PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT PREPARED IN ANTICIPATION OF LITIGATION
MEMORANDUM
TO: Dr. Helen Vasquez, CPA, CFF Meridian Forensic Economics LLC 1201 Peachtree Street NE, Suite 1000 Atlanta, GA 30361
FROM: Tiffany Rosenthal, Lead Associate Andrew Fitzpatrick, Working Associate Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, FL 33131
REVIEWED BY: Elaine Forsythe, Responsible Partner
DATE: October 12, 2023
RE: Deposition Preparation — Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al., Case No. 2022-CA-031547, Eleventh Judicial Circuit of Florida, Miami-Dade County
ENGAGEMENT NO.: 1021-00003
DEPOSITION DATE: October 16, 2023
LOCATION: Calderwood & Harkness LLP, Miami office, or as noticed by defense counsel
EXAMINING COUNSEL:
Gregory Stanton, Esq. (Partner, Fendowell Rourke & Stanton LLP), representing Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc.
Patricia Kraus, Esq. (Partner, Delvecchio & Kraus LLP), representing Montclair Assurance Company and Sovereign Re Ltd.
Associates Meredith Liang, Colin Ashford, and Raymond Cho may also participate in the examination on behalf of the respective defense teams.
DEFENDING COUNSEL:
Tiffany Rosenthal, Esq. (Calderwood & Harkness LLP); Elaine Forsythe, Esq. available if needed.
I. PURPOSE AND SCOPE OF THIS MEMORANDUM
This memorandum is prepared to assist Dr. Vasquez in preparing for her deposition in Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al., Case No. 2022-CA-031547. The deposition was noticed by Fendowell Rourke & Stanton LLP on behalf of the primary carrier, Ironclad Indemnity Corporation, and the first excess carrier, Pinnacle Surplus Lines Inc. Co-defendant counsel at Delvecchio & Kraus LLP, representing the second and third excess carriers Montclair Assurance Company and Sovereign Re Ltd., have indicated they will participate in the examination as well. Dr. Vasquez should therefore anticipate questions from multiple examining attorneys with potentially different strategic objectives.
Dr. Vasquez's expert report was served on September 15, 2023, in accordance with the Court's expert disclosure schedule. Her rebuttal expert report, responding to the expert report of Dr. Warren Birk of Graystone Consulting Group LLC (retained by the defense), was served on October 2, 2023. Both reports, along with all exhibits and appendices thereto, are within the scope of this deposition and should be treated as subjects that examining counsel will explore in detail.
The deposition will principally cover Dr. Vasquez's expert opinions quantifying Verimark Hospitality Group Inc.'s ("VHG") business-interruption losses totaling approximately $60 million across three Florida resort properties that sustained catastrophic damage from Hurricane Callista, which made landfall on September 18, 2022. The three properties at issue are the Verimark Grand Key Resort in Marathon, Florida; the Verimark Harborview Hotel & Conference Center in Fort Myers Beach, Florida; and the Verimark Sunset Shores in St. Pete Beach, Florida.
Defense counsel's overarching objectives at the deposition will be to undermine Dr. Vasquez's methodology, challenge key assumptions underlying her loss quantification — including her average daily rate ("ADR") projections, occupancy rate assumptions, period-of-restoration determinations, and saved-expense deductions — and probe for inconsistencies between her report and the competing analysis set forth in Dr. Birk's report. Counsel should also expect questions designed to test the boundaries of Dr. Vasquez's expertise, particularly on engineering and legal issues, in an effort to either overextend her testimony into areas susceptible to challenge or to characterize her opinions as dependent on the legal conclusions of counsel.
As a general matter, Dr. Vasquez should adhere to the following fundamental deposition guidelines throughout the examination:
• Listen carefully to each question. Ensure that she understands the question before formulating a response. If any question is unclear, she should ask for clarification.
• Answer only the question asked. She should provide responsive, complete, but concise answers. She should not volunteer additional information, provide narrative explanations where a short answer will suffice, or anticipate follow-up questions.
• Do not speculate. If she does not know the answer to a question, she should say so. If she cannot recall a specific detail, "I don't recall" is an appropriate response.
• Pause before answering. Dr. Vasquez should pause approximately three to five seconds after each question to allow defending counsel (Tiffany Rosenthal) the opportunity to interpose any objections before the answer is given. Even if no objection is raised, this pause will also provide Dr. Vasquez with a moment to consider her response carefully.
• Refer to the report when appropriate. Dr. Vasquez's expert report and rebuttal report are her best tools in the deposition. She should not hesitate to refer to the reports to provide accurate testimony, and she should feel no pressure to recite figures from memory when the reports are available.
• Correct any mischaracterizations. If examining counsel mischaracterizes any of her opinions, assumptions, or methodologies in the premise of a question, Dr. Vasquez should correct the mischaracterization before answering the question.
The balance of this memorandum provides detailed background on the litigation, a summary of Dr. Vasquez's expert opinions, anticipated lines of cross-examination with recommended responses, general deposition guidelines, a list of documents to review before the deposition, and pre-deposition logistics.
II. BACKGROUND ON THE LITIGATION AND INSURANCE DISPUTE
A. Overview of VHG's Claim
Verimark Hospitality Group Inc. ("VHG") is a publicly traded Delaware corporation listed on the Nasdaq Stock Market under the ticker symbol VMRK. VHG is headquartered at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129, and its principal business involves the ownership, management, and operation of luxury resort hotels concentrated in the southeastern United States, with a particular focus on the Florida market. VHG's senior leadership team includes Marcus Ellsworth, Chief Executive Officer; Diane Calder, Chief Financial Officer; Nathaniel Driscoll, General Counsel; and Sandra Pellegrini, Vice President of Risk Management. Ms. Calder and Ms. Pellegrini have both been deposed in this case (August 8, 2023 and August 14, 2023, respectively), and Dr. Vasquez should review those transcripts prior to the deposition.
For the fiscal year ended December 31, 2021, VHG reported consolidated revenue of approximately $412 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $78 million. These figures reflect VHG's operations across its full portfolio of resort properties, including but not limited to the three properties at issue in this litigation.
Hurricane Callista made landfall on September 18, 2022, as a Category 4 hurricane on the Saffir-Veltason Hurricane Wind Scale, with maximum sustained winds of approximately 145 miles per hour. The storm struck the Lower Florida Keys near Big Pine Key and tracked northward through the Gulf Coast region of Florida, causing widespread destruction across Monroe County, Lee County, and Pinellas County — the locations of VHG's three affected properties. The storm generated a catastrophic storm surge of 8–14 feet in Monroe County and 6–10 feet in Lee County, compounding the wind damage inflicted on the properties.
Three VHG properties sustained what VHG has characterized as catastrophic damage from Hurricane Callista, resulting in claimed business-interruption losses totaling approximately $60 million. VHG filed a sworn statement in proof of loss in the amount of $60 million on November 15, 2022, and subsequently initiated the present litigation after the carriers denied or failed to timely adjust the claim.
B. Insurance Tower Structure
VHG maintained a layered property insurance program for the policy period of July 1, 2022 through July 1, 2023. The insurance tower is structured as follows:
The total tower provides $60 million in coverage above the $500,000 deductible. All policies are written on an "all risks" basis, covering physical loss or damage to covered property, including business-interruption and extra-expense coverage. The excess policies follow form to the primary policy issued by Ironclad Indemnity Corporation, which contains the controlling policy language for purposes of the business-interruption coverage grant and the period-of-restoration definition.
VHG's claim of $60 million in business-interruption losses, if sustained, would implicate every layer of the insurance tower through and including the third excess layer placed with Sovereign Re Ltd. This explains why all four carriers are defendants in this action and why counsel for both the primary/first excess group (Fendowell Rourke & Stanton) and the second/third excess group (Delvecchio & Kraus) will participate in Dr. Vasquez's deposition.
C. Key Coverage Defenses
Ironclad Indemnity Corporation issued a formal coverage denial on February 3, 2023, asserting four principal grounds for denying or limiting coverage:
(1) Named-Windstorm Sub-Limit. Ironclad contends that VHG's policy contains a named-windstorm sub-limit of $15 million, which would substantially cap the recovery available to VHG under the primary policy. VHG vigorously disputes this position, contending that the named-windstorm sub-limit was expressly deleted during the July 2022 renewal negotiation. This dispute involves extrinsic evidence regarding the renewal negotiations, including communications between VHG's broker (Hargrave & Associates) and Ironclad's underwriting team. As of the deposition date of October 16, 2023, VHG has not yet filed a motion for partial summary judgment on this issue, though one is being prepared. Dr. Vasquez should be aware that this is a live legal dispute but should decline to offer opinions on the sub-limit issue, as it is a question of contract interpretation outside her area of expertise.
(2) Period of Restoration Disputes. Ironclad contends that VHG unreasonably delayed the restoration of its properties and that the period of restoration should be measured by reference to a shorter, purportedly reasonable timeline rather than VHG's actual restoration period. This defense goes directly to a core component of Dr. Vasquez's damages analysis and will be a primary focus of cross-examination.
(3) Concurrent Causation / Flood Exclusion. Ironclad argues that a material portion of the damage at the Grand Key Resort is attributable to storm surge (which Ironclad characterizes as flooding) rather than wind, and that the policy's flood exclusion — potentially in combination with an anti-concurrent-causation clause — precludes coverage for losses attributable to the storm surge. This defense principally affects the Grand Key Resort, which experienced the most severe storm surge (8–14 feet in Monroe County). Defense counsel may attempt to press Dr. Vasquez on whether she allocated losses between wind and flood perils.
(4) Failure to Mitigate. Ironclad contends that VHG failed to take reasonable steps to mitigate its losses during the period of restoration, including by failing to implement temporary revenue-generating measures, failing to expedite contractor procurement, and retaining a larger workforce than necessary during the closure period. Defense counsel may probe Dr. Vasquez on the mitigation issue, particularly in connection with VHG's decision to retain approximately 70% of its salaried workforce during the closure period.
These four defenses, particularly items (2), (3), and (4), will frame the primary areas of cross-examination directed at Dr. Vasquez. While the named-windstorm sub-limit issue (item 1) is primarily a legal question that will not directly implicate Dr. Vasquez's methodology, defense counsel may attempt to explore whether her damages calculation would change under various sub-limit scenarios. Dr. Vasquez should be prepared for such hypotheticals.
III. SUMMARY OF DR. VASQUEZ'S EXPERT OPINIONS
This section provides a summary of Dr. Vasquez's expert opinions as set forth in her September 15, 2023 expert report and her October 2, 2023 rebuttal expert report. Dr. Vasquez should be thoroughly familiar with every aspect of these reports before the deposition and should be prepared to defend each element of her analysis.
A. Property-by-Property BI Loss Quantification
1. Verimark Grand Key Resort (Marathon, FL — Mile Marker 48)
The Verimark Grand Key Resort is a 312-room luxury resort and marina located in Marathon, Florida, at approximately Mile Marker 48 in the Florida Keys. The property features a full-service marina, multiple food-and-beverage outlets, a spa facility, and other resort amenities typical of a luxury Keys property. Grand Key is the largest and most profitable of the three affected VHG properties and is VHG's flagship Florida Keys asset.
Dr. Vasquez determined the following key assumptions and inputs for her Grand Key BI loss quantification:
• Pre-loss Average Daily Rate (ADR): $389, based on VHG's historical property management system data and STR reports for the corresponding seasonal months.
• Projected Occupancy Rate: 82%, based on trailing-three-year averages for the corresponding seasonal periods, adjusted for the post-COVID recovery trend.
• Closure Period: September 18, 2022 through March 15, 2023, a total of 178 days, based on the engineering timeline provided by Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc.
• Estimated Business-Interruption Loss: $31.4 million.
The $31.4 million loss figure is calculated on the basis of projected room revenue (312 rooms × $389 ADR × 82% occupancy × 178 days), adjusted for ancillary revenue streams including the marina, food-and-beverage operations, spa revenue, and other resort amenities. The gross loss figure is then reduced by saved expenses — i.e., variable costs that did not continue during the closure period — to arrive at the net business-interruption loss.
Grand Key is the largest single-property loss in this case and is the property where Ironclad has raised the concurrent causation / flood exclusion argument. Monroe County experienced storm surge of 8–14 feet during Hurricane Callista, and Ironclad contends that a material portion of the damage to the Grand Key Resort is attributable to that storm surge rather than to wind. Dr. Vasquez should expect the most aggressive cross-examination with respect to Grand Key.
2. Verimark Harborview Hotel & Conference Center (Fort Myers Beach, FL — 1400 Estero Boulevard)
The Verimark Harborview Hotel & Conference Center is a 224-room hotel with a 40,000-square-foot conference and event facility located at 1400 Estero Boulevard, Fort Myers Beach, Florida. The Harborview is a significant player in the Southwest Florida group and conference market, and its conference and event revenue is a material component of its total revenue profile.
Dr. Vasquez determined the following key assumptions and inputs:
• Pre-loss Average Daily Rate (ADR): $295, reflecting the Harborview's market positioning as a conference-oriented property with a somewhat lower ADR than the luxury-tier Grand Key Resort.
• Projected Occupancy Rate: 74%, based on the same trailing-three-year seasonal methodology used for Grand Key.
• Closure Period: September 18, 2022 through January 31, 2023, a total of 135 days.
• Estimated Business-Interruption Loss: $18.7 million.
The Harborview loss calculation includes a significant component of lost conference and event revenue, which is a major revenue driver for this property. VHG's internal records document numerous confirmed and tentatively booked events that were canceled as a result of the property's closure. Lee County experienced storm surge of 6–10 feet during Hurricane Callista, although the Harborview was primarily affected by wind damage to its conference facility and guest room towers.
3. Verimark Sunset Shores (St. Pete Beach, FL — 7200 Gulf Boulevard)
The Verimark Sunset Shores is a 186-room boutique resort located at 7200 Gulf Boulevard, St. Pete Beach, Florida. Sunset Shores is the smallest of the three affected properties and caters to a leisure-oriented clientele seeking a boutique resort experience on the Gulf Coast.
Dr. Vasquez determined the following key assumptions and inputs:
• Pre-loss Average Daily Rate (ADR): $342, reflecting the property's boutique positioning and Gulf-front premium.
• Projected Occupancy Rate: 79%, based on the same trailing-three-year seasonal methodology.
• Full Closure Period: September 18, 2022 through November 30, 2022, a total of 73 days.
• Partial Closure / Reduced Capacity Period: Approximately December 1, 2022 through February 28, 2023, during which the property operated at reduced capacity as phased repairs continued.
• Estimated Business-Interruption Loss: $9.9 million, including both the full-closure period losses and the partial-closure period losses during which reduced room inventory limited revenue generation.
4. Total Business-Interruption Loss
The total claimed business-interruption loss of $60 million is consistent with VHG's sworn statement in proof of loss submitted on November 15, 2022, and represents the aggregate loss across all three properties during their respective periods of interruption.
B. Methodology
Dr. Vasquez employed a "but-for" lost-profits methodology, which is the standard and widely accepted approach for quantifying business-interruption losses in the insurance context. The methodology involves comparing projected revenue and net income that VHG would have earned absent the hurricane (the "but-for" scenario) with actual revenue and net income during the period of interruption (the "actual" scenario). The difference between the but-for projection and actual results represents the business-interruption loss.
In performing her analysis, Dr. Vasquez relied on the following principal data sources and inputs:
• VHG's historical financial data for fiscal years 2019, 2020, 2021, and the portion of fiscal year 2022 through the date of loss, including consolidated financial statements, property-level profit-and-loss statements, and supporting general ledger data.
• Property-level ADR and occupancy data sourced from VHG's property management systems and STR (Penmark Enterprises equivalent) benchmark reports.
• Seasonal adjustment factors reflecting the well-documented seasonal patterns in the Florida hospitality market, particularly the peak winter tourism season (approximately November through April) and the shoulder and off-peak summer months.
• Industry benchmarks from STR, the American Hotel & Lodging Association, and comparable luxury resort properties in the Florida Keys, Southwest Florida, and Tampa Bay markets.
• Information obtained through interviews with VHG financial personnel, including CFO Diane Calder and property-level controllers at each of the three affected properties.
Dr. Vasquez made specific adjustments to account for the anomalous impact of the COVID-19 pandemic on VHG's fiscal year 2020 and fiscal year 2021 financial results. Because the hospitality industry experienced severe disruption during 2020 and was in varying stages of recovery during 2021, Dr. Vasquez applied a COVID-19 recovery trend adjustment to ensure that her but-for projections reflected the trajectory of recovery that VHG was experiencing prior to Hurricane Callista, rather than being artificially depressed by pandemic-era data or artificially inflated by pent-up demand surges.
From the gross but-for revenue projection, Dr. Vasquez deducted saved or non-continuing expenses — i.e., variable costs that ceased or were substantially reduced during the closure period because the properties were not generating revenue. This includes items such as housekeeping supplies and labor, food-and-beverage consumables, commission-based compensation, guest amenity costs, and other expenses that vary directly with occupancy and revenue. Continuing expenses — such as salaried management staff, insurance premiums, property taxes, debt service, base utilities for property preservation, and security — were not deducted, as these costs continued during the closure period and are properly included in the business-interruption loss calculation.
Dr. Vasquez also included in her calculation the extra expenses incurred by VHG to expedite the restoration of the damaged properties. These extra expenses — which include costs of temporary facilities, overtime labor charges, expedited materials procurement, and similar expenditures — are covered under the extra-expense provisions of the Ironclad policy and are a proper component of the total business-interruption claim.
The period of restoration for each property was determined by reference to the policy definition of that term, which measures the period as "such length of time as would be required with the exercise of due diligence and dispatch to rebuild, repair, or replace" the damaged property. Dr. Vasquez coordinated with Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc., who served as VHG's forensic engineering expert, to determine the engineering and construction timelines applicable to each property. Mr. Caldwell's forensic engineering report, served concurrently with Dr. Vasquez's report on September 15, 2023, establishes the physical restoration timelines upon which Dr. Vasquez's financial analysis is predicated. This division of labor — forensic economist relying on engineering expert for the physical restoration period and then applying financial analysis to quantify the economic loss — is the standard and accepted approach in business-interruption loss quantification.
IV. ANTICIPATED LINES OF CROSS-EXAMINATION AND RECOMMENDED RESPONSES
This section identifies the principal areas of cross-examination that we anticipate defense counsel will pursue, together with recommended approaches and key points for Dr. Vasquez to emphasize. The section is organized topically and reflects our assessment of the likely examination strategies of both Gregory Stanton (representing the primary and first excess carriers) and Patricia Kraus (representing the second and third excess carriers).
A. Qualifications and Bias
1. Anticipated Questions
Defense counsel will almost certainly begin the deposition with questions directed at Dr. Vasquez's qualifications and potential bias. This is standard practice and serves both to establish a record regarding the expert's background and to plant seeds of doubt about the objectivity of her analysis.
Specific lines of questioning in this area are likely to include:
• Policyholder vs. Insurer Retentions. Defense counsel will explore the breakdown of Dr. Vasquez's prior engagements, asking how many times she has been retained by policyholders (or their counsel) versus by insurance carriers (or their counsel). The purpose of this line of questioning is to suggest that Dr. Vasquez is a "policyholder's expert" who habitually produces higher loss estimates to support policyholders' claims.
• Relationship with Calderwood & Harkness LLP. Counsel may probe whether Dr. Vasquez has been retained by Calderwood & Harkness in prior matters, how many times, and the nature of those engagements. The implication will be that a repeat-engagement relationship creates a financial incentive to produce favorable opinions.
• Compensation. Defense counsel will ask about Dr. Vasquez's hourly rate ($625 per hour), the total fees she has billed to date on this engagement, the total fees she anticipates billing through the completion of her work, and — critically — whether any component of her compensation is contingent on the outcome of the case.
• Florida CPA License. Counsel may ask whether Dr. Vasquez holds a CPA license in the State of Florida, as distinct from her home state of Georgia. The implication would be that she lacks the local credentials to opine on Florida-specific financial matters, although this argument is legally weak and largely goes to form rather than substance.
2. Recommended Approach
Dr. Vasquez should approach the qualifications and bias portion of the deposition with confidence and directness. She should:
• Emphasize her credentials. Dr. Vasquez is a Certified Public Accountant (CPA) and is Certified in Financial Forensics (CFF), a specialized credential issued by the American Institute of Certified Public Accountants. She has extensive experience in business-interruption loss quantification, including numerous engagements involving catastrophic property damage from named storms. She should state her credentials clearly and provide a concise summary of her relevant experience when asked about her background.
• Address compensation directly. Her compensation is charged at a standard hourly rate of $625 per hour, which is consistent with prevailing market rates for forensic accounting experts of her experience level. Her compensation is not contingent on the outcome of this case or any case. She charges the same hourly rate regardless of whether she is retained by policyholders, insurers, or any other party. She should state these facts clearly and without defensiveness.
• Demonstrate a balanced track record. Dr. Vasquez has been retained by both policyholders and insurers in prior engagements. She should be prepared to identify specific prior engagements on both sides of the "v." to demonstrate that her practice is not limited to one side.
• Distinguish between advocacy and expert analysis. If defense counsel suggests that she is acting as an advocate for VHG rather than as an objective expert, Dr. Vasquez should clearly state that she was retained to apply her professional methodology to quantify VHG's actual business-interruption losses. Her opinions are based on her independent professional analysis of the available data. She was not instructed to reach a particular result, and her methodology would be the same regardless of which party retained her.
• Regarding Florida CPA licensure. If asked, Dr. Vasquez should note that her CPA credential is a nationally recognized professional designation, that the methodology of forensic accounting and business-interruption loss quantification is not unique to any particular state jurisdiction, and that her analysis relies on VHG's financial data, industry benchmarks, and generally accepted forensic accounting principles — none of which is state-specific. She should also note any prior engagements in which she has provided expert testimony on Florida-based claims.
B. ADR Assumptions
1. Anticipated Challenges
The average daily rate assumptions used by Dr. Vasquez — $389 for Grand Key, $295 for Harborview, and $342 for Sunset Shores — will be a significant area of cross-examination, particularly by Gregory Stanton representing Ironclad and Pinnacle. Defense counsel is likely to challenge these figures on several grounds:
• Counsel may argue that the ADR figures are inflated because they were derived by selecting peak-season or shoulder-season data periods and excluding the lower-rate summer months, thereby overstating the revenue that VHG would have earned during the closure period.
• Counsel may suggest that the ADR figures reflect "rack rates" (the published standard room rate) rather than the net effective rate actually realized by VHG after accounting for online travel agency ("OTA") commissions, group rate discounts, corporate negotiated rates, loyalty program free-night redemptions, and other discounts or adjustments that reduce the actual revenue received per room night sold.
• Dr. Birk's report for Graystone Consulting Group likely uses lower ADR figures than Dr. Vasquez. Based on our review of Dr. Birk's methodology, we anticipate that Dr. Birk calculated ADRs using trailing-twelve-month annual averages — an approach that includes the lower-rate off-season summer months (June through September in the Florida Keys and Gulf Coast markets) and thereby generates a lower blended ADR that does not accurately reflect what VHG would have earned during the specific months of closure (predominantly the October through March peak and shoulder season).
• Counsel may attempt to introduce competitor hotel ADR data or STR benchmark data to suggest that Dr. Vasquez's ADR figures are above market norms for the relevant competitive sets.
2. Key Points for Dr. Vasquez to Emphasize
Dr. Vasquez should be prepared to defend her ADR assumptions vigorously, as this is an area where her methodology is sound and well-supported by the data. Key points include:
• ADR figures are based on VHG's actual data. The ADR figures used in her analysis were derived from VHG's actual historical property management system data, corroborated by STR reports and internal revenue-per-available-room ("RevPAR") data maintained by each property. These are not theoretical or projected rates; they are actual, historically realized average daily rates for the specific properties in question.
• Seasonal weighting is appropriate and necessary. The closure periods for the three properties span approximately September/October through January/February/March. In the Florida Keys and Gulf Coast hospitality markets, these months encompass the peak winter tourism season and the adjacent shoulder-season months. It would be methodologically incorrect to use an annual average ADR that includes the low-season summer months (when rates are substantially lower due to reduced tourist demand, hurricane season, and summer heat) to project revenue during the peak and shoulder season. Dr. Vasquez's approach of using seasonal-weighted ADRs that match the specific months of closure is the methodologically sound and industry-standard approach for a seasonal hospitality business.
• OTA commissions are an expense, not a revenue reduction. OTA commissions and distribution costs are properly accounted for on the expense side of the profit-and-loss statement, not as a reduction to room revenue. This treatment is consistent with the Uniform System of Accounts for the Lodging Industry ("USALI"), which is the authoritative accounting framework for the hospitality industry. Dr. Vasquez's ADR figures reflect gross room revenue per room night sold, and the corresponding commissions and distribution costs are reflected in her expense analysis. There is no "double counting" or inflation of revenue.
• Grand Key's $389 ADR is market-consistent. The $389 ADR for Grand Key is consistent with ADRs achieved by comparable luxury resort properties in the Florida Keys during Q4 and Q1. Dr. Vasquez should be prepared to reference specific comparable properties and their published STR data to corroborate this point if challenged.
• Dr. Birk's annual-average approach is methodologically flawed. To the extent defense counsel introduces Dr. Birk's lower ADR figures, Dr. Vasquez should explain clearly why Dr. Birk's trailing-twelve-month annual-average approach is inappropriate for a seasonal hospitality business. Averaging across all twelve months dilutes the peak-season rates with off-season rates, producing an ADR that would have been unrealized during the actual months of closure. This methodological error results in a systematic understatement of VHG's projected revenue.
C. Occupancy Rate Assumptions
1. Anticipated Challenges
Defense counsel will also challenge Dr. Vasquez's projected occupancy rates of 82% for Grand Key, 74% for Harborview, and 79% for Sunset Shores. The primary challenges are likely to include:
• A general argument that these occupancy rates are overstated relative to what VHG would actually have achieved during the closure period, even absent the hurricane.
• A "demand reduction" argument — i.e., that even if VHG's properties had been undamaged and operational, tourist demand in the Florida Keys and Gulf Coast region would have been materially depressed because of the widespread destruction caused by Hurricane Callista. Under this theory, potential guests would have avoided the affected areas entirely, resulting in lower occupancy even at undamaged properties.
• Dr. Birk may have applied a regional-demand-reduction factor of approximately 15%–20% to reduce projected occupancy across all three properties. Defense counsel will likely present this as a reasonable and conservative adjustment.
• Counsel may attempt to introduce competitor hotel occupancy data for the post-hurricane period showing that nearby properties experienced lower-than-historical occupancy, and argue that Dr. Vasquez should have applied a similar adjustment.
2. Key Points to Defend
Dr. Vasquez should defend her occupancy assumptions on the following grounds:
• Occupancy rates are based on pre-loss historical data with seasonal and trend adjustments. The projected occupancy rates are based on trailing-three-year averages for the corresponding seasonal months, adjusted for the documented post-COVID recovery trend in the Florida hospitality market. This approach produces occupancy projections that are grounded in VHG's actual operating history for the specific properties and the specific months at issue.
• The policy covers VHG's lost income — not hypothetically reduced income. The business-interruption insurance coverage is designed to place the insured in the financial position it would have occupied but for the physical damage to its property. The policy does not contain an exclusion for area-wide demand effects, and the period of restoration is measured by the time required to rebuild, repair, or replace VHG's own properties — not by the time required for the broader region to recover. The "demand reduction" argument advanced by Dr. Birk conflates regional economic conditions with property-specific loss quantification in a manner that is inconsistent with the terms of the policy.
• Distinguish ingress/egress issues from speculative demand reduction. To the extent that area-wide destruction affected access to VHG's properties (e.g., road closures or bridge damage in the Florida Keys), such losses may actually be covered under the policy's civil authority or ingress/egress provisions. But the more speculative claim that tourist demand would have been generically "reduced" by some percentage is not supported by the policy language and represents an unsupported assumption.
• Empirical data contradicts the demand-reduction theory. Historical data from post-hurricane periods in Florida shows that undamaged hotels in affected areas frequently experience occupancy surges rather than declines. This occurs because displaced travelers, insurance adjusters, relief workers, utility crews, construction workers, media personnel, and others create substantial demand for hotel rooms in affected areas. Pent-up leisure demand also typically rebounds quickly once access is restored. Dr. Vasquez should be prepared to cite specific data points from prior hurricane events supporting this conclusion.
• Sensitivity analysis demonstrates the point is immaterial to the coverage dispute. Even assuming, arguendo, a 10% reduction in occupancy across all three properties, Dr. Vasquez's sensitivity analysis shows that total business-interruption losses would still exceed $54 million. This amount is well above any sub-limit or layer threshold that would be relevant to the carriers' coverage obligations. The demand-reduction argument, even if accepted at some level, does not materially alter the outcome of the case with respect to coverage.
D. Period of Restoration
1. Anticipated Challenges
The period-of-restoration issue is likely to be the most aggressively contested area of the cross-examination. Ironclad's coverage position rests substantially on the argument that VHG unreasonably delayed the restoration of its properties and that the period of restoration should be shorter than the period used by Dr. Vasquez. The specific challenges anticipated include:
• Grand Key (178 days). Defense counsel may argue that repairs at Grand Key could have been completed in approximately 120 days — nearly two months shorter than the 178-day period used by Dr. Vasquez. At $389 ADR and 82% occupancy for 312 rooms, the difference between 178 days and 120 days represents a substantial amount of claimed BI loss.
• Harborview (135 days). Defense may argue that 90–100 days was a sufficient restoration period for the Harborview, particularly if they contend that the conference facility could have been temporarily restored or alternative conference space could have been arranged.
• Sunset Shores (73 days full closure + partial). Defense may argue that the full closure period at Sunset Shores should have been shorter and that partial-closure losses should be further reduced.
• Dr. Birk's alternative timelines. Dr. Birk's report likely uses shorter restoration periods — approximately 120 days for Grand Key, 95 days for Harborview, and 55 days of full closure for Sunset Shores. Defense counsel will present these as the "reasonable" timelines and characterize Dr. Vasquez's longer periods as inflated.
• Challenge to reliance on Caldwell. Defense counsel may argue that Dr. Vasquez improperly delegated the period-of-restoration determination to Jeffrey Caldwell rather than performing her own independent assessment. They may also challenge the Caldwell timeline itself by reference to generalized construction-industry benchmarks or alternative contractor testimony.
• Contractor availability and supply chain. Counsel may suggest that VHG could have hired additional construction crews, sourced materials from alternative suppliers, or otherwise accelerated the restoration process, and will argue that VHG's failure to do so constitutes unreasonable delay or failure to mitigate.
2. Key Points to Defend
Dr. Vasquez should defend the period-of-restoration component of her analysis as follows:
• Reliance on Caldwell is the standard approach. It is the standard and universally accepted practice in business-interruption loss quantification for the forensic economist to rely on the engineering and construction expert for the determination of the physical restoration timeline. A forensic economist is not qualified to independently assess how long it takes to rebuild a 312-room resort and marina damaged by a Category 4 hurricane. Dr. Vasquez appropriately relied on Jeffrey Caldwell, PE, who is a licensed professional engineer with extensive experience in forensic engineering and post-catastrophe reconstruction assessment. Mr. Caldwell conducted detailed property inspections, reviewed construction documents and contractor records, and applied his professional engineering judgment to establish the restoration timelines for each property. Dr. Vasquez then applied her financial analysis to quantify the economic loss during the periods established by Mr. Caldwell.
• Caldwell's timelines reflect actual conditions. Mr. Caldwell's restoration timelines account for the actual conditions that prevailed in the aftermath of Hurricane Callista, including: (a) severe post-hurricane contractor shortages across the affected regions of Florida, as thousands of damaged properties competed for a limited pool of qualified construction contractors; (b) supply chain disruptions affecting the availability and delivery of building materials, particularly specialized materials required for luxury hospitality construction; (c) permitting delays with the Monroe County and Lee County building departments, which were overwhelmed by the volume of post-hurricane permit applications; and (d) phased inspection requirements imposed by local building officials, which required sequential inspections at various stages of reconstruction and introduced additional scheduling constraints.
• VHG acted with due diligence. VHG's actual restoration timeline was reasonable under the circumstances. In fact, VHG took affirmative steps to expedite restoration by engaging multiple contractors simultaneously and by incurring extra expenses — claimed as part of the BI/extra expense coverage — to accelerate the timeline. The evidence demonstrates that VHG acted with the "due diligence and dispatch" required by the policy.
• The policy standard is "due diligence and dispatch" — not theoretical perfection. The period-of-restoration provision in the Ironclad policy measures the period as "such length of time as would be required with the exercise of due diligence and dispatch to rebuild, repair, or replace" the damaged property. This standard does not require the insured to achieve the theoretically fastest possible timeline under hypothetical ideal conditions with unlimited resources. It requires reasonable diligence and reasonable speed. Dr. Vasquez should articulate this distinction clearly if defense counsel attempts to compare the actual timeline to an idealized benchmark.
• Defer to Caldwell on engineering matters. If defense counsel presses Dr. Vasquez on engineering or construction details — for example, whether a particular type of repair should have taken fewer days, or whether a specific material could have been sourced more quickly — Dr. Vasquez should state that the question is outside her area of expertise as a forensic economist and that she relied on Mr. Caldwell's engineering analysis for the physical restoration timeline. She should not attempt to defend engineering conclusions that are beyond her professional qualifications.
• Ironclad's own adjuster acknowledged the severity of the damage. If pressed on whether the restoration period was reasonable, Dr. Vasquez may note that even Denise Whitford of Arbor Claims Services — the independent adjuster retained by Ironclad Indemnity — acknowledged in her October 5, 2022 inspection report that the Grand Key Resort sustained severe structural damage requiring extended restoration. This is a factual point that corroborates the reasonableness of the timeline established by Mr. Caldwell.
E. Concurrent Causation / Flood Exclusion and Damage Allocation
1. Anticipated Challenges
The concurrent causation / flood exclusion issue is a significant legal and factual dispute in this case, and defense counsel will attempt to use Dr. Vasquez's deposition to advance Ironclad's position that a portion of the BI loss — particularly at Grand Key — should be excluded as attributable to storm surge rather than wind. Anticipated questions include:
• Whether Dr. Vasquez's loss calculation allocates BI losses between wind damage and storm surge/flood damage at the Grand Key Resort.
• If she did not perform such an allocation, why not — and whether the absence of such an allocation renders her analysis incomplete or unreliable.
• Whether she received instructions from counsel regarding how to treat the flood exclusion issue, and whether such instructions influenced her methodology.
• Whether she is familiar with the anti-concurrent-causation clause in the Ironclad policy, and whether her analysis accounts for its effect.
• What the BI loss at Grand Key would be if some percentage (e.g., 20%, 30%, 40%) of the physical damage were attributable to storm surge and excluded under the flood exclusion.
2. Key Points to Defend
• Total BI loss calculation is appropriate as her primary opinion. Dr. Vasquez calculated total business-interruption losses from all physical damage sustained by VHG's properties. The allocation of losses between covered perils (wind) and potentially excluded perils (flood/storm surge) is fundamentally a legal question governed by the terms of the insurance policy and applicable Florida law. It is not a forensic accounting question. Dr. Vasquez's role is to quantify the economic loss resulting from the physical damage; the legal determination of which losses are covered is for the Court and the parties to resolve.
• Reliance on Caldwell's engineering analysis. To the extent the allocation of physical damage between wind and flood is relevant, Dr. Vasquez relied on Mr. Caldwell's forensic engineering report. Mr. Caldwell concluded that the predominant cause of damage at all three VHG properties was wind — the covered peril under the policy — rather than storm surge. Mr. Caldwell's conclusions are based on detailed engineering analysis, physical inspection of the properties, and review of meteorological data. Dr. Vasquez is not qualified to independently assess the relative contributions of wind and storm surge to physical damage, and she appropriately deferred to Mr. Caldwell on this issue.
• Sensitivity analysis demonstrates wind-only losses are substantial. Dr. Vasquez performed a sensitivity analysis in her expert report specifically addressing this issue. Even if some portion of the Grand Key damage is attributed to storm surge and excluded from coverage, her analysis shows that wind-only BI losses at Grand Key alone exceed $24 million, and total wind-only losses across all three properties exceed $50 million. These figures substantially exceed the primary layer and penetrate deep into the excess layers of the insurance tower.
• No improper instructions from counsel. Dr. Vasquez did not receive instructions from counsel to exclude or include any particular category of damage. She was instructed to quantify all business-interruption losses resulting from physical damage to VHG's properties and to separately identify wind-only losses as a sensitivity scenario. Her opinions are based on her independent professional analysis.
• Defer on legal issues. If asked about the anti-concurrent-causation clause or its legal effect, Dr. Vasquez should state that the interpretation and application of policy provisions is a legal question outside her area of expertise. She is a forensic economist, not a lawyer, and she does not offer opinions on questions of insurance coverage law.
F. Saved Expenses / Non-Continuing Expenses
1. Anticipated Challenges
Defense counsel will scrutinize whether Dr. Vasquez properly deducted all non-continuing (or "saved") expenses from her BI loss calculation. The defense theory is that Dr. Vasquez understated the saved-expense deduction — thereby overstating the net BI loss — by treating certain variable costs as continuing expenses when they should have been deducted. Specific challenges may include:
• Arguments that labor costs — particularly for VHG employees who were not performing productive work during the closure period — should be treated as non-continuing and deducted.
• Arguments that utility costs should have been substantially reduced during closure and that Dr. Vasquez's utility-expense deduction was insufficient.
• Arguments that marketing and advertising expenses should have been reduced or eliminated during the closure period.
• Comparison with Dr. Birk's report, which likely applies a higher saved-expense deduction, resulting in a lower net BI loss figure.
• General questioning about whether Dr. Vasquez's saved-expense methodology was sufficiently rigorous and whether she independently verified VHG's representations about which expenses continued during the closure period.
2. Key Points to Defend
• Detailed, line-item analysis. Dr. Vasquez used a detailed, line-item approach to identify and classify continuing versus non-continuing expenses for each of the three affected VHG properties. This analysis was based on VHG's actual financial records, including property-level profit-and-loss statements, general ledger detail, payroll records, vendor invoices, and utility bills. The analysis was supplemented by interviews with VHG's CFO Diane Calder and the property-level controllers at each of the three properties who had direct knowledge of which expenses continued and which were reduced or eliminated during the closure period.
• Many supposedly "variable" costs actually continued. Many expenses that defense counsel may characterize as variable or non-continuing were, in fact, continuing expenses during the closure period. These include: (a) salaried management staff who were retained during the closure; (b) insurance premiums, which were not reduced during the closure; (c) property taxes, which continued to accrue; (d) debt service on the mortgage and other secured obligations associated with each property; (e) base utility costs required for preservation and protection of the property (e.g., HVAC to prevent mold, fire suppression systems, security lighting); and (f) security personnel and systems to protect the damaged properties.
• Retention of salaried workforce was both appropriate and required. VHG made a deliberate and reasonable business decision to maintain employment for approximately 70% of its salaried workforce during the closure period. This decision served multiple purposes: it retained trained hospitality staff who would be needed to reopen the properties, thereby enabling a faster and more efficient reopening; it fulfilled VHG's obligations to its employees and maintained relationships critical to VHG's business; and it was consistent with VHG's duty to mitigate its losses, as replacing experienced staff after a prolonged layoff would have delayed reopening and increased costs. The retention of salaried staff during the closure period is a continuing expense under standard BI methodology, and VHG's decision to retain staff was both economically rational and consistent with the mitigation obligations of the policy.
• Appropriate expenses were deducted. Dr. Vasquez did deduct substantial non-continuing expenses from her BI loss calculation. Expenses properly treated as saved and deducted include: hourly housekeeping and room-attendant wages and related labor costs; food-and-beverage raw material and consumable costs; guest amenity costs (toiletries, linens, etc., that are consumed on a per-guest basis); commission-based compensation for sales staff; OTA commissions and travel agent commissions; and other expenses that are directly tied to occupancy and cease when rooms are not sold.
• Consistency with authoritative guidance. Dr. Vasquez's saved-expense methodology is consistent with published guidance from forensic accounting standards, including standards promulgated by the American Institute of Certified Public Accountants, and with the Uniform System of Accounts for the Lodging Industry, which provides the hospitality industry's authoritative framework for classifying and reporting hotel operating expenses.
G. Comparison with Dr. Birk's Analysis (Graystone Consulting Group)
1. Overview of Birk's Report
Dr. Warren Birk of Graystone Consulting Group LLC was retained by defense counsel to provide a competing expert analysis of VHG's business-interruption losses. Dr. Birk's expert report was served on September 15, 2023 — the same date as Dr. Vasquez's expert report. Dr. Birk quantified VHG's BI losses at approximately $34–38 million. Dr. Vasquez should have the precise figure from Dr. Birk's report memorized and available for reference during the deposition.
The key differences between Dr. Birk's analysis and Dr. Vasquez's analysis are as follows:
• Lower ADRs. Dr. Birk used annual (twelve-month) ADR averages rather than seasonal averages matching the closure period, resulting in systematically lower ADR inputs.
• Regional demand-reduction factor. Dr. Birk applied a regional demand-reduction factor of approximately 15%–20% to projected occupancy at all three properties, based on the theory that area-wide hurricane destruction would have depressed tourist demand even at undamaged hotels.
• Shorter restoration periods. Dr. Birk used substantially shorter restoration periods than Dr. Vasquez: approximately 120 days for Grand Key (versus 178 days), approximately 95 days for Harborview (versus 135 days), and approximately 55 days of full closure for Sunset Shores (versus 73 days).
• Higher saved-expense deductions. Dr. Birk applied higher saved-expense deductions than Dr. Vasquez, including by treating certain salaried workforce retention costs as non-continuing expenses.
• Flood/storm surge allocation. Dr. Birk excluded a portion of the Grand Key losses as attributable to storm surge/flood, applying a percentage-based allocation that reduces the covered BI loss at that property.
2. Key Rebuttals
Dr. Vasquez's rebuttal expert report, served on October 2, 2023, addresses each of these points in detail. Dr. Vasquez should be thoroughly familiar with her rebuttal report and prepared to articulate her criticisms of Dr. Birk's methodology clearly and concisely. The key rebuttals are:
• Birk's annual ADR approach is methodologically flawed. As discussed in Section IV.B above, using an annual-average ADR for a seasonal hospitality business where the closures occurred during the peak and shoulder season systematically understates the revenue that VHG would have earned during the closure period. This is a fundamental methodological error that infects Dr. Birk's entire revenue projection.
• Birk's demand-reduction factor is speculative and unsupported. The 15%–20% demand-reduction factor applied by Dr. Birk is not supported by the policy language, is speculative in nature, and is contradicted by empirical evidence showing that undamaged hotels in hurricane-affected areas frequently experience occupancy increases rather than decreases. Dr. Birk did not cite any property-specific or market-specific data demonstrating that occupancy at comparable undamaged hotels actually declined by the percentages he applied.
• Birk's shorter restoration periods lack engineering support. Dr. Birk did not retain a forensic engineer to support his shorter restoration timelines. Instead, he relied on generalized construction-industry benchmarks and average repair timeframes that do not account for the property-specific conditions, post-hurricane contractor shortages, supply chain disruptions, and permitting delays that Mr. Caldwell's detailed engineering analysis addresses. Dr. Birk's restoration periods are, in effect, unsupported assumptions presented as conclusions.
• Birk's saved-expense figures misclassify continuing expenses. Dr. Birk's higher saved-expense deductions result in part from misclassifying continuing expenses as non-continuing. In particular, Dr. Birk treated the costs of retained salaried employees as saved expenses despite the fact that VHG actually incurred those costs during the closure period. An expense that the insured actually incurred is, by definition, not a "saved" expense.
• Birk's flood/storm surge allocation is unsupported. Dr. Birk's allocation of Grand Key losses between wind and flood is based on an unsupported percentage estimate that he developed without the benefit of a forensic engineering analysis. Mr. Caldwell's detailed engineering analysis, by contrast, provides a property-specific, scientifically grounded assessment of the causes of damage at each property. Dr. Birk's percentage-based approach is arbitrary and unreliable.
H. Miscellaneous Anticipated Topics
1. Documents Reviewed and Materials Relied Upon
Defense counsel will likely ask Dr. Vasquez to identify all documents, data sources, and materials she reviewed or relied upon in forming her expert opinions. This is a standard area of deposition inquiry for experts and is specifically addressed by Florida's expert-disclosure requirements.
Dr. Vasquez should be prepared to identify the principal categories of documents and data she reviewed, as listed in the "Materials Relied Upon" section of her expert report. She should be familiar with the contents of her file and should be prepared for the possibility that deposition counsel will hand her specific documents and ask whether she reviewed them during her analysis. Key documents that she should be particularly familiar with include:
• VHG consolidated financial statements for fiscal years 2019, 2020, 2021, and partial 2022.
• Property-level profit-and-loss statements for Grand Key, Harborview, and Sunset Shores.