1021-00003 · Verimark Hospitality Group · Expert Engagement

expert-retention-letter-caldwell.docx DOCUMENT Antitrust

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CALDERWOOD & HARKNESS LLP Attorneys at Law

333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131

Telephone: (305) 555-7200 Facsimile: (305) 555-7201 www.calderwoodharkness.com

April 22, 2023

VIA ELECTRONIC MAIL AND FIRST-CLASS MAIL

Jeffrey Caldwell, PE President / Lead Forensic Engineer Caldwell Engineering Associates Inc. 7900 NW 25th Street, Suite 210 Doral, Florida 33122

Re: Retention as Forensic Engineering and Cause-of-Loss Expert Matter: Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al. Case No.: 2022-CA-031547, Eleventh Judicial Circuit of Florida, Miami-Dade County C&H Engagement No.: 1021-00003

Dear Mr. Caldwell:

Thank you for meeting with us on April 14, 2023, to discuss the above-referenced matter and the potential scope of your engagement as a forensic engineering and cause-of-loss expert. We were impressed by your firm's credentials and your extensive experience in post-hurricane damage assessment throughout the State of Florida and the broader Gulf Coast region. This letter sets forth the terms and conditions of your retention by our firm on behalf of our client, Verimark Hospitality Group Inc., and is intended to serve as the binding agreement between Calderwood & Harkness LLP and Caldwell Engineering Associates Inc. governing this engagement.

Please review this letter carefully in its entirety and, if the terms are acceptable, countersign where indicated at the conclusion of this letter and return a fully executed copy to our office at your earliest convenience.

1. Introduction and Purpose of Engagement

Calderwood & Harkness LLP ("Calderwood & Harkness" or the "Firm") represents Verimark Hospitality Group Inc. ("VHG"), a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK, with its principal place of business located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. VHG is one of the largest independent resort and hospitality operators in the southeastern United States, with a portfolio of seventeen properties across Florida, Georgia, and the U.S. Virgin Islands.

VHG is the plaintiff in a significant business-interruption insurance-coverage dispute arising from the devastation caused by Hurricane Callista, a Category 4 hurricane that made landfall in the Lower Florida Keys on September 18, 2022. The action was filed under Case No. 2022-CA-031547 in the Eleventh Judicial Circuit of Florida, in and for Miami-Dade County, and is pending before the Honorable Catherine Embry, Circuit Court Judge.

The defendants in this action are the four insurers comprising VHG's property and business-interruption insurance tower for the policy period July 1, 2022, through July 1, 2023:

• Ironclad Indemnity Corporation ("Ironclad") — primary layer carrier;

• Pinnacle Surplus Lines Inc. ("Pinnacle") — first excess layer carrier;

• Montclair Assurance Company ("Montclair") — second excess layer carrier; and

• Sovereign Re Ltd. ("Sovereign Re") — third excess layer carrier.

VHG's total business-interruption claim across three Florida resort properties affected by Hurricane Callista is approximately $60 million, which, if fully established, would implicate the entire four-layer insurance tower above the applicable deductible.

The purpose of this letter is to formally confirm the retention of Caldwell Engineering Associates Inc. ("Caldwell Engineering" or the "Expert") and you personally, Jeffrey Caldwell, PE, as VHG's forensic engineering and cause-of-loss expert in this matter. Your engagement is critical to establishing, through sound engineering analysis and credible expert testimony, the causation of damage at each of VHG's three affected resort properties and the reasonableness of the restoration periods that followed.

Your primary points of contact at Calderwood & Harkness will be Elaine Forsythe, Partner (the responsible partner on this engagement), and Andrew Fitzpatrick, Associate (the day-to-day working attorney on this matter). Contact information for both individuals is set forth in Section 12 below. Unless otherwise directed, please route all substantive communications through Mr. Fitzpatrick, with copies to Ms. Forsythe as appropriate.

2. Background of the Dispute

To provide context for your engagement, we set forth below a summary of the factual and legal background of this dispute. Additional details are contained in the enclosed copies of the Complaint, the relevant insurance policy excerpts, and the coverage denial correspondence. We will supplement this background information as discovery proceeds.

2.1 Hurricane Callista

Hurricane Callista was designated as a named tropical storm by the National Hurricane Center ("NHC") on September 12, 2022, after organizing from a tropical wave that had been tracked across the central Caribbean for several days. The storm underwent rapid intensification as it crossed the warm waters of the Straits of Florida and was upgraded to hurricane status on September 14, 2022. By September 17, 2022, Callista had strengthened to a major hurricane (Category 3) and continued to intensify as it approached the Florida Keys.

Hurricane Callista made landfall at approximately 1:30 PM EDT on September 18, 2022, near Big Pine Key in the Lower Florida Keys. At the time of landfall, Callista was classified as a Category 4 hurricane on the Saffir-Veltason Hurricane Wind Scale, with maximum sustained winds of approximately 145 miles per hour and significantly higher wind gusts recorded at several monitoring stations throughout Monroe County.

The storm generated catastrophic storm surge. NHC and United States Geological Survey ("USGS") post-storm assessments documented storm surge of 8 to 14 feet above normal tide levels in Monroe County and 6 to 10 feet above normal tide levels in Lee County. Coastal flooding was also documented along portions of the Pinellas County coastline, though at lesser magnitudes. The combination of extreme wind and significant storm surge made Hurricane Callista the most destructive hurricane to impact the Florida Keys and Southwest Florida since Hurricane Irma in 2017.

In anticipation of the storm's arrival, Monroe County issued a mandatory evacuation order on September 16, 2022, covering all residents and visitors in the Florida Keys. Lee County issued its own mandatory evacuation order on September 17, 2022, covering barrier islands and low-lying coastal areas, including Fort Myers Beach. These evacuation orders, copies of which are enclosed with this letter, are relevant to VHG's decision to cease operations and close its affected properties in advance of the storm's arrival.

2.2 VHG's Insured Properties

Three of VHG's Florida resort properties sustained significant damage as a result of Hurricane Callista and were forced to close for extended periods, resulting in substantial business-interruption losses. The three affected properties are described below:

a. Verimark Grand Key Resort — Marathon, Florida

The Verimark Grand Key Resort (the "Grand Key Resort") is located at Mile Marker 48 on the Overseas Highway in Marathon, Monroe County, Florida 33050. The Grand Key Resort is a 312-room luxury resort and full-service marina situated on approximately 28 acres of oceanfront property. The property includes multiple guest-room buildings ranging from two to five stories, a central lobby and reception building, three restaurants, a 15,000-square-foot spa facility, a 120-slip marina, and associated grounds and recreational amenities.

The Grand Key Resort was closed on September 18, 2022, and did not reopen to guests until March 15, 2023 — a total closure period of 178 days. VHG's estimated business-interruption loss for the Grand Key Resort is $31.4 million. This property sustained the most significant damage of the three affected resorts and is the focal point of the defendants' concurrent-causation and flood-exclusion defense, given the documented storm surge levels in Monroe County.

b. Verimark Harborview Hotel & Conference Center — Fort Myers Beach, Florida

The Verimark Harborview Hotel & Conference Center (the "Harborview") is located at 1400 Estero Boulevard, Fort Myers Beach, Lee County, Florida 33931. The Harborview is a 224-room hotel featuring a 40,000-square-foot conference and event facility, two restaurants, a rooftop bar, an outdoor pool complex, and parking garage. The property occupies approximately 6.5 acres on the northern end of Fort Myers Beach, directly facing Estero Bay.

The Harborview was closed on September 18, 2022, and did not reopen until January 31, 2023 — a total closure period of 135 days. VHG's estimated business-interruption loss for the Harborview is $18.7 million.

c. Verimark Sunset Shores — St. Pete Beach, Florida

The Verimark Sunset Shores resort ("Sunset Shores") is located at 7200 Gulf Boulevard, St. Pete Beach, Pinellas County, Florida 33706. Sunset Shores is a 186-room boutique resort with a single eight-story guest-room tower, a ground-floor restaurant, outdoor pool, and beachfront amenities. The property sits on approximately 3.2 acres facing the Gulf of Mexico.

Sunset Shores experienced a full closure from September 18, 2022, through November 30, 2022 — a period of 73 days — followed by a period of reduced-capacity operations through February 28, 2023, at which point the property returned to full operational capacity. VHG's estimated business-interruption loss for Sunset Shores, encompassing both the full closure period and the reduced-capacity period, is $9.9 million.

The aggregate estimated business-interruption loss across all three properties is approximately $60 million.

2.3 Insurance Program

At the time of Hurricane Callista, VHG maintained an all-risk property and business-interruption insurance program structured as a four-layer tower, with a combined policy period of July 1, 2022, through July 1, 2023. The tower is structured as follows:

The total available tower limit is $60,000,000 above the $500,000 per-occurrence deductible. The Ironclad primary policy is an all-risk commercial property policy that provides first-party property damage and business-interruption coverage for direct physical loss or damage to covered property caused by a covered peril, subject to the policy's terms, conditions, and exclusions. The three excess policies generally follow form to the Ironclad primary policy, with certain endorsements and modifications particular to each layer.

Excerpts of the Ironclad primary policy (Policy No. IIC-PRP-2022-07541), including the relevant coverage grant, exclusions, and anti-concurrent causation language, are enclosed with this letter for your review.

2.4 Insurer Coverage Defenses Relevant to Engineering Analysis

Following VHG's submission of its claim, Ironclad, through its coverage counsel and adjusters, denied a substantial portion of the claimed losses. The coverage defenses raised by the defendants that are most directly relevant to your engineering analysis are summarized below:

a. Concurrent Causation / Flood Exclusion Defense. Ironclad's primary policy contains a flood exclusion and an anti-concurrent causation ("ACC") clause. Ironclad asserts that significant portions of the damage at the Grand Key Resort — and, to a lesser degree, at the Harborview and Sunset Shores — resulted from storm surge, which Ironclad characterizes as "flood" within the meaning of the policy's flood exclusion. Ironclad further contends that, even where wind damage and storm-surge damage occurred concurrently or in sequence, the ACC clause bars recovery for all damage, including damage otherwise attributable to the covered peril of wind, because the damage occurred "in connection with" or "concurrently with" an excluded flood event.

This defense is most acute at the Grand Key Resort in Marathon, where documented storm surge in Monroe County ranged from 8 to 14 feet and the property is situated at relatively low elevation. Your cause-of-loss analysis will be central to addressing this defense by differentiating, where possible, between damage caused by wind and damage caused by storm surge at each property and each major building component.

b. Failure to Mitigate / Unreasonable Period of Restoration. Ironclad also contends that VHG's claimed periods of restoration at each of the three properties were unreasonably prolonged. Ironclad argues that VHG failed to take reasonable steps to mitigate its business-interruption losses by expediting repairs and reopening the properties sooner. The reasonableness of the restoration period is fundamentally an engineering question, dependent upon the nature and extent of the damage sustained, the availability of contractors and materials in post-hurricane conditions, permitting timelines, and other practical constraints.

We note that a separate damages expert, Dr. Helen Vasquez of Meridian Forensic Economics LLC, has been retained by Calderwood & Harkness to address the financial quantification of VHG's business-interruption losses. Mr. Caldwell's engagement is limited to engineering causation analysis and restoration-period opinions from an engineering and construction perspective. Dr. Vasquez will rely, in part, on Mr. Caldwell's engineering conclusions — particularly his determination of the reasonable period of restoration — in preparing her damages analysis. Coordination between the two experts is discussed further in Section 5 below.

2.5 Litigation Posture

VHG filed its Complaint on March 1, 2023, in the Eleventh Judicial Circuit of Florida, in and for Miami-Dade County, under Case No. 2022-CA-031547. The case has been assigned to the Honorable Catherine Embry, Circuit Court Judge. The Complaint asserts claims for breach of contract, declaratory judgment, and bad faith against all four insurer defendants.

The defendants filed their respective Answers on April 15, 2023. A Case Management Conference was held before Judge Embry on May 1, 2023, at which the Court set the following discovery schedule:

• Fact discovery: June 1, 2023, through September 30, 2023

• Expert Reports (Plaintiff): September 15, 2023

• Expert Reports (Defendants): November 1, 2023 (anticipated, subject to the Court's scheduling order)

• Expert Depositions: October through December 2023 (anticipated)

• Trial Date: To be determined

Defense counsel in this matter includes two separate law firms representing the four insurer defendants:

• Fendowell Rourke & Stanton LLP (Gregory Stanton, Partner) — representing Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc.

• Delvecchio & Kraus LLP (Patricia Kraus, Partner) — representing Montclair Assurance Company and Sovereign Re Ltd.

We are aware that the defendants have retained Graystone Consulting Group LLC and its principal, Dr. Warren Birk, as their damages, coverage, and engineering expert. We anticipate that Dr. Birk will offer opinions contrary to yours on cause-of-loss and period-of-restoration issues, and your opinions should be prepared with the understanding that they will be subjected to rigorous cross-examination and competing expert analysis.

Additionally, we note that Ironclad's initial post-hurricane property inspection was conducted on October 5, 2022, by Arbor Claims Services LLC, with Denise Whitford serving as lead adjuster. A copy of the Arbor Claims Services inspection report is enclosed with this letter. This report will be among the materials you will need to review and assess critically as part of your engagement.

3. Scope of Engagement

The scope of your engagement encompasses the following categories of work, each of which is described in detail below.

3.1 Cause-of-Loss Analysis

The central task of your engagement is to analyze and differentiate, to the extent the physical and meteorological evidence permits, between damage caused by wind (a covered peril under the Ironclad policy) and damage caused by storm surge and flood (a disputed peril subject to Ironclad's flood exclusion and anti-concurrent causation defense) at each of VHG's three affected resort properties.

Specifically, we ask that you:

(a) Determine the primary, predominant, or efficient proximate cause of damage to each major building component, structural element, and operational system at each of the three properties. This analysis should address, at a minimum: roofing systems and roof covering; exterior wall cladding and curtain walls; windows, doors, and fenestration; structural framing and load-bearing elements; mechanical, electrical, and plumbing (MEP) systems; elevators and vertical transportation; interior finishes, furnishings, fixtures, and equipment (FF&E); grounds, landscaping, pools, and recreational amenities; and, at the Grand Key Resort specifically, marina infrastructure including docks, seawalls, pilings, and floating structures.

(b) At the Grand Key Resort in Marathon, Florida, where storm surge of 8 to 14 feet in Monroe County has been documented and where Ironclad's flood exclusion defense is most acute, provide a particularly detailed analysis distinguishing wind damage from flood/surge damage. This should include evaluation of damage elevation relative to observed storm surge high-water marks, analysis of debris patterns, assessment of structural failure mechanisms (e.g., uplift versus lateral hydrostatic/hydrodynamic loading), and any other physical indicators that bear on causation.

(c) Evaluate the meteorological and physical evidence of wind speed, wind direction, storm surge timing and duration, wave action, and rainfall at each property location during the passage of Hurricane Callista. This evaluation should draw on available NHC reports, Automated Surface Observing System (ASOS) and other weather station data, USGS tide gauge and high-water mark data, and any other relevant meteorological or hydrological records.

(d) Review and critically assess any competing engineering analyses, inspection reports, or expert reports produced by the defendants or their experts and consultants, including without limitation the Arbor Claims Services LLC inspection report from the October 5, 2022, property inspection conducted by Denise Whitford, and any reports or opinions offered by Dr. Warren Birk of Graystone Consulting Group LLC once those are produced in discovery.

3.2 Structural Damage Assessment

In connection with the cause-of-loss analysis described above, we ask that you undertake a thorough structural damage assessment of each of the three affected properties. This should include the following:

(a) Conduct comprehensive site inspections of all three properties — the Grand Key Resort, the Harborview Hotel & Conference Center, and Sunset Shores — to the extent such inspections have not already been completed by your firm. If you have previously inspected any of these properties (whether in connection with this engagement or otherwise), please advise us of the date(s) and scope of those inspections. We will coordinate with VHG's property management teams to arrange access as needed.

(b) Document all observable damage patterns at each property, including but not limited to: waterline evidence and high-water marks on interior and exterior surfaces; wind-driven debris impact marks; roof membrane and roof covering damage; window and door failures; exterior cladding damage; evidence of wind-driven rain intrusion versus rising-water intrusion; structural cracking, displacement, or deformation; damage to MEP systems; and any other physical indicators bearing on cause-of-loss.

(c) Evaluate whether the observed damage patterns at each property are consistent with wind forces (including wind uplift, wind pressure, and wind-borne debris impact), hydrostatic and hydrodynamic flood forces (including storm surge, wave action, and current), or a combination of wind and flood forces acting concurrently or in sequence.

(d) Review all available construction documents, engineering drawings, as-built plans, building permits, certificates of occupancy, structural inspection reports, and pre-loss and post-loss repair records for each property. Calderwood & Harkness will coordinate with VHG to obtain and provide these materials to you.

3.3 Period of Restoration / Reasonable Repair Timeline Opinions

An important component of your engagement is to opine on the reasonableness of the period required to restore each of VHG's three affected properties to their pre-loss operating condition following Hurricane Callista. This aspect of your opinion directly addresses Ironclad's coverage defense that VHG unreasonably delayed restoration and failed to mitigate its business-interruption losses.

Specifically, we ask that you:

(a) For each property, evaluate the nature and extent of the hurricane damage and determine, based on your engineering judgment and experience, the reasonable period of time that would be required to complete all necessary repairs, restoration, and re-commissioning work to return the property to its pre-hurricane operating condition.

(b) Address Ironclad's specific contention that VHG unreasonably delayed restoration at each property by comparing VHG's actual restoration timelines — Grand Key Resort: 178 days (September 18, 2022, through March 15, 2023); Harborview: 135 days (September 18, 2022, through January 31, 2023); and Sunset Shores: 73 days full closure (September 18 through November 30, 2022), with reduced capacity through February 28, 2023 — against your determination of what constitutes a reasonable restoration timeline given the damage sustained and the conditions prevailing in each locality.

(c) Take into account the actual post-Hurricane Callista conditions in the Florida Keys and along the Southwest Florida Gulf Coast that affected the pace of repair and restoration, including but not limited to: severe labor shortages in the construction trades in the immediate aftermath of the storm; scarcity of building materials and supply-chain disruptions exacerbated by the concentration of competing repair projects throughout the affected region; permitting delays at the local and county levels as building departments were overwhelmed with permit applications; disruption to transportation infrastructure, including road closures, bridge inspections, and restricted access to the Florida Keys via the Overseas Highway; disruption to utility services, including electrical power, potable water, and sanitary sewer; and the phased reopening of communities in Monroe and Lee Counties following the lifting of evacuation orders.

(d) Where applicable, distinguish between delays attributable to the hurricane damage itself (which would support VHG's claimed period of restoration) and any delays, if identified, that may be attributable to pre-existing conditions, elective improvements, or other factors unrelated to Hurricane Callista.

3.4 Expert Report and Testimony

Upon completion of your analysis, we ask that you:

(a) Prepare a comprehensive written expert report suitable for service on opposing counsel under the applicable Florida Rules of Civil Procedure, including Florida Rule of Civil Procedure 1.390 and any applicable case-specific orders entered by Judge Embry. Your report should set forth your qualifications, the materials and data you reviewed and relied upon, the methodology you employed, and your opinions and the bases for those opinions. The report is due no later than September 15, 2023, consistent with the Court's discovery schedule.

(b) Be available for deposition by defense counsel during the expert discovery period, which is currently anticipated to take place in October or November 2023. Calderwood & Harkness will prepare you for your deposition and will defend you at the deposition.

(c) Be available to provide live testimony at trial in this matter if the case does not resolve through settlement or other disposition prior to trial. The trial date has not yet been set but is anticipated for the first or second quarter of 2024. We will provide you with as much advance notice of the trial date as possible and will conduct thorough trial preparation sessions with you in advance of your testimony.

4. Materials to Be Provided

Calderwood & Harkness will provide or arrange access to the following materials for your review and use in connection with this engagement:

1. Copies of all four insurance policies comprising VHG's property and business-interruption insurance tower, including the Ironclad primary policy (Policy No. IIC-PRP-2022-07541), the Pinnacle first excess policy (Policy No. PSL-XS1-2022-3390), the Montclair second excess policy (Policy No. MAC-XS2-2022-09817), and the Sovereign Re third excess policy (Policy No. SRL-XS3-2022-5102), together with all endorsements, amendments, and schedule pages.

2. VHG's property damage photographs, video recordings, and drone imagery taken in the days and weeks following Hurricane Callista at all three affected properties. We understand that VHG's property management teams documented the damage extensively beginning on September 20, 2022, when initial access to the properties was possible.

3. The Arbor Claims Services LLC inspection report and accompanying photographs from the October 5, 2022, property inspection conducted by Denise Whitford, lead adjuster. This report was prepared at Ironclad's direction and forms part of the basis for Ironclad's coverage position.

4. VHG's construction and repair records for all three properties, including but not limited to: original construction plans and engineering drawings; as-built surveys; pre-loss renovation and maintenance records; post-hurricane contractor bids, proposals, and contracts; repair invoices and payment records; construction project schedules and progress reports; and any post-repair inspection reports or certificates of completion.

5. Relevant meteorological data, including NHC tropical cyclone reports, advisories, and post-storm analyses for Hurricane Callista; data from applicable ASOS weather stations, NOAA weather buoys, and other monitoring stations; USGS tide gauge readings and high-water mark surveys; and any privately commissioned meteorological analyses.

6. Copies of the Monroe County mandatory evacuation order dated September 16, 2022, and the Lee County mandatory evacuation order dated September 17, 2022.

7. Deposition transcripts as they become available during the fact-discovery period of June 1 through September 30, 2023. We anticipate that depositions of key VHG personnel, Ironclad claims representatives, Arbor Claims Services adjusters, and potentially others will be conducted during this period.

8. Any engineering, forensic, or consulting reports produced by the defendants or their experts (including Graystone Consulting Group LLC and Dr. Warren Birk) through the discovery process.

9. Such additional documents, data, and materials as may be reasonably requested by you in the course of your analysis. Please direct all requests for additional materials to Andrew Fitzpatrick, and we will endeavor to obtain and provide the requested items promptly.

A preliminary set of enclosed materials accompanies this letter, as listed in the Enclosures section below. Additional materials will be transmitted to you on a rolling basis as they become available.

5. Coordination with Other Experts

As noted above, your work will complement the financial damages analysis being performed by Dr. Helen Vasquez of Meridian Forensic Economics LLC, located at 1201 Peachtree Street NE, Suite 1000, Atlanta, Georgia 30361. Dr. Vasquez has been retained by Calderwood & Harkness, on behalf of VHG, to quantify VHG's business-interruption losses at each of the three affected properties. Dr. Vasquez is a forensic economist and certified public accountant with extensive experience in insurance loss quantification.

Dr. Vasquez's business-interruption loss quantification relies in significant part on the determination of the reasonable period of restoration for each property. Accordingly, coordination between your period-of-restoration opinions and Dr. Vasquez's financial analysis will be necessary to ensure that the two sets of expert opinions are consistent and mutually supportive.

We ask that you observe the following guidelines with respect to coordination with Dr. Vasquez and any other experts engaged in this matter:

(a) All communications between you and Dr. Vasquez (or any other expert retained by Calderwood & Harkness in this matter) should be coordinated through and at the direction of Calderwood & Harkness. Please do not initiate direct communications with Dr. Vasquez or her staff without first consulting with Andrew Fitzpatrick or Elaine Forsythe.

(b) Calderwood & Harkness will arrange and facilitate any joint meetings, teleconferences, or data exchanges between you and Dr. Vasquez that may be necessary to ensure proper coordination of your respective opinions.

(c) Please be mindful that communications between testifying experts may be subject to discovery. Any communications with Dr. Vasquez should be professional, substantive, and consistent with the opinions you intend to present in your expert report and testimony.

6. Fees and Billing

The following terms govern the fees and billing arrangements for this engagement:

(a) Hourly Rates. Your hourly rate for professional engineering services in this engagement, and the hourly rates of any supporting engineers, technicians, or staff at Caldwell Engineering Associates Inc. who may perform work on this matter, shall be as set forth on the attached rate schedule, which you are asked to provide and confirm as part of your countersignature of this letter. We understand that your rates are consistent with prevailing market rates for forensic engineering expert services of this nature in the South Florida market.

(b) Invoicing. Invoices shall be submitted on a monthly basis to Calderwood & Harkness LLP, to the attention of Andrew Fitzpatrick, at the address set forth in this letter. Each invoice should include a detailed description of the services performed by each timekeeper, the date of service, the hours expended, the applicable hourly rate, and the total fees for the billing period. Please reference engagement number 1021-00003 on all invoices and correspondence.

(c) Expenses. Reasonable out-of-pocket expenses incurred in connection with this engagement, including travel expenses (airfare, ground transportation, lodging, and meals), site inspection costs, specialized testing equipment rental, laboratory testing fees, and sub-consultant fees, are reimbursable. However, any single expense item or category of expenses exceeding $2,500 must be pre-approved in writing by Calderwood & Harkness prior to being incurred. Expenses should be itemized and documented with receipts on each monthly invoice.

(d) Payment Responsibility. All fees and expenses associated with this engagement are advanced by Calderwood & Harkness LLP on behalf of VHG. Caldwell Engineering Associates Inc. shall not bill VHG directly for any fees, expenses, or other charges related to this engagement. All invoices and billing inquiries should be directed exclusively to Calderwood & Harkness.

(e) Payment Terms. Calderwood & Harkness will endeavor to process and pay all properly submitted invoices within thirty (30) days of receipt.

7. Confidentiality and Privilege

The confidentiality of your engagement and the materials and communications associated with it are of paramount importance. Please observe the following:

(a) All communications between Caldwell Engineering Associates Inc. and Calderwood & Harkness LLP in connection with this engagement are made at the direction of counsel and in anticipation of litigation, and are protected by the attorney-client privilege and/or the work-product doctrine to the fullest extent permitted by applicable law.

(b) You shall not disclose any information received in connection with this engagement — including but not limited to confidential client information, litigation strategy, privileged communications, insurance policy terms, financial data, or any other materials provided to you by Calderwood & Harkness or VHG — to any third party without the prior written consent of Calderwood & Harkness.

(c) All draft reports, preliminary analyses, working notes, internal memoranda, and other materials prepared by you or your staff in the course of this engagement that have not been finalized and served as your expert report are attorney work product and should be treated as privileged and confidential. We advise you to maintain clear records distinguishing between draft and final work product.

(d) Your final expert report, once completed, served on opposing counsel, and filed with the Court, will become a public document subject to discovery and cross-examination. You should prepare your final report with the understanding that it will be disclosed to and scrutinized by the defendants, their counsel, and their experts.

(e) You shall not communicate directly with any party to this litigation, their counsel, their representatives, or their experts — including without limitation Ironclad Indemnity Corporation, Pinnacle Surplus Lines Inc., Montclair Assurance Company, Sovereign Re Ltd., Fendowell Rourke & Stanton LLP, Delvecchio & Kraus LLP, Arbor Claims Services LLC, Denise Whitford, Graystone Consulting Group LLC, or Dr. Warren Birk — without prior express authorization from Calderwood & Harkness. If you are contacted by any of these individuals or entities, please decline to discuss the matter and promptly notify Andrew Fitzpatrick or Elaine Forsythe.

(f) Upon the conclusion of this engagement, all materials provided to you by Calderwood & Harkness or VHG shall be returned or destroyed at counsel's direction, as set forth in Section 10 below.

8. Independence and Objectivity

Caldwell Engineering Associates Inc. is retained to provide independent, objective expert opinions based on sound engineering principles, accepted forensic engineering methodologies, and the available physical and documentary evidence. We emphasize the following:

(a) Your opinions must be scientifically and technically supportable, grounded in recognized engineering standards and practices, and defensible under rigorous cross-examination by skilled opposing counsel.

(b) While we obviously hope and anticipate that the evidence will support conclusions favorable to VHG's position, we do not ask or expect you to advocate for a particular result. Your credibility as an expert depends on your independence and objectivity, and those qualities are ultimately more valuable to VHG's case than any particular conclusion.

(c) If, at any point during the course of your analysis, your conclusions or preliminary findings are unfavorable to VHG's position on any issue — whether with respect to cause of loss, the differentiation of wind versus flood damage, or the reasonableness of the restoration period — you should promptly advise Calderwood & Harkness of those conclusions so that we can evaluate their impact on the case strategy and make informed decisions about how to proceed.

(d) Similarly, if you identify any limitations in the available evidence or data that prevent you from reaching a definitive conclusion on any issue within the scope of your engagement, please communicate those limitations to us promptly.

9. Conflicts of Interest

Before commencing work on this engagement, we ask that Caldwell Engineering Associates Inc. conduct a thorough conflicts check and confirm in writing that your firm has no current or prior engagement for or against any of the following entities that would create, or could reasonably be perceived to create, a conflict of interest:

• Ironclad Indemnity Corporation

• Pinnacle Surplus Lines Inc.

• Montclair Assurance Company

• Sovereign Re Ltd.

• Fendowell Rourke & Stanton LLP

• Delvecchio & Kraus LLP

• Arbor Claims Services LLC

• Graystone Consulting Group LLC

• Dr. Warren Birk

We recognize that forensic engineering firms routinely perform work in the insurance industry and that prior engagements involving one or more of the above entities, particularly in unrelated matters, may not necessarily constitute a disqualifying conflict. However, if any potential or actual conflict is identified, you should disclose it immediately to Calderwood & Harkness so that we can evaluate the situation and determine whether the engagement can proceed. Please include your written conflicts confirmation with your countersigned copy of this letter.

10. Term and Termination

This retention is effective as of the date of this letter and shall continue through the conclusion of the above-referenced matter, including any trial proceedings, post-trial motions, and appellate proceedings in which your expert testimony or consultation may be required.

Either party may terminate this engagement upon thirty (30) days' prior written notice to the other party. Notwithstanding the foregoing, any termination is subject to your professional obligations with respect to any pending deadlines, court-ordered obligations, or proceedings that require your participation, including any scheduled depositions, hearing appearances, or trial testimony dates. In the event of termination, you will cooperate with Calderwood & Harkness to ensure an orderly transition and to avoid any prejudice to VHG's interests.

Upon termination of this engagement for any reason, all materials, documents, data, and other property provided to you by Calderwood & Harkness or VHG in connection with this engagement shall be promptly returned to Calderwood & Harkness or destroyed at counsel's written direction. You will certify in writing that all such materials have been returned or destroyed, as applicable.

11. Acceptance and Countersignature

If the foregoing terms and conditions are acceptable and accurately reflect our mutual understanding regarding your retention in this matter, please indicate your acceptance by signing and dating this letter in the space provided below and returning one fully executed original to our office. You may return the signed original by hand delivery, first-class mail, or overnight courier to the address set forth below, or you may transmit a scanned copy of the signed letter via electronic mail to Andrew Fitzpatrick, with the original to follow by mail.

We look forward to working with you and your team on this important matter.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Name: Elaine Forsythe

Title: Partner

Date: April 22, 2023

ACCEPTED AND AGREED

The undersigned hereby accepts the terms and conditions of this retention letter and confirms that Caldwell Engineering Associates Inc. has conducted a conflicts check as described in Section 9 above and has identified no conflicts of interest that would preclude this engagement.

CALDWELL ENGINEERING ASSOCIATES INC.

By: ________

Name: Jeffrey Caldwell, PE

Title: President / Lead Forensic Engineer

Date: ________

12. Contact Information

Primary Contacts at Calderwood & Harkness LLP:

Andrew Fitzpatrick — Working Associate Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Direct Phone: (305) 555-7238

Email: afitzpatrick@calderwoodharkness.com

Elaine Forsythe — Responsible Partner Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Direct Phone: (305) 555-7215

Email: eforsythe@calderwoodharkness.com

Primary Contact at Caldwell Engineering Associates Inc.:

Jeffrey Caldwell, PE — President / Lead Forensic Engineer Caldwell Engineering Associates Inc. 7900 NW 25th Street, Suite 210 Doral, Florida 33122 Direct Phone: (305) 555-4180

Email: jcaldwell@caldwellengineering.com

Enclosures:

1. Copy of Complaint, Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al., Case No. 2022-CA-031547 (filed March 1, 2023)

2. Ironclad Indemnity Corporation Primary Policy No. IIC-PRP-2022-07541 (excerpts, including coverage grant, flood exclusion, anti-concurrent causation clause, and business-interruption provisions)

3. Ironclad Indemnity Corporation Coverage Denial Letter dated February 3, 2023

4. Arbor Claims Services LLC Inspection Report and Photographs (October 5, 2022, Denise Whitford, Lead Adjuster)

5. Property Damage Photo Package — Verimark Grand Key Resort, Verimark Harborview Hotel & Conference Center, and Verimark Sunset Shores (three properties)

6. Monroe County Mandatory Evacuation Order (September 16, 2022)

7. Lee County Mandatory Evacuation Order (September 17, 2022)

cc:

Nathaniel Driscoll, General Counsel, Verimark Hospitality Group Inc. Elaine Forsythe, Partner, Calderwood & Harkness LLP File: 1021-00003

Layer	Carrier	Limit	Attachment	Policy Number
Primary	Ironclad Indemnity Corporation	$25,000,000	$500,000 deductible	IIC-PRP-2022-07541
First Excess	Pinnacle Surplus Lines Inc.	$15,000,000	$25,000,000 xs $500,000 deductible	PSL-XS1-2022-3390
Second Excess	Montclair Assurance Company	$10,000,000	$40,000,000 xs $500,000 deductible	MAC-XS2-2022-09817
Third Excess	Sovereign Re Ltd.	$10,000,000	$50,000,000 xs $500,000 deductible	SRL-XS3-2022-5102

CALDERWOOD & HARKNESS LLP Attorneys at Law
333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131
Telephone: (305) 555-7200 Facsimile: (305) 555-7201 www.calderwoodharkness.com
April 22, 2023
VIA ELECTRONIC MAIL AND FIRST-CLASS MAIL
Jeffrey Caldwell, PE President / Lead Forensic Engineer Caldwell Engineering Associates Inc. 7900 NW 25th Street, Suite 210 Doral, Florida 33122
Re: Retention as Forensic Engineering and Cause-of-Loss Expert Matter: Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al. Case No.: 2022-CA-031547, Eleventh Judicial Circuit of Florida, Miami-Dade County C&H Engagement No.: 1021-00003
Dear Mr. Caldwell:
Thank you for meeting with us on April 14, 2023, to discuss the above-referenced matter and the potential scope of your engagement as a forensic engineering and cause-of-loss expert. We were impressed by your firm's credentials and your extensive experience in post-hurricane damage assessment throughout the State of Florida and the broader Gulf Coast region. This letter sets forth the terms and conditions of your retention by our firm on behalf of our client, Verimark Hospitality Group Inc., and is intended to serve as the binding agreement between Calderwood & Harkness LLP and Caldwell Engineering Associates Inc. governing this engagement.
Please review this letter carefully in its entirety and, if the terms are acceptable, countersign where indicated at the conclusion of this letter and return a fully executed copy to our office at your earliest convenience.
1. Introduction and Purpose of Engagement
Calderwood & Harkness LLP ("Calderwood & Harkness" or the "Firm") represents Verimark Hospitality Group Inc. ("VHG"), a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK, with its principal place of business located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. VHG is one of the largest independent resort and hospitality operators in the southeastern United States, with a portfolio of seventeen properties across Florida, Georgia, and the U.S. Virgin Islands.
VHG is the plaintiff in a significant business-interruption insurance-coverage dispute arising from the devastation caused by Hurricane Callista, a Category 4 hurricane that made landfall in the Lower Florida Keys on September 18, 2022. The action was filed under Case No. 2022-CA-031547 in the Eleventh Judicial Circuit of Florida, in and for Miami-Dade County, and is pending before the Honorable Catherine Embry, Circuit Court Judge.
The defendants in this action are the four insurers comprising VHG's property and business-interruption insurance tower for the policy period July 1, 2022, through July 1, 2023:
•  Ironclad Indemnity Corporation ("Ironclad") — primary layer carrier;
•  Pinnacle Surplus Lines Inc. ("Pinnacle") — first excess layer carrier;
•  Montclair Assurance Company ("Montclair") — second excess layer carrier; and
•  Sovereign Re Ltd. ("Sovereign Re") — third excess layer carrier.
VHG's total business-interruption claim across three Florida resort properties affected by Hurricane Callista is approximately $60 million, which, if fully established, would implicate the entire four-layer insurance tower above the applicable deductible.
The purpose of this letter is to formally confirm the retention of Caldwell Engineering Associates Inc. ("Caldwell Engineering" or the "Expert") and you personally, Jeffrey Caldwell, PE, as VHG's forensic engineering and cause-of-loss expert in this matter. Your engagement is critical to establishing, through sound engineering analysis and credible expert testimony, the causation of damage at each of VHG's three affected resort properties and the reasonableness of the restoration periods that followed.
Your primary points of contact at Calderwood & Harkness will be Elaine Forsythe, Partner (the responsible partner on this engagement), and Andrew Fitzpatrick, Associate (the day-to-day working attorney on this matter). Contact information for both individuals is set forth in Section 12 below. Unless otherwise directed, please route all substantive communications through Mr. Fitzpatrick, with copies to Ms. Forsythe as appropriate.
2. Background of the Dispute
To provide context for your engagement, we set forth below a summary of the factual and legal background of this dispute. Additional details are contained in the enclosed copies of the Complaint, the relevant insurance policy excerpts, and the coverage denial correspondence. We will supplement this background information as discovery proceeds.
2.1 Hurricane Callista
Hurricane Callista was designated as a named tropical storm by the National Hurricane Center ("NHC") on September 12, 2022, after organizing from a tropical wave that had been tracked across the central Caribbean for several days. The storm underwent rapid intensification as it crossed the warm waters of the Straits of Florida and was upgraded to hurricane status on September 14, 2022. By September 17, 2022, Callista had strengthened to a major hurricane (Category 3) and continued to intensify as it approached the Florida Keys.
Hurricane Callista made landfall at approximately 1:30 PM EDT on September 18, 2022, near Big Pine Key in the Lower Florida Keys. At the time of landfall, Callista was classified as a Category 4 hurricane on the Saffir-Veltason Hurricane Wind Scale, with maximum sustained winds of approximately 145 miles per hour and significantly higher wind gusts recorded at several monitoring stations throughout Monroe County.
The storm generated catastrophic storm surge. NHC and United States Geological Survey ("USGS") post-storm assessments documented storm surge of 8 to 14 feet above normal tide levels in Monroe County and 6 to 10 feet above normal tide levels in Lee County. Coastal flooding was also documented along portions of the Pinellas County coastline, though at lesser magnitudes. The combination of extreme wind and significant storm surge made Hurricane Callista the most destructive hurricane to impact the Florida Keys and Southwest Florida since Hurricane Irma in 2017.
In anticipation of the storm's arrival, Monroe County issued a mandatory evacuation order on September 16, 2022, covering all residents and visitors in the Florida Keys. Lee County issued its own mandatory evacuation order on September 17, 2022, covering barrier islands and low-lying coastal areas, including Fort Myers Beach. These evacuation orders, copies of which are enclosed with this letter, are relevant to VHG's decision to cease operations and close its affected properties in advance of the storm's arrival.
2.2 VHG's Insured Properties
Three of VHG's Florida resort properties sustained significant damage as a result of Hurricane Callista and were forced to close for extended periods, resulting in substantial business-interruption losses. The three affected properties are described below:
a. Verimark Grand Key Resort — Marathon, Florida
The Verimark Grand Key Resort (the "Grand Key Resort") is located at Mile Marker 48 on the Overseas Highway in Marathon, Monroe County, Florida 33050. The Grand Key Resort is a 312-room luxury resort and full-service marina situated on approximately 28 acres of oceanfront property. The property includes multiple guest-room buildings ranging from two to five stories, a central lobby and reception building, three restaurants, a 15,000-square-foot spa facility, a 120-slip marina, and associated grounds and recreational amenities.
The Grand Key Resort was closed on September 18, 2022, and did not reopen to guests until March 15, 2023 — a total closure period of 178 days. VHG's estimated business-interruption loss for the Grand Key Resort is $31.4 million. This property sustained the most significant damage of the three affected resorts and is the focal point of the defendants' concurrent-causation and flood-exclusion defense, given the documented storm surge levels in Monroe County.
b. Verimark Harborview Hotel & Conference Center — Fort Myers Beach, Florida
The Verimark Harborview Hotel & Conference Center (the "Harborview") is located at 1400 Estero Boulevard, Fort Myers Beach, Lee County, Florida 33931. The Harborview is a 224-room hotel featuring a 40,000-square-foot conference and event facility, two restaurants, a rooftop bar, an outdoor pool complex, and parking garage. The property occupies approximately 6.5 acres on the northern end of Fort Myers Beach, directly facing Estero Bay.
The Harborview was closed on September 18, 2022, and did not reopen until January 31, 2023 — a total closure period of 135 days. VHG's estimated business-interruption loss for the Harborview is $18.7 million.
c. Verimark Sunset Shores — St. Pete Beach, Florida
The Verimark Sunset Shores resort ("Sunset Shores") is located at 7200 Gulf Boulevard, St. Pete Beach, Pinellas County, Florida 33706. Sunset Shores is a 186-room boutique resort with a single eight-story guest-room tower, a ground-floor restaurant, outdoor pool, and beachfront amenities. The property sits on approximately 3.2 acres facing the Gulf of Mexico.
Sunset Shores experienced a full closure from September 18, 2022, through November 30, 2022 — a period of 73 days — followed by a period of reduced-capacity operations through February 28, 2023, at which point the property returned to full operational capacity. VHG's estimated business-interruption loss for Sunset Shores, encompassing both the full closure period and the reduced-capacity period, is $9.9 million.
The aggregate estimated business-interruption loss across all three properties is approximately $60 million.
2.3 Insurance Program
At the time of Hurricane Callista, VHG maintained an all-risk property and business-interruption insurance program structured as a four-layer tower, with a combined policy period of July 1, 2022, through July 1, 2023. The tower is structured as follows:
The total available tower limit is $60,000,000 above the $500,000 per-occurrence deductible. The Ironclad primary policy is an all-risk commercial property policy that provides first-party property damage and business-interruption coverage for direct physical loss or damage to covered property caused by a covered peril, subject to the policy's terms, conditions, and exclusions. The three excess policies generally follow form to the Ironclad primary policy, with certain endorsements and modifications particular to each layer.
Excerpts of the Ironclad primary policy (Policy No. IIC-PRP-2022-07541), including the relevant coverage grant, exclusions, and anti-concurrent causation language, are enclosed with this letter for your review.
2.4 Insurer Coverage Defenses Relevant to Engineering Analysis
Following VHG's submission of its claim, Ironclad, through its coverage counsel and adjusters, denied a substantial portion of the claimed losses. The coverage defenses raised by the defendants that are most directly relevant to your engineering analysis are summarized below:
a. Concurrent Causation / Flood Exclusion Defense. Ironclad's primary policy contains a flood exclusion and an anti-concurrent causation ("ACC") clause. Ironclad asserts that significant portions of the damage at the Grand Key Resort — and, to a lesser degree, at the Harborview and Sunset Shores — resulted from storm surge, which Ironclad characterizes as "flood" within the meaning of the policy's flood exclusion. Ironclad further contends that, even where wind damage and storm-surge damage occurred concurrently or in sequence, the ACC clause bars recovery for all damage, including damage otherwise attributable to the covered peril of wind, because the damage occurred "in connection with" or "concurrently with" an excluded flood event.
This defense is most acute at the Grand Key Resort in Marathon, where documented storm surge in Monroe County ranged from 8 to 14 feet and the property is situated at relatively low elevation. Your cause-of-loss analysis will be central to addressing this defense by differentiating, where possible, between damage caused by wind and damage caused by storm surge at each property and each major building component.
b. Failure to Mitigate / Unreasonable Period of Restoration. Ironclad also contends that VHG's claimed periods of restoration at each of the three properties were unreasonably prolonged. Ironclad argues that VHG failed to take reasonable steps to mitigate its business-interruption losses by expediting repairs and reopening the properties sooner. The reasonableness of the restoration period is fundamentally an engineering question, dependent upon the nature and extent of the damage sustained, the availability of contractors and materials in post-hurricane conditions, permitting timelines, and other practical constraints.
We note that a separate damages expert, Dr. Helen Vasquez of Meridian Forensic Economics LLC, has been retained by Calderwood & Harkness to address the financial quantification of VHG's business-interruption losses. Mr. Caldwell's engagement is limited to engineering causation analysis and restoration-period opinions from an engineering and construction perspective. Dr. Vasquez will rely, in part, on Mr. Caldwell's engineering conclusions — particularly his determination of the reasonable period of restoration — in preparing her damages analysis. Coordination between the two experts is discussed further in Section 5 below.
2.5 Litigation Posture
VHG filed its Complaint on March 1, 2023, in the Eleventh Judicial Circuit of Florida, in and for Miami-Dade County, under Case No. 2022-CA-031547. The case has been assigned to the Honorable Catherine Embry, Circuit Court Judge. The Complaint asserts claims for breach of contract, declaratory judgment, and bad faith against all four insurer defendants.
The defendants filed their respective Answers on April 15, 2023. A Case Management Conference was held before Judge Embry on May 1, 2023, at which the Court set the following discovery schedule:
•  Fact discovery: June 1, 2023, through September 30, 2023
•  Expert Reports (Plaintiff): September 15, 2023
•  Expert Reports (Defendants): November 1, 2023 (anticipated, subject to the Court's scheduling order)
•  Expert Depositions: October through December 2023 (anticipated)
•  Trial Date: To be determined
Defense counsel in this matter includes two separate law firms representing the four insurer defendants:
•  Fendowell Rourke & Stanton LLP (Gregory Stanton, Partner) — representing Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc.
•  Delvecchio & Kraus LLP (Patricia Kraus, Partner) — representing Montclair Assurance Company and Sovereign Re Ltd.
We are aware that the defendants have retained Graystone Consulting Group LLC and its principal, Dr. Warren Birk, as their damages, coverage, and engineering expert. We anticipate that Dr. Birk will offer opinions contrary to yours on cause-of-loss and period-of-restoration issues, and your opinions should be prepared with the understanding that they will be subjected to rigorous cross-examination and competing expert analysis.
Additionally, we note that Ironclad's initial post-hurricane property inspection was conducted on October 5, 2022, by Arbor Claims Services LLC, with Denise Whitford serving as lead adjuster. A copy of the Arbor Claims Services inspection report is enclosed with this letter. This report will be among the materials you will need to review and assess critically as part of your engagement.
3. Scope of Engagement
The scope of your engagement encompasses the following categories of work, each of which is described in detail below.
3.1 Cause-of-Loss Analysis
The central task of your engagement is to analyze and differentiate, to the extent the physical and meteorological evidence permits, between damage caused by wind (a covered peril under the Ironclad policy) and damage caused by storm surge and flood (a disputed peril subject to Ironclad's flood exclusion and anti-concurrent causation defense) at each of VHG's three affected resort properties.
Specifically, we ask that you:
(a) Determine the primary, predominant, or efficient proximate cause of damage to each major building component, structural element, and operational system at each of the three properties. This analysis should address, at a minimum: roofing systems and roof covering; exterior wall cladding and curtain walls; windows, doors, and fenestration; structural framing and load-bearing elements; mechanical, electrical, and plumbing (MEP) systems; elevators and vertical transportation; interior finishes, furnishings, fixtures, and equipment (FF&E); grounds, landscaping, pools, and recreational amenities; and, at the Grand Key Resort specifically, marina infrastructure including docks, seawalls, pilings, and floating structures.
(b) At the Grand Key Resort in Marathon, Florida, where storm surge of 8 to 14 feet in Monroe County has been documented and where Ironclad's flood exclusion defense is most acute, provide a particularly detailed analysis distinguishing wind damage from flood/surge damage. This should include evaluation of damage elevation relative to observed storm surge high-water marks, analysis of debris patterns, assessment of structural failure mechanisms (e.g., uplift versus lateral hydrostatic/hydrodynamic loading), and any other physical indicators that bear on causation.
(c) Evaluate the meteorological and physical evidence of wind speed, wind direction, storm surge timing and duration, wave action, and rainfall at each property location during the passage of Hurricane Callista. This evaluation should draw on available NHC reports, Automated Surface Observing System (ASOS) and other weather station data, USGS tide gauge and high-water mark data, and any other relevant meteorological or hydrological records.
(d) Review and critically assess any competing engineering analyses, inspection reports, or expert reports produced by the defendants or their experts and consultants, including without limitation the Arbor Claims Services LLC inspection report from the October 5, 2022, property inspection conducted by Denise Whitford, and any reports or opinions offered by Dr. Warren Birk of Graystone Consulting Group LLC once those are produced in discovery.
3.2 Structural Damage Assessment
In connection with the cause-of-loss analysis described above, we ask that you undertake a thorough structural damage assessment of each of the three affected properties. This should include the following:
(a) Conduct comprehensive site inspections of all three properties — the Grand Key Resort, the Harborview Hotel & Conference Center, and Sunset Shores — to the extent such inspections have not already been completed by your firm. If you have previously inspected any of these properties (whether in connection with this engagement or otherwise), please advise us of the date(s) and scope of those inspections. We will coordinate with VHG's property management teams to arrange access as needed.
(b) Document all observable damage patterns at each property, including but not limited to: waterline evidence and high-water marks on interior and exterior surfaces; wind-driven debris impact marks; roof membrane and roof covering damage; window and door failures; exterior cladding damage; evidence of wind-driven rain intrusion versus rising-water intrusion; structural cracking, displacement, or deformation; damage to MEP systems; and any other physical indicators bearing on cause-of-loss.
(c) Evaluate whether the observed damage patterns at each property are consistent with wind forces (including wind uplift, wind pressure, and wind-borne debris impact), hydrostatic and hydrodynamic flood forces (including storm surge, wave action, and current), or a combination of wind and flood forces acting concurrently or in sequence.
(d) Review all available construction documents, engineering drawings, as-built plans, building permits, certificates of occupancy, structural inspection reports, and pre-loss and post-loss repair records for each property. Calderwood & Harkness will coordinate with VHG to obtain and provide these materials to you.
3.3 Period of Restoration / Reasonable Repair Timeline Opinions
An important component of your engagement is to opine on the reasonableness of the period required to restore each of VHG's three affected properties to their pre-loss operating condition following Hurricane Callista. This aspect of your opinion directly addresses Ironclad's coverage defense that VHG unreasonably delayed restoration and failed to mitigate its business-interruption losses.
Specifically, we ask that you:
(a) For each property, evaluate the nature and extent of the hurricane damage and determine, based on your engineering judgment and experience, the reasonable period of time that would be required to complete all necessary repairs, restoration, and re-commissioning work to return the property to its pre-hurricane operating condition.
(b) Address Ironclad's specific contention that VHG unreasonably delayed restoration at each property by comparing VHG's actual restoration timelines — Grand Key Resort: 178 days (September 18, 2022, through March 15, 2023); Harborview: 135 days (September 18, 2022, through January 31, 2023); and Sunset Shores: 73 days full closure (September 18 through November 30, 2022), with reduced capacity through February 28, 2023 — against your determination of what constitutes a reasonable restoration timeline given the damage sustained and the conditions prevailing in each locality.
(c) Take into account the actual post-Hurricane Callista conditions in the Florida Keys and along the Southwest Florida Gulf Coast that affected the pace of repair and restoration, including but not limited to: severe labor shortages in the construction trades in the immediate aftermath of the storm; scarcity of building materials and supply-chain disruptions exacerbated by the concentration of competing repair projects throughout the affected region; permitting delays at the local and county levels as building departments were overwhelmed with permit applications; disruption to transportation infrastructure, including road closures, bridge inspections, and restricted access to the Florida Keys via the Overseas Highway; disruption to utility services, including electrical power, potable water, and sanitary sewer; and the phased reopening of communities in Monroe and Lee Counties following the lifting of evacuation orders.
(d) Where applicable, distinguish between delays attributable to the hurricane damage itself (which would support VHG's claimed period of restoration) and any delays, if identified, that may be attributable to pre-existing conditions, elective improvements, or other factors unrelated to Hurricane Callista.
3.4 Expert Report and Testimony
Upon completion of your analysis, we ask that you:
(a) Prepare a comprehensive written expert report suitable for service on opposing counsel under the applicable Florida Rules of Civil Procedure, including Florida Rule of Civil Procedure 1.390 and any applicable case-specific orders entered by Judge Embry. Your report should set forth your qualifications, the materials and data you reviewed and relied upon, the methodology you employed, and your opinions and the bases for those opinions. The report is due no later than September 15, 2023, consistent with the Court's discovery schedule.
(b) Be available for deposition by defense counsel during the expert discovery period, which is currently anticipated to take place in October or November 2023. Calderwood & Harkness will prepare you for your deposition and will defend you at the deposition.
(c) Be available to provide live testimony at trial in this matter if the case does not resolve through settlement or other disposition prior to trial. The trial date has not yet been set but is anticipated for the first or second quarter of 2024. We will provide you with as much advance notice of the trial date as possible and will conduct thorough trial preparation sessions with you in advance of your testimony.
4. Materials to Be Provided
Calderwood & Harkness will provide or arrange access to the following materials for your review and use in connection with this engagement:
1.  Copies of all four insurance policies comprising VHG's property and business-interruption insurance tower, including the Ironclad primary policy (Policy No. IIC-PRP-2022-07541), the Pinnacle first excess policy (Policy No. PSL-XS1-2022-3390), the Montclair second excess policy (Policy No. MAC-XS2-2022-09817), and the Sovereign Re third excess policy (Policy No. SRL-XS3-2022-5102), together with all endorsements, amendments, and schedule pages.
2.  VHG's property damage photographs, video recordings, and drone imagery taken in the days and weeks following Hurricane Callista at all three affected properties. We understand that VHG's property management teams documented the damage extensively beginning on September 20, 2022, when initial access to the properties was possible.
3.  The Arbor Claims Services LLC inspection report and accompanying photographs from the October 5, 2022, property inspection conducted by Denise Whitford, lead adjuster. This report was prepared at Ironclad's direction and forms part of the basis for Ironclad's coverage position.
4.  VHG's construction and repair records for all three properties, including but not limited to: original construction plans and engineering drawings; as-built surveys; pre-loss renovation and maintenance records; post-hurricane contractor bids, proposals, and contracts; repair invoices and payment records; construction project schedules and progress reports; and any post-repair inspection reports or certificates of completion.
5.  Relevant meteorological data, including NHC tropical cyclone reports, advisories, and post-storm analyses for Hurricane Callista; data from applicable ASOS weather stations, NOAA weather buoys, and other monitoring stations; USGS tide gauge readings and high-water mark surveys; and any privately commissioned meteorological analyses.
6.  Copies of the Monroe County mandatory evacuation order dated September 16, 2022, and the Lee County mandatory evacuation order dated September 17, 2022.
7.  Deposition transcripts as they become available during the fact-discovery period of June 1 through September 30, 2023. We anticipate that depositions of key VHG personnel, Ironclad claims representatives, Arbor Claims Services adjusters, and potentially others will be conducted during this period.
8.  Any engineering, forensic, or consulting reports produced by the defendants or their experts (including Graystone Consulting Group LLC and Dr. Warren Birk) through the discovery process.
9.  Such additional documents, data, and materials as may be reasonably requested by you in the course of your analysis. Please direct all requests for additional materials to Andrew Fitzpatrick, and we will endeavor to obtain and provide the requested items promptly.
A preliminary set of enclosed materials accompanies this letter, as listed in the Enclosures section below. Additional materials will be transmitted to you on a rolling basis as they become available.
5. Coordination with Other Experts
As noted above, your work will complement the financial damages analysis being performed by Dr. Helen Vasquez of Meridian Forensic Economics LLC, located at 1201 Peachtree Street NE, Suite 1000, Atlanta, Georgia 30361. Dr. Vasquez has been retained by Calderwood & Harkness, on behalf of VHG, to quantify VHG's business-interruption losses at each of the three affected properties. Dr. Vasquez is a forensic economist and certified public accountant with extensive experience in insurance loss quantification.
Dr. Vasquez's business-interruption loss quantification relies in significant part on the determination of the reasonable period of restoration for each property. Accordingly, coordination between your period-of-restoration opinions and Dr. Vasquez's financial analysis will be necessary to ensure that the two sets of expert opinions are consistent and mutually supportive.
We ask that you observe the following guidelines with respect to coordination with Dr. Vasquez and any other experts engaged in this matter:
(a) All communications between you and Dr. Vasquez (or any other expert retained by Calderwood & Harkness in this matter) should be coordinated through and at the direction of Calderwood & Harkness. Please do not initiate direct communications with Dr. Vasquez or her staff without first consulting with Andrew Fitzpatrick or Elaine Forsythe.
(b) Calderwood & Harkness will arrange and facilitate any joint meetings, teleconferences, or data exchanges between you and Dr. Vasquez that may be necessary to ensure proper coordination of your respective opinions.
(c) Please be mindful that communications between testifying experts may be subject to discovery. Any communications with Dr. Vasquez should be professional, substantive, and consistent with the opinions you intend to present in your expert report and testimony.
6. Fees and Billing
The following terms govern the fees and billing arrangements for this engagement:
(a) Hourly Rates. Your hourly rate for professional engineering services in this engagement, and the hourly rates of any supporting engineers, technicians, or staff at Caldwell Engineering Associates Inc. who may perform work on this matter, shall be as set forth on the attached rate schedule, which you are asked to provide and confirm as part of your countersignature of this letter. We understand that your rates are consistent with prevailing market rates for forensic engineering expert services of this nature in the South Florida market.
(b) Invoicing. Invoices shall be submitted on a monthly basis to Calderwood & Harkness LLP, to the attention of Andrew Fitzpatrick, at the address set forth in this letter. Each invoice should include a detailed description of the services performed by each timekeeper, the date of service, the hours expended, the applicable hourly rate, and the total fees for the billing period. Please reference engagement number 1021-00003 on all invoices and correspondence.
(c) Expenses. Reasonable out-of-pocket expenses incurred in connection with this engagement, including travel expenses (airfare, ground transportation, lodging, and meals), site inspection costs, specialized testing equipment rental, laboratory testing fees, and sub-consultant fees, are reimbursable. However, any single expense item or category of expenses exceeding $2,500 must be pre-approved in writing by Calderwood & Harkness prior to being incurred. Expenses should be itemized and documented with receipts on each monthly invoice.
(d) Payment Responsibility. All fees and expenses associated with this engagement are advanced by Calderwood & Harkness LLP on behalf of VHG. Caldwell Engineering Associates Inc. shall not bill VHG directly for any fees, expenses, or other charges related to this engagement. All invoices and billing inquiries should be directed exclusively to Calderwood & Harkness.
(e) Payment Terms. Calderwood & Harkness will endeavor to process and pay all properly submitted invoices within thirty (30) days of receipt.
7. Confidentiality and Privilege
The confidentiality of your engagement and the materials and communications associated with it are of paramount importance. Please observe the following:
(a) All communications between Caldwell Engineering Associates Inc. and Calderwood & Harkness LLP in connection with this engagement are made at the direction of counsel and in anticipation of litigation, and are protected by the attorney-client privilege and/or the work-product doctrine to the fullest extent permitted by applicable law.
(b) You shall not disclose any information received in connection with this engagement — including but not limited to confidential client information, litigation strategy, privileged communications, insurance policy terms, financial data, or any other materials provided to you by Calderwood & Harkness or VHG — to any third party without the prior written consent of Calderwood & Harkness.
(c) All draft reports, preliminary analyses, working notes, internal memoranda, and other materials prepared by you or your staff in the course of this engagement that have not been finalized and served as your expert report are attorney work product and should be treated as privileged and confidential. We advise you to maintain clear records distinguishing between draft and final work product.
(d) Your final expert report, once completed, served on opposing counsel, and filed with the Court, will become a public document subject to discovery and cross-examination. You should prepare your final report with the understanding that it will be disclosed to and scrutinized by the defendants, their counsel, and their experts.
(e) You shall not communicate directly with any party to this litigation, their counsel, their representatives, or their experts — including without limitation Ironclad Indemnity Corporation, Pinnacle Surplus Lines Inc., Montclair Assurance Company, Sovereign Re Ltd., Fendowell Rourke & Stanton LLP, Delvecchio & Kraus LLP, Arbor Claims Services LLC, Denise Whitford, Graystone Consulting Group LLC, or Dr. Warren Birk — without prior express authorization from Calderwood & Harkness. If you are contacted by any of these individuals or entities, please decline to discuss the matter and promptly notify Andrew Fitzpatrick or Elaine Forsythe.
(f) Upon the conclusion of this engagement, all materials provided to you by Calderwood & Harkness or VHG shall be returned or destroyed at counsel's direction, as set forth in Section 10 below.
8. Independence and Objectivity
Caldwell Engineering Associates Inc. is retained to provide independent, objective expert opinions based on sound engineering principles, accepted forensic engineering methodologies, and the available physical and documentary evidence. We emphasize the following:
(a) Your opinions must be scientifically and technically supportable, grounded in recognized engineering standards and practices, and defensible under rigorous cross-examination by skilled opposing counsel.
(b) While we obviously hope and anticipate that the evidence will support conclusions favorable to VHG's position, we do not ask or expect you to advocate for a particular result. Your credibility as an expert depends on your independence and objectivity, and those qualities are ultimately more valuable to VHG's case than any particular conclusion.
(c) If, at any point during the course of your analysis, your conclusions or preliminary findings are unfavorable to VHG's position on any issue — whether with respect to cause of loss, the differentiation of wind versus flood damage, or the reasonableness of the restoration period — you should promptly advise Calderwood & Harkness of those conclusions so that we can evaluate their impact on the case strategy and make informed decisions about how to proceed.
(d) Similarly, if you identify any limitations in the available evidence or data that prevent you from reaching a definitive conclusion on any issue within the scope of your engagement, please communicate those limitations to us promptly.
9. Conflicts of Interest
Before commencing work on this engagement, we ask that Caldwell Engineering Associates Inc. conduct a thorough conflicts check and confirm in writing that your firm has no current or prior engagement for or against any of the following entities that would create, or could reasonably be perceived to create, a conflict of interest:
•  Ironclad Indemnity Corporation
•  Pinnacle Surplus Lines Inc.
•  Montclair Assurance Company
•  Sovereign Re Ltd.
•  Fendowell Rourke & Stanton LLP
•  Delvecchio & Kraus LLP
•  Arbor Claims Services LLC
•  Graystone Consulting Group LLC
•  Dr. Warren Birk
We recognize that forensic engineering firms routinely perform work in the insurance industry and that prior engagements involving one or more of the above entities, particularly in unrelated matters, may not necessarily constitute a disqualifying conflict. However, if any potential or actual conflict is identified, you should disclose it immediately to Calderwood & Harkness so that we can evaluate the situation and determine whether the engagement can proceed. Please include your written conflicts confirmation with your countersigned copy of this letter.
10. Term and Termination
This retention is effective as of the date of this letter and shall continue through the conclusion of the above-referenced matter, including any trial proceedings, post-trial motions, and appellate proceedings in which your expert testimony or consultation may be required.
Either party may terminate this engagement upon thirty (30) days' prior written notice to the other party. Notwithstanding the foregoing, any termination is subject to your professional obligations with respect to any pending deadlines, court-ordered obligations, or proceedings that require your participation, including any scheduled depositions, hearing appearances, or trial testimony dates. In the event of termination, you will cooperate with Calderwood & Harkness to ensure an orderly transition and to avoid any prejudice to VHG's interests.
Upon termination of this engagement for any reason, all materials, documents, data, and other property provided to you by Calderwood & Harkness or VHG in connection with this engagement shall be promptly returned to Calderwood & Harkness or destroyed at counsel's written direction. You will certify in writing that all such materials have been returned or destroyed, as applicable.
11. Acceptance and Countersignature
If the foregoing terms and conditions are acceptable and accurately reflect our mutual understanding regarding your retention in this matter, please indicate your acceptance by signing and dating this letter in the space provided below and returning one fully executed original to our office. You may return the signed original by hand delivery, first-class mail, or overnight courier to the address set forth below, or you may transmit a scanned copy of the signed letter via electronic mail to Andrew Fitzpatrick, with the original to follow by mail.
We look forward to working with you and your team on this important matter.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Name: Elaine Forsythe
Title: Partner
Date: April 22, 2023
ACCEPTED AND AGREED
The undersigned hereby accepts the terms and conditions of this retention letter and confirms that Caldwell Engineering Associates Inc. has conducted a conflicts check as described in Section 9 above and has identified no conflicts of interest that would preclude this engagement.
CALDWELL ENGINEERING ASSOCIATES INC.
By: ________
Name: Jeffrey Caldwell, PE
Title: President / Lead Forensic Engineer
Date: ________
12. Contact Information
Primary Contacts at Calderwood & Harkness LLP:
Andrew Fitzpatrick — Working Associate Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Direct Phone: (305) 555-7238
Email: afitzpatrick@calderwoodharkness.com
Elaine Forsythe — Responsible Partner Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Direct Phone: (305) 555-7215
Email: eforsythe@calderwoodharkness.com
Primary Contact at Caldwell Engineering Associates Inc.:
Jeffrey Caldwell, PE — President / Lead Forensic Engineer Caldwell Engineering Associates Inc. 7900 NW 25th Street, Suite 210 Doral, Florida 33122 Direct Phone: (305) 555-4180
Email: jcaldwell@caldwellengineering.com
Enclosures:
1.  Copy of Complaint, Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al., Case No. 2022-CA-031547 (filed March 1, 2023)
2.  Ironclad Indemnity Corporation Primary Policy No. IIC-PRP-2022-07541 (excerpts, including coverage grant, flood exclusion, anti-concurrent causation clause, and business-interruption provisions)
3.  Ironclad Indemnity Corporation Coverage Denial Letter dated February 3, 2023
4.  Arbor Claims Services LLC Inspection Report and Photographs (October 5, 2022, Denise Whitford, Lead Adjuster)
5.  Property Damage Photo Package — Verimark Grand Key Resort, Verimark Harborview Hotel & Conference Center, and Verimark Sunset Shores (three properties)
6.  Monroe County Mandatory Evacuation Order (September 16, 2022)
7.  Lee County Mandatory Evacuation Order (September 17, 2022)
cc:
Nathaniel Driscoll, General Counsel, Verimark Hospitality Group Inc. Elaine Forsythe, Partner, Calderwood & Harkness LLP File: 1021-00003
Layer | Carrier | Limit | Attachment | Policy Number
Primary | Ironclad Indemnity Corporation | $25,000,000 | $500,000 deductible | IIC-PRP-2022-07541
First Excess | Pinnacle Surplus Lines Inc. | $15,000,000 | $25,000,000 xs $500,000 deductible | PSL-XS1-2022-3390
Second Excess | Montclair Assurance Company | $10,000,000 | $40,000,000 xs $500,000 deductible | MAC-XS2-2022-09817
Third Excess | Sovereign Re Ltd. | $10,000,000 | $50,000,000 xs $500,000 deductible | SRL-XS3-2022-5102

CALDERWOOD & HARKNESS LLP Attorneys at Law

VIA ELECTRONIC MAIL AND FIRST-CLASS MAIL

CALDERWOOD & HARKNESS LLP

ACCEPTED AND AGREED

CALDWELL ENGINEERING ASSOCIATES INC.

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