billing rate for the additional personnel, and will be documented by a further memorandum or amendment to the engagement letter. The Firm will endeavor to identify candidates with relevant insurance-litigation or complex commercial litigation experience to ensure efficient integration into the team.
In addition, depending on the volume of document production received during fact discovery, the Firm may recommend the engagement of a contract document review team for first-pass review, which would be billed at rates significantly below the engagement team's blended rate. Any such arrangement would be presented to VHG for approval before implementation.
V. EXPENSE BUDGET PROJECTIONS
In addition to the professional fee projections set forth in Section IV above, the Firm has developed the following preliminary expense budget for the litigation phase. All expenses will be advanced by the Firm and billed to VHG at cost, consistent with the terms of the Original Engagement Letter.
Expert Fees: $200,000–$300,000+. Expert witness costs are expected to constitute the single largest expense category. Dr. Helen Vasquez of Meridian Forensic Economics LLC, billing at $625.00 per hour with supporting analysts at $375.00 per hour, will require substantial engagement to analyze and quantify business-interruption losses across three properties, prepare a detailed expert report, and provide deposition and trial testimony. Jeffrey Caldwell, P.E. of Caldwell Engineering Associates Inc., the forensic engineering and cause-of-loss expert, will similarly require significant time for site inspections, analysis, report preparation, and testimony. The combined expert costs may exceed $300,000 depending on the complexity of the damages analysis and the extent to which the defendants challenge VHG's loss quantification.
Deposition Costs: $50,000–$75,000. Court reporter fees and transcript costs for up to eight to ten (8–10) fact depositions and two to four (2–4) expert depositions. This estimate includes original transcript fees, expedited delivery charges where necessary, videography costs for key depositions, and the cost of certified copies.
Court Filing Fees and Service Costs: $5,000–$10,000. This category includes the initial filing fee for the complaint in the Eleventh Judicial Circuit of Florida, service of process on all four defendants (including any necessary service through agents for service of process or registered agents), and subsequent filing fees for motions and other pleadings.
Mediation Fees: Approximately $15,000 per day. If the matter proceeds to mediation — which is common and often court-ordered in Florida insurance-coverage disputes — mediator fees for a retired judge mediator are estimated at approximately $15,000 per full day of mediation. A complex, multi-party insurance dispute of this magnitude may require two or more days of mediation, resulting in total mediation costs of $30,000 or more. Additionally, mediation facility and administrative costs may apply.
Travel: $20,000–$30,000. Although the Firm's Miami office at 333 SE 2nd Avenue, Suite 4400, Miami, Florida 33131, is located in the same jurisdiction as the forum court, travel will be necessary for depositions conducted at opposing counsel's offices (including potential travel to Hartford, Connecticut and New York, New York for depositions of insurer personnel), site inspections at the three affected properties (Key West, Miami Beach, and Naples), and meetings with expert witnesses. Travel costs include airfare, ground transportation, lodging, and meals in accordance with the Firm's standard travel expense policies.
Miscellaneous: $10,000–$15,000. This category includes document hosting platform fees (for discovery document management and review), large-format copying and printing costs, courier and delivery services, legal research database charges allocable to the engagement, and other incidental expenses.
Total Estimated Expenses. Based on the foregoing, the total estimated expenses through resolution of the matter are approximately $350,000 to $450,000. As with the hour projections, this estimate is subject to significant variation based on case trajectory, the volume and complexity of discovery, whether trial is necessary, and other factors. The Firm will provide VHG with updated expense projections on a quarterly basis and will seek advance approval from VHG before incurring any single expense item in excess of $25,000.
VI. DEFENDANTS' COUNSEL AND LITIGATION LANDSCAPE
In anticipation of the filing of litigation, the Firm has identified the defense counsel retained by the defendant insurers and has assessed the likely defense strategies, which will inform the Firm's litigation planning and resource allocation.
Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc. are represented jointly by Fendowell Rourke & Stanton LLP, with offices in Hartford, Connecticut and Tampa, Florida. The defense team is led by Partner Gregory Stanton, a well-known insurance-defense practitioner with extensive experience in first-party property coverage disputes. Mr. Stanton is supported by Senior Associate Meredith Liang and Junior Associate Colin Ashford. The Firm anticipates that the Fendowell Rourke team will mount a vigorous and well-resourced defense on behalf of both the primary and first excess carriers.
Montclair Assurance Company and Sovereign Re Ltd. are represented jointly by Delvecchio & Kraus LLP, based in New York, New York. The defense team is led by Partner Patricia Kraus, who has a national reputation in excess-layer and reinsurance coverage disputes. Ms. Kraus is assisted by Senior Associate Raymond Cho. While the excess carriers' liability is contingent on exhaustion of the lower layers, the Firm expects Delvecchio & Kraus to participate actively in the litigation from the outset, particularly given the policy limit implications and the potential for direct-action theories under Florida law.
Anticipated Defense Strategies. Based on the positions articulated by the insurers during the pre-suit phase and the formal coverage denial from Ironclad, the Firm anticipates vigorous defense on multiple coverage grounds, including the following:
1.  Windstorm Sub-Limit. The insurers are expected to assert that the policies are subject to a $15,000,000 windstorm sub-limit, which would cap VHG's recovery for wind-related losses. VHG contends that this sub-limit was deleted at the July 2022 policy renewal pursuant to broker negotiations conducted by VHG's broker, Tidewater Risk Advisors, and that the policies as issued reflect the removal of the sub-limit. This is anticipated to be a central factual and contractual dispute, requiring detailed discovery into the placement process, broker communications, and the underwriting file.
2.  Flood Exclusion / Concurrent Causation at Grand Key Resort. The insurers are expected to invoke the flood exclusion with respect to the Grand Key Resort losses ($31.4 million), arguing that a significant portion of the damage at that property was caused by storm surge and flooding rather than covered windstorm perils. Under the concurrent causation doctrine as applied in Florida, this defense raises complex questions regarding the apportionment of losses between covered and excluded perils. The forensic engineering analysis from Jeffrey Caldwell, P.E. will be critical to rebutting this defense.
3.  Period of Restoration Disputes. The insurers are expected to challenge VHG's claimed period of restoration — the period during which business-interruption coverage applies — arguing that VHG's properties could have been restored to operational status more quickly than VHG contends. This defense will require detailed factual development regarding the actual restoration timeline, construction contractor availability, permitting delays, and comparable restoration timelines for similar properties in the affected area.
4.  Failure to Mitigate. The insurers may assert that VHG failed to take reasonable steps to mitigate its business-interruption losses, such as by arranging temporary alternative facilities, implementing accelerated repair schedules, or redirecting bookings to unaffected properties. The Firm is prepared to demonstrate through documentary and testimonial evidence that VHG's mitigation efforts were reasonable and consistent with industry standards.
Forum and Governing Law. The complaint will be filed in the Eleventh Judicial Circuit of Florida, Miami-Dade County, which applies Florida substantive law to insurance-coverage disputes. Florida is generally regarded as a favorable jurisdiction for policyholders on many coverage issues, including the application of liberal notice-prejudice rules, the availability of statutory bad-faith remedies under Florida Statutes § 624.155, and well-developed precedent favoring broad construction of business-interruption coverage and narrow construction of policy exclusions. The Firm will assess the viability of statutory bad-faith and extra-contractual claims as the litigation develops.
VII. CLIENT COMMUNICATION AND APPROVAL PROCESS
A copy of this memorandum will be shared with Nathaniel Driscoll, General Counsel of VHG, for his records and for the records of VHG's legal department. This memorandum is intended to serve as an internal Firm document memorializing the revised fee arrangement and updated staffing plan, and is designated as Privileged and Confidential, Attorney-Client Communication, and Attorney Work Product. Sharing this memorandum with the Client does not waive any privilege protections, as VHG is the holder of the attorney-client privilege with respect to communications regarding this engagement.
The formal Amendment to the Original Engagement Letter incorporating the contingency enhancement terms described in Section III above will be prepared and circulated to Mr. Driscoll separately for review and execution. Upon execution, the Amendment will be filed in the engagement records alongside the Original Engagement Letter and this memorandum.
Monthly billing will continue to be prepared and transmitted to VHG's General Counsel's office in accordance with the existing billing schedule and payment terms. Invoices will reflect hours billed at the blended rate of $785.00 per hour and all expenses advanced at cost. The contingency enhancement, if and when earned, will be invoiced separately upon resolution of the matter and receipt of recovery proceeds by VHG, as set forth in Section III.B above.
The Firm will provide VHG with quarterly budget updates and will promptly communicate any material developments that may affect the fee or expense projections set forth in this memorandum. Significant litigation strategy decisions — including but not limited to settlement authority, mediation strategy, and decisions regarding trial — will be made in consultation with Mr. Driscoll and, as appropriate, VHG's senior management.
VIII. CONCLUSION
In summary, the key terms of the revised fee arrangement and updated staffing plan are as follows:
•  The blended hourly rate of $785.00 per hour established by the Original Engagement Letter dated August 30, 2022 remains unchanged and continues to apply to all professional services rendered by the engagement team.
•  A contingency enhancement of 5% of net recovery above $30,000,000 has been agreed upon with VHG and will be formalized by a supplemental Amendment to the Original Engagement Letter. The enhancement is payable in addition to all hourly fees and expenses, and is triggered only upon a recovery exceeding $30,000,000.
•  The engagement is governed by Engagement Number 1021-00003.
•  The staffing team remains as currently constituted — Elaine Forsythe (Responsible Partner), Howard Bellamy (Billing Partner), Tiffany Rosenthal (Lead Associate), and Andrew Fitzpatrick (Working Associate) — with the potential for additional associate or contract attorney support during trial preparation if the matter does not resolve earlier.
•  The total estimated professional fees for the litigation phase are approximately $2,355,000 to $2,747,500 (based on 3,000–3,500 estimated hours at the blended rate), with estimated expenses of approximately $350,000 to $450,000.
I respectfully request that Elaine Forsythe confirm her agreement with the terms set forth in this memorandum and authorize the circulation of the supplemental engagement letter Amendment (Attachment A) to Nathaniel Driscoll at VHG for execution. Upon Elaine's authorization, I will finalize the Amendment and transmit it to Mr. Driscoll with an accompanying cover letter.
CALDERWOOD & HARKNESS LLP
By: ________
Howard Bellamy Partner
Date: January 10, 2023
ACKNOWLEDGED AND AGREED:
________________________________________
Elaine Forsythe Responsible Partner, Calderwood & Harkness LLP
Date: ________
Attachment A: Draft Amendment to Engagement Letter — Engagement No. 1021-00003 (Verimark Hospitality Group Inc.) — To be circulated under separate cover.
Layer | Insurer | Limits | Attachment
Primary | Ironclad Indemnity Corporation | $25,000,000 | $500,000 deductible
First Excess | Pinnacle Surplus Lines Inc. | $15,000,000 xs $25,000,000
Second Excess | Montclair Assurance Company | $10,000,000 xs $40,000,000
Third Excess | Sovereign Re Ltd. | $10,000,000 xs $50,000,000
Timekeeper | Role | Standard Rate
Elaine Forsythe | Responsible Partner | $1,150.00/hr
Howard Bellamy | Billing Partner | $1,100.00/hr
Tiffany Rosenthal | Lead Associate | $625.00/hr
Andrew Fitzpatrick | Working Associate | $475.00/hr
Scenario | Total Net Recovery | Amount Above $30M | Enhancement (5%)
Full policy limits | $60,000,000 | $30,000,000 | $1,500,000
Partial recovery (high) | $45,000,000 | $15,000,000 | $750,000
Threshold recovery | $30,000,000 | $0 | $0
Below threshold | $20,000,000 | $0 | $0