PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and work-product doctrine. It was prepared by counsel in anticipation of litigation and reflects the mental impressions, conclusions, and legal theories of counsel. This document is not to be disclosed to any third party without the express written authorization of Calderwood & Harkness LLP.
CALDERWOOD & HARKNESS LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 555-7200 Facsimile: (305) 555-7201
MEMORANDUM
May 1, 2023
TO: Jeffrey Caldwell, PE Caldwell Engineering Associates Inc. 7900 NW 25th Street, Suite 210 Doral, FL 33122
FROM: Andrew Fitzpatrick Calderwood & Harkness LLP
RE: Scope of Forensic Engineering Analysis — Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al., Case No. 2022-CA-031547 (Eleventh Judicial Circuit of Florida, Miami-Dade County)
ENGAGEMENT REFERENCE: 1021-00003
I. Introduction and Purpose
Calderwood & Harkness LLP represents Verimark Hospitality Group Inc. ("VHG"), a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK, with its principal executive offices located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129, in an insurance-coverage dispute arising from the damage caused by Hurricane Callista in September 2022. The dispute involves VHG's all-risk property and business-interruption insurance program and centers on the denial of coverage by the primary and excess insurers for losses sustained at three of VHG's Florida resort properties.
This memorandum follows up on the expert retention letter dated April 22, 2023, pursuant to which Caldwell Engineering Associates Inc. was formally retained as VHG's forensic engineering and cause-of-loss expert in this litigation. The retention letter set forth the general terms of engagement, fee arrangements, and confidentiality obligations. The purpose of the present memorandum is to define in considerably greater detail the scope of the forensic engineering analysis we are requesting, to identify the specific properties at issue, to outline the key technical and legal questions that your analysis must address, to describe the data and materials that Calderwood & Harkness will provide to you, and to set forth the expected timeline for deliverables in connection with the court-ordered discovery schedule.
As background to underscore the magnitude and significance of this engagement, VHG's total claimed business-interruption loss across its three affected Florida resort properties is approximately $60 million. The property insurers — led by Ironclad Indemnity Corporation on the primary layer — have denied coverage, asserting, among other things, that material portions of the damage at these properties were caused by storm surge (which the insurers characterize as "flood") rather than wind, and that such damage therefore falls within the policies' flood exclusion. The insurers further invoke an anti-concurrent causation clause, arguing that when a covered peril (wind) and an excluded peril (flood) operate concurrently or in sequence to cause a loss, no coverage is afforded for any portion of the damage.
Mr. Caldwell, your forensic engineering analysis will be critical to establishing the cause and extent of covered losses and to rebutting the insurers' defenses. Specifically, your opinions on the mechanism and cause of damage at each property, the differentiation between wind and storm-surge damage, and the reasonableness of VHG's restoration timelines will serve as foundational expert testimony in support of VHG's coverage claims. We consider this engagement to be of the highest priority and importance.
II. Background on the Dispute
A. The Insured and Properties
VHG is a publicly traded hospitality and real-estate company with a diversified portfolio of resort and hotel properties concentrated primarily in the southeastern United States, the Caribbean, and select international markets. For the fiscal year ended December 31, 2021, VHG reported consolidated revenue of approximately $412 million and EBITDA of approximately $78 million. VHG's Florida Gulf Coast and Florida Keys properties represent a significant portion of the company's domestic revenue and profitability.
The principal VHG personnel relevant to this engagement are as follows:
• Marcus Ellsworth, Chief Executive Officer
• Diane Calder, Chief Financial Officer
• Nathaniel Driscoll, General Counsel
• Sandra Pellegrini, Vice President of Risk Management
Three VHG resort properties are at issue in this litigation, all located in Florida's Gulf Coast and Florida Keys region. Each property was directly in the path of Hurricane Callista and sustained significant damage resulting in extended periods of closure and business interruption. The properties are described in detail in Section III of this memorandum.
B. Hurricane Callista
Hurricane Callista was designated as a named tropical storm by the National Hurricane Center ("NHC") on September 12, 2022, as it organized over the warm waters of the western Caribbean Sea. The storm rapidly intensified over the following days as it tracked northward toward the Florida Straits. On September 18, 2022, Hurricane Callista made landfall at approximately 1:30 PM EDT near Big Pine Key in the Lower Florida Keys as a Category 4 hurricane on the Saffir-Veltason Hurricane Wind Scale, with maximum sustained winds of approximately 145 miles per hour. The storm's eyewall passed directly over significant portions of Monroe County before proceeding north-northwest across the Gulf of Mexico side of the Florida peninsula.
In advance of the storm's arrival, the Monroe County Emergency Management Division issued a mandatory evacuation order on September 16, 2022, for all residents and visitors in evacuation zones throughout the Florida Keys. The Lee County Board of County Commissioners issued a separate mandatory evacuation order on September 17, 2022, covering coastal zones including Fort Myers Beach and the barrier islands. Both evacuation orders required the cessation of all commercial activity and the complete evacuation of all resort properties in the affected areas.
Hurricane Callista produced catastrophic storm surge along the Gulf Coast of Florida. In Monroe County, storm surge of approximately 8 to 14 feet above normally dry ground was observed, with the most extreme surge concentrated in the Middle and Lower Keys near the landfall zone. In Lee County, storm surge of approximately 6 to 10 feet was observed along the barrier islands and coastal areas, including Fort Myers Beach and Estero Island.
All three VHG properties at issue were ordered evacuated prior to the hurricane's arrival and sustained significant damage as a result of the storm's passage. The properties remained closed for extended periods ranging from 73 days to 178 days, as described below.
C. Insurance Program Structure
At the time of Hurricane Callista, VHG maintained an all-risk property and business-interruption insurance program with a total tower limit of $60 million above a $500,000 per-occurrence deductible. The program was structured in four layers, placed through VHG's insurance broker, with the following participating carriers:
The policy period runs from July 1, 2022, through July 1, 2023. The annual aggregate premium for the program is $1,840,000. The policies are written on an "all-risk" basis, meaning they cover all risks of direct physical loss or damage unless specifically excluded. Each of the excess policies follows form to the Ironclad primary policy with respect to coverage terms, conditions, and exclusions, except as specifically amended by endorsement.
D. Coverage Denial — Relevant Bases
Following Hurricane Callista, VHG timely reported the losses to its insurance program and cooperated fully with the insurers' investigation. Ironclad Indemnity Corporation, as lead insurer on the primary layer, engaged Arbor Claims Services LLC as its independent adjusting firm. Arbor Claims assigned Denise Whitford as the lead adjuster on the VHG claim. Ms. Whitford conducted an initial property inspection of the three affected VHG properties on October 5, 2022, approximately seventeen days after the hurricane's landfall.
Ironclad issued a reservation of rights letter on October 12, 2022, identifying several potential coverage defenses. On February 3, 2023, Ironclad issued a formal denial of coverage for the VHG claim. Pinnacle Surplus Lines Inc., as first-excess carrier following form to Ironclad, followed Ironclad's denial on February 10, 2023. Montclair Assurance Company and Sovereign Re Ltd. have reserved their rights but have not yet issued formal denials; their coverage obligations, however, are contingent on exhaustion of the underlying layers.
Among the four bases cited in Ironclad's denial, two are directly relevant to the forensic engineering analysis we are requesting from Mr. Caldwell:
1. Concurrent Causation / Flood Exclusion. Ironclad asserts that significant portions of the damage at the Grand Key Resort in Marathon — and potentially at the Harborview Hotel & Conference Center in Fort Myers Beach — resulted from storm surge, which Ironclad characterizes as "flood" within the meaning of the policy's flood exclusion. The Ironclad primary policy contains an anti-concurrent causation clause that provides, in relevant part, that the insurer "will not pay for loss or damage caused directly or indirectly by any of the following excluded causes or events," and that "[s]uch loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss." Ironclad contends that because wind (a covered peril) and storm surge/flood (an excluded peril) operated concurrently or in sequence at these properties, the anti-concurrent causation clause bars coverage for all damage — including damage that would otherwise be attributable to wind alone.
This is the central technical dispute in the case, and Mr. Caldwell's forensic engineering analysis will be the primary vehicle for establishing that the covered peril of wind was the dominant cause of VHG's losses and that the damage attributable to wind alone was independently sufficient to cause the business interruption at each property.
2. Period of Restoration / Failure to Mitigate. Ironclad further argues that VHG unreasonably delayed the restoration of its properties following Hurricane Callista and that the business-interruption coverage terminates when the damaged property "could have been completed with reasonable speed and similar quality." Ironclad and Arbor Claims Services contend that the actual closure periods at the three properties — 178 days at Grand Key, 135 days at Harborview, and 73 days of full closure plus additional reduced-capacity operations at Sunset Shores — exceed the reasonable period of restoration by a significant margin. Mr. Caldwell's opinions on the engineering and logistical constraints affecting restoration timelines, including post-hurricane conditions in the Florida Keys and Gulf Coast, will be essential to rebutting this defense.
E. Litigation Status
VHG filed its Complaint against Ironclad Indemnity Corporation, Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd. on March 1, 2023, in the Eleventh Judicial Circuit of Florida, in and for Miami-Dade County (Case No. 2022-CA-031547). The case has been assigned to the Honorable Catherine Embry. VHG's Complaint asserts claims for breach of contract, declaratory judgment, and bad faith against the insurer defendants.
All four defendants filed their respective Answers and Affirmative Defenses on April 15, 2023. The affirmative defenses asserted include, among others, application of the flood exclusion, the anti-concurrent causation clause, failure to mitigate, and limitations on the period of restoration.
A case management conference was held on May 1, 2023, at which the Court entered a scheduling order establishing the following key deadlines:
• Fact discovery: June 1, 2023 – September 30, 2023
• Expert Reports (Plaintiff): September 15, 2023
• Rebuttal Expert Reports (Defendants): October 2, 2023
• Expert discovery Completion: November 15, 2023
• Dispositive Motions: December 15, 2023
• Trial: To be set following resolution of dispositive motions (anticipated spring/summer 2024)
Mr. Caldwell's expert report must be served on or before September 15, 2023, which establishes the timeline for the deliverables described in Section VII below.
III. Properties at Issue — Detailed Descriptions
The following provides detailed descriptions of each of the three VHG resort properties at issue in this litigation, including relevant operational metrics, closure periods, estimated business-interruption losses, damage profiles, and the key engineering questions to be addressed at each property.
A. Verimark Grand Key Resort — Marathon, Florida
Address: Mile Marker 48, Overseas Highway, Marathon, FL 33050
Property Description: The Verimark Grand Key Resort is a 312-room luxury resort and marina complex situated on approximately 28 acres of waterfront property in Marathon, in the Middle Florida Keys. The resort features guest accommodations in multiple low-rise and mid-rise buildings (two to five stories), a full-service marina with 85 slips accommodating vessels up to 80 feet in length, three swimming pools, a spa and fitness center, four restaurants and bars, retail space, and extensive landscaping and hardscaping. The property was originally constructed in 1998 and underwent a major renovation in 2017–2018 at a cost of approximately $42 million.
Pre-Loss Operating Metrics:
• Average Daily Rate (ADR): $389
• Occupancy Rate: 82%
• The property was one of VHG's highest-performing domestic assets and a significant driver of the company's Florida Keys revenue segment.
Closure Period: September 18, 2022 – March 15, 2023 (178 days)
Estimated Business-Interruption Loss: $31.4 million
Damage Profile: The Grand Key Resort sustained the most severe damage of the three VHG properties at issue. The property is located in Monroe County, directly in the path of Hurricane Callista's landfall zone near Big Pine Key, and experienced both extreme wind damage from sustained winds in excess of 130 mph and storm surge of approximately 8 to 14 feet. The resort's low-lying topography, waterfront orientation, and marina facilities made it particularly vulnerable to both wind and surge.
Observed damage includes extensive roof damage across multiple buildings (membrane lifting, decking failure, truss displacement), catastrophic failure of multiple window and door assemblies from wind pressure and wind-borne debris impact, significant interior water damage from both roof breaches and lower-level inundation, destruction of the marina dock system and associated structures, damage to the swimming pool decks and surrounding hardscape, substantial damage to the resort's MEP systems (particularly electrical distribution panels and HVAC equipment located at or near ground level), and loss of landscaping. First-floor and ground-level areas in multiple buildings showed evidence of water intrusion from both above (roof breaches and wind-driven rain) and below (storm surge flooding).
Ironclad specifically alleges that a significant portion of the damage at Grand Key Resort was caused by storm surge (flood) rather than wind, and that the anti-concurrent causation clause bars coverage for all damage at this property. This property is the primary battleground for the cause-of-loss differentiation analysis.
Key Engineering Questions:
• Differentiation between wind-driven structural damage, wind-driven rain intrusion, and storm-surge/flood damage at each building and structure on the property.
• Analysis of the mechanism and cause of damage to the marina facilities, including whether wind or surge was the dominant cause of dock and slip destruction.
• Assessment of whether wind damage alone — independent of any storm surge — would have caused the same duration of closure (178 days) and the same magnitude of business interruption.
• Identification and documentation of damage signatures characteristic of wind versus surge, including directionality of debris patterns, waterline evidence, structural failure modes, and sediment deposits.
B. Verimark Harborview Hotel & Conference Center — Fort Myers Beach, Florida
Address: 1400 Estero Boulevard, Fort Myers Beach, FL 33931
Property Description: The Verimark Harborview Hotel & Conference Center is a 224-room hotel with an attached 40,000-square-foot conference and event facility located on Estero Island in Fort Myers Beach, Lee County, Florida. The property sits on approximately 9 acres and includes guest accommodations in a main tower (12 stories) and a low-rise annex building (3 stories), the conference center (a single-story structure adjoining the main tower), two restaurants, a rooftop bar, a swimming pool and sundeck, and covered parking. The property was originally constructed in 2005 and underwent selective renovations in 2019 and 2021.
Pre-Loss Operating Metrics:
• Average Daily Rate (ADR): $295
• Occupancy Rate: 74%
• The conference center generated significant additional revenue from corporate events, weddings, and group bookings, contributing substantially to the property's total revenue.
Closure Period: September 18, 2022 – January 31, 2023 (135 days)
Estimated Business-Interruption Loss: $18.7 million (inclusive of conference and event revenue)
Damage Profile: The Harborview Hotel is located in Lee County, where storm surge from Hurricane Callista reached approximately 6 to 10 feet. The property sustained significant structural and content damage from a combination of wind and surge. The main tower experienced substantial roof damage, including partial loss of the membrane roofing system and damage to rooftop mechanical equipment (HVAC condensing units, elevator penthouse). Upper floors of the tower sustained wind-driven rain damage through compromised window assemblies and the damaged roof. The low-rise annex building experienced both roof damage from wind and ground-floor flooding from storm surge. The single-story conference center was particularly affected, sustaining both roof damage from wind loading and extensive ground-floor flooding from surge that inundated the facility to a depth of approximately three to four feet.
Key Engineering Questions:
• Differentiation between wind damage and storm-surge damage at the Harborview property, with particular attention to the conference center, where both perils clearly affected the same structure.
• Analysis of whether the roof and upper-floor wind damage to the main tower alone — independent of any ground-level surge flooding — would have necessitated the 135-day closure period.
• Assessment of the damage to the conference center and whether the roof damage (wind) or the ground-floor flooding (surge) was the dominant cause of the conference center's extended closure and loss of event revenue.
• Evaluation of the structural integrity of the low-rise annex building and whether wind or surge was the primary cause of damage.
C. Verimark Sunset Shores — St. Pete Beach, Florida
Address: 7200 Gulf Boulevard, St. Pete Beach, FL 33706
Property Description: The Verimark Sunset Shores is a 186-room boutique resort located on the Gulf of Mexico beachfront in St. Pete Beach, Pinellas County, Florida. The property occupies approximately 5 acres and consists of a single eight-story guest tower, a beachfront restaurant and tiki bar, a swimming pool and spa, and associated support structures. The property was originally constructed in 2008 and is situated at a somewhat higher elevation than the Grand Key and Harborview properties, with a more limited storm-surge exposure profile.
Pre-Loss Operating Metrics:
• Average Daily Rate (ADR): $342
• Occupancy Rate: 79%
Closure Period: Full closure from September 18, 2022, through November 30, 2022 (73 days). The property reopened at reduced capacity on December 1, 2022, and did not achieve full operational capacity until approximately February 28, 2023.
Estimated Business-Interruption Loss: $9.9 million (inclusive of both the full-closure period and the reduced-capacity period)
Damage Profile: The Sunset Shores resort sustained less severe damage than the Grand Key and Harborview properties. The damage was primarily wind-related, including significant roof damage (partial membrane failure and flashing detachment), façade damage (cladding and stucco loss on the windward elevation), failure of multiple window assemblies from wind pressure and debris impact, and resulting interior water intrusion from wind-driven rain through compromised building envelope elements. Storm-surge exposure at this location was lower than at the other two properties due to the property's slightly higher elevation and distance from the areas of maximum surge. Ground-level flooding, where it occurred, was relatively minor compared to Grand Key and Harborview.
The property achieved a partial reopening on November 30, 2022, with upper floors that had been least affected by wind-driven rain returning to service. The lower floors and public areas required additional restoration work, and full capacity was not reached until approximately February 28, 2023.
Key Engineering Questions:
• Confirmation, through forensic engineering analysis, that the damage at Sunset Shores was predominantly caused by wind and wind-driven rain, with minimal contribution from storm surge.
• Assessment of whether the full-closure period of 73 days and the subsequent reduced-capacity period through February 2023 were attributable to wind damage and reasonable restoration constraints, rather than to any unreasonable delay by VHG.
• Evaluation of the building envelope failures and the mechanism of wind-driven rain intrusion as distinct from flood or storm-surge damage.
IV. Specific Scope of Engineering Analysis
The following sections describe in detail the specific areas of forensic engineering analysis that we are requesting Mr. Caldwell to undertake. Each area of analysis is intended to support VHG's coverage position and to rebut the specific defenses raised by the insurer defendants.
A. Cause-of-Loss Differentiation (Wind vs. Storm Surge/Flood)
The central technical issue in this case is the differentiation between damage caused by wind (a covered peril under the all-risk policies) and damage caused by storm surge or flood (which the insurers contend is excluded). For each of the three VHG properties, Mr. Caldwell should conduct a thorough forensic engineering analysis to differentiate among the following categories of damage:
1. Wind Damage. This category includes all damage resulting from the direct and indirect effects of hurricane-force winds, including but not limited to: structural wind loading and resulting failures (roof uplift, wall collapse, truss displacement); pressure differential effects on building envelopes (window and door failure from positive and negative wind pressure); impact damage from wind-borne debris (projectile impact on windows, walls, roofing, and cladding); and wind-driven rain infiltration through compromised building envelope components (roof breaches, failed windows, damaged flashings, and other wind-created openings). As discussed further below, wind-driven rain should be clearly distinguished from flood or storm surge, as it results directly from the action of wind and constitutes a covered peril.
2. Storm Surge / Flood Damage. This category includes all damage resulting from the rise of water above normally dry ground caused by the storm's meteorological effects, including: hydrostatic pressure from rising floodwater on structural elements (walls, foundations, slabs); wave action and associated dynamic loading; waterborne debris impact; and saturation and contamination of materials, systems, and contents by floodwater intrusion. This category specifically includes damage caused by the ingress of seawater or brackish water driven inland by the hurricane's storm surge, as distinguished from rainwater or wind-driven rain.
3. Combined/Concurrent Damage. In certain areas of each property, it is likely that wind and storm surge acted together — either simultaneously or in sequence — to cause damage. For example, wind may have breached the building envelope, and storm surge may have subsequently inundated the same area through a different pathway. Mr. Caldwell should identify areas where wind and surge both contributed to the damage and should develop a methodology for apportioning damage between the covered (wind) and potentially excluded (surge/flood) perils, to the extent such apportionment is scientifically feasible and supportable.
Mr. Caldwell should opine, with reasonable engineering certainty, on the percentage of total physical damage at each property attributable to wind versus storm surge/flood. We understand that precise percentages may not be achievable in all instances, and qualitative assessments (e.g., "predominantly wind-caused," "substantially all damage attributable to wind") may be appropriate where quantitative precision is not scientifically supportable. However, to the extent that percentage apportionment is feasible based on the physical evidence, damage patterns, and meteorological data, such quantification will be valuable.
Special emphasis should be placed on the Grand Key Resort in Marathon, where the flood-exclusion defense is most aggressively asserted by the insurers. Grand Key is located closest to the landfall zone and experienced the highest storm surge levels (8–14 feet). The insurers' position will likely be that a substantial portion of the Grand Key damage was caused by surge, and that the anti-concurrent causation clause bars coverage for the entire loss at that property. Mr. Caldwell's analysis at Grand Key must be particularly rigorous and well-documented.
Critically, Mr. Caldwell's analysis should address whether wind damage alone — wholly independent of any storm surge — was sufficient to cause the business interruption at each property. In other words, if one hypothetically eliminated all storm-surge effects, would the wind damage by itself have rendered each property uninhabitable and inoperable for the observed closure period? An affirmative opinion on this point would significantly undermine the insurers' concurrent-causation defense.
Additionally, Mr. Caldwell should provide a clear engineering basis for the distinction between "storm surge" and "wind-driven rain." Wind-driven rain — i.e., rainwater that is propelled horizontally or at steep angles by wind and that enters a structure through openings created by wind or through the building envelope under wind pressure — is a direct consequence of the wind peril and should properly be classified as wind damage, not flood. The insurers may attempt to characterize all water damage as "flood" regardless of the source of the water. Mr. Caldwell's analysis should clearly identify the source and mechanism of water intrusion in each area of each property and should distinguish between rainwater driven by wind (covered) and seawater or brackish surge water rising from ground level (potentially excluded).
B. Structural Damage Assessment
Mr. Caldwell should conduct a detailed structural assessment of the damage sustained at each property, covering all major building systems and structural components. The assessment should address the following elements at a minimum:
• Roof Systems. Assessment of damage to roofing membranes (single-ply, modified bitumen, or built-up roofing as applicable), roof decking (concrete, metal, or wood), roof trusses or structural framing, parapets, copings, flashings, drains, and rooftop mechanical equipment supports. Analysis of failure modes (e.g., membrane peeling from wind suction, fastener pull-out, truss uplift) and whether each failure mode is consistent with wind loading or other causes.
• Building Envelope. Assessment of damage to exterior walls, windows, doors, curtain-wall systems, cladding, stucco, siding, and other exterior finish materials. Analysis of window and door failures, including whether failures were caused by positive wind pressure, negative wind pressure (suction), or wind-borne debris impact. Documentation of debris strike patterns and directionality.
• Interior Finishes and Systems. Assessment of interior damage resulting from water intrusion, with particular attention to source analysis: whether interior water damage was caused by water entering through roof breaches and failed windows (wind-driven rain — a covered peril) or by floodwater rising from ground level (storm surge — potentially excluded). This analysis should be conducted on a room-by-room or zone-by-zone basis where practicable, particularly at Grand Key and Harborview.
• MEP Systems. Assessment of damage to mechanical, electrical, and plumbing systems, including HVAC equipment, electrical distribution panels and switchgear, emergency generators, elevators, plumbing fixtures and piping, fire suppression systems, and telecommunications and data infrastructure. For each damaged MEP component, Mr. Caldwell should opine on whether the damage was caused by wind (e.g., rooftop equipment displaced or destroyed by wind) or by flood (e.g., ground-level electrical panels inundated by storm surge), or by a combination of both.
• Marina Structures (Grand Key Resort). Detailed assessment of damage to the 85-slip marina facility, including floating docks, fixed piers, pilings, fueling infrastructure, electrical service pedestals, and associated structures. Analysis of whether marina damage was caused predominantly by wind loading, wave action, surge, or a combination of forces.
• Conference Center (Harborview Hotel). Detailed assessment of the 40,000-square-foot conference and event facility, including structural elements, roof system, interior finishes, audiovisual and event infrastructure, and MEP systems. This facility is a key focus because it sustained both roof damage (wind) and ground-floor flooding (surge), and the apportionment of damage between these two perils will be significant.
In conducting the structural damage assessment, Mr. Caldwell should make use of all available photographic and video documentation, including photographs and videos taken by VHG personnel immediately after the storm, photographs taken during the Arbor Claims Services inspection on October 5, 2022, any satellite or aerial imagery obtained before and after the storm, damage surveys and reports prepared by VHG's contractors and consultants, and Mr. Caldwell's own observations during his on-site inspections (as discussed in Section VI below).
C. Timeline and Sequence of Damage
An important element of VHG's legal position is the temporal sequence in which damage occurred during Hurricane Callista's passage over the affected properties. Under Florida law, the efficient proximate cause doctrine provides that when multiple perils contribute to a loss, coverage is determined by the peril that was the predominant or efficient cause. If wind was the dominant or initiating cause of the loss — i.e., if wind damage preceded the arrival of storm surge and was independently sufficient to render the properties uninhabitable — the flood exclusion should not apply to bar coverage.
Accordingly, Mr. Caldwell should analyze the meteorological data and structural evidence to establish the timeline and sequence in which damage occurred at each of the three VHG properties during Hurricane Callista's passage. Specifically, Mr. Caldwell should address the following questions:
• At what time did hurricane-force winds first reach each property, and for how long did hurricane-force winds persist?
• At what time did storm surge begin to affect each property, and what was the peak surge elevation and timing at each location?
• Based on the meteorological timeline, did the onset of significant wind damage precede the arrival of storm surge at each property? By how much time?
• Based on the structural evidence (failure modes, damage patterns, debris distribution), is it possible to determine whether specific structural failures occurred during the wind phase or the surge phase of the storm?
• Was the wind damage sustained by each property — prior to and independent of any storm surge — sufficient by itself to force closure of the property and render it uninhabitable and inoperable?
This sequencing analysis is particularly important at Grand Key Resort, where the proximity to the landfall zone means that both wind and surge were extreme. However, meteorological data may show that the most destructive winds arrived before the peak storm surge, which would support the argument that wind was the initiating and efficient proximate cause of the loss.
D. Reasonable Period of Restoration
For each of the three VHG properties, Mr. Caldwell should opine on the reasonable period of restoration — that is, the time that would be required, with due diligence and dispatch, to repair or replace the damaged property and resume normal business operations. This analysis is critical because the business-interruption coverage under the Ironclad policy (and the following-form excess policies) limits the insurer's liability to loss of income sustained during the "period of restoration," which the policy defines as the period beginning with the date of the direct physical loss and ending when the property "should be repaired, rebuilt or replaced with reasonable speed and similar quality."
In assessing the reasonable period of restoration, Mr. Caldwell should consider the following factors:
• Extent of Physical Damage. The scope and severity of the damage at each property, as determined by the cause-of-loss and structural damage analyses described above. More extensive damage requires longer restoration periods.
• Availability of Contractors and Materials. The post-hurricane demand for construction labor, materials, and equipment in the Florida Keys and Gulf Coast region following Hurricane Callista. Major hurricanes create an intense surge in demand for restoration services across the affected region, leading to significant delays in contractor availability and extended lead times for construction materials. Mr. Caldwell should address the competitive conditions for restoration resources in the aftermath of Hurricane Callista, drawing on his experience with post-hurricane construction markets.
• Permit and Regulatory Requirements. The time required to obtain necessary building permits, schedule inspections, and comply with applicable building codes (including the Florida Building Code). Under Florida law, when the cost of repairs exceeds a specified threshold (typically 50% of the assessed value of the structure), the repairs must bring the entire structure into compliance with current building code requirements, which can significantly expand the scope and duration of the restoration work.
• Sequencing of Repairs. The logical sequencing of construction activities (e.g., structural repairs must be completed before interior finishes can be installed; roof and envelope must be watertight before MEP rough-in and interior work can proceed). Delays in one trade or phase can cascade through the entire restoration timeline.
• Access Constraints. The unique access challenges in the Florida Keys, where the Overseas Highway (US Route 1) serves as the sole vehicular access route and where bridges may be damaged or subject to weight restrictions following a hurricane. Road closures, bridge restrictions, and limited access for heavy equipment and material delivery trucks can significantly delay restoration work, particularly at the Grand Key Resort in Marathon.
• Supply Chain Disruptions. The broader supply chain disruptions that are common in the aftermath of major hurricanes, including delays in the manufacture and delivery of specialized construction materials, mechanical and electrical equipment, custom-fabricated components, and FF&E (furniture, fixtures, and equipment) items required for hotel and resort restoration.
Mr. Caldwell should assess whether VHG's actual restoration timelines — Grand Key Resort: 178 days; Harborview Hotel: 135 days; Sunset Shores: 73 days of full closure plus reduced capacity through February 28, 2023 — were reasonable under the circumstances, taking into account all of the factors described above. If Mr. Caldwell concludes that these timelines were reasonable, or that even longer restoration periods would have been justifiable, he should state that opinion clearly and provide the engineering and logistical basis for it. If Mr. Caldwell identifies any area where modest acceleration might have been achievable, he should note that as well, along with the likely effect on the overall timeline.
This analysis directly rebuts Ironclad's assertion — and the position taken by Arbor Claims Services LLC and its lead adjuster, Denise Whitford — that VHG unreasonably delayed restoration and that the period of restoration should be shortened, thereby reducing the business-interruption claim.
E. Response to Arbor Claims Services Findings
As noted above, Arbor Claims Services LLC, acting on behalf of Ironclad Indemnity Corporation, conducted an initial property inspection of the three VHG properties on October 5, 2022. The lead adjuster, Denise Whitford, prepared inspection reports and damage assessments for each property. Calderwood & Harkness will provide Mr. Caldwell with complete copies of the Arbor Claims inspection reports and any associated documentation once they have been produced in discovery (or sooner if available through other means).
Mr. Caldwell should review Arbor Claims' inspection reports, damage assessments, and any preliminary findings thoroughly, and he should be prepared to respond to or rebut their conclusions where warranted. In particular, Mr. Caldwell should evaluate:
• Arbor Claims' attribution of damage to storm surge versus wind at each property. If Arbor Claims has attributed damage to surge that Mr. Caldwell's analysis indicates was caused by wind or wind-driven rain, he should identify those discrepancies and explain the engineering basis for his contrary conclusion.
• Arbor Claims' assessment of reasonable restoration periods for each property. If Arbor Claims has concluded that the properties could have been restored more quickly than VHG's actual timelines, Mr. Caldwell should evaluate whether Arbor Claims' timeline assumptions are realistic in light of the actual post-hurricane conditions, contractor availability, permitting requirements, and other factors described above.
• Any methodology concerns in Arbor Claims' analysis. Mr. Caldwell should assess whether Arbor Claims' damage assessment methodology was scientifically sound and consistent with accepted forensic engineering practices. If Arbor Claims used inappropriate or unreliable methods to attribute damage to surge versus wind, Mr. Caldwell should identify those methodological shortcomings.
F. Anticipation of Defense Expert (Graystone Consulting Group)
We have been informed through initial disclosures that the defendants have retained Graystone Consulting Group LLC as their damages and coverage expert in this litigation. The lead expert for Graystone is Dr. Warren Birk, whose offices are located at 150 N. Michigan Avenue, Suite 2600, Chicago, Illinois 60601. Dr. Birk is a well-known defense-side expert in insurance coverage and engineering disputes, and we expect that his report — due on October 2, 2023 — will challenge Mr. Caldwell's cause-of-loss opinions and restoration-period analysis.
While Graystone's report is not yet available and we cannot predict its specific contents, Mr. Caldwell should be mindful of the likelihood that his opinions will face rigorous challenge from a qualified opposing expert. Mr. Caldwell should ensure that his methodology is robust, well-documented, and defensible at deposition and trial. In particular:
• All opinions should be supported by specific physical evidence, engineering analysis, meteorological data, and recognized forensic engineering methodologies.
• The analytical framework and reasoning should be clearly stated and traceable.
• Any assumptions should be identified and justified.
• The report should address alternative explanations for observed damage patterns and explain why Mr. Caldwell's conclusions are more consistent with the evidence.
• Mr. Caldwell should be prepared to defend his methodology under a Daubert-style challenge, although Florida courts apply the Daubert standard as codified in Florida Statute § 90.702.
V. Materials to Be Provided
Calderwood & Harkness will provide or make available to Mr. Caldwell the following documents, data, and materials in connection with this engagement. These materials will be transmitted on a rolling basis as they become available, with the first production anticipated within ten business days of the date of this memorandum:
1. Insurance Policies. Complete copies of the Ironclad Indemnity Corporation primary policy (Policy No. IIC-PRP-2022-07541) and the three excess policies (Pinnacle Surplus Lines Inc., Policy No. PSL-XS1-2022-3390; Montclair Assurance Company, Policy No. MAC-XS2-2022-09817; Sovereign Re Ltd., Policy No. SRL-XS3-2022-5102), with particular emphasis on the flood exclusion language, the anti-concurrent causation clause, the definition of "period of restoration," and any endorsements affecting the scope of covered perils.
2. VHG Property-Level Damage Documentation. Photographs, videos, and internal damage assessments taken by VHG personnel and contractors in the days and weeks following Hurricane Callista's landfall. This documentation is expected to include hundreds of photographs from each property, as well as video walk-throughs of damaged areas.
3. Arbor Claims Services Reports. Property inspection reports and damage assessments prepared by Arbor Claims Services LLC and its lead adjuster, Denise Whitford, based on the October 5, 2022, inspection of the three VHG properties. These materials will be provided as soon as they are produced in discovery or otherwise obtained.
4. Meteorological Data. National Hurricane Center advisories, wind-speed data (including sustained winds and peak gusts at relevant monitoring stations), storm-surge observations and tide gauge data, rainfall accumulation data, barometric pressure readings, and any other meteorological data relevant to Hurricane Callista's impact on the three property locations.
5. Engineering Plans and Drawings. Engineering plans, architectural blueprints, structural drawings, and as-built drawings for each of the three properties, to the extent available from VHG's files.
6. Repair and Restoration Documents. Repair contracts, contractor proposals, invoices, change orders, and restoration timeline documents for each property, including progress reports and punch lists.
7. Contractor Correspondence. Correspondence between VHG and its restoration contractors regarding scheduling, delays, material procurement, labor availability, and other factors affecting the restoration timeline.
8. Evacuation Orders. Copies of the Monroe County mandatory evacuation order issued September 16, 2022, and the Lee County mandatory evacuation order issued September 17, 2022.
9. Building Permits and Inspection Records. Building permits, applications, inspection reports, and certificates of occupancy related to the post-storm repair work at each property.
10. Pre-Storm Condition Surveys. Any pre-storm property condition surveys, engineering inspection reports, or capital expenditure assessments for the three properties, which may be relevant to establishing the baseline condition of the structures prior to Hurricane Callista.
11. FEMA Flood Zone Maps and Elevation Certificates. Federal Emergency Management Agency flood zone maps and any available elevation certificates for each property, which are relevant to understanding the storm-surge exposure and flood risk at each location.
12. Deposition Transcripts. Transcripts of depositions taken during the fact-discovery period (June 1 – September 30, 2023) will be provided to Mr. Caldwell on a rolling basis as they become available. Depositions of particular relevance may include those of VHG personnel (Sandra Pellegrini, Nathaniel Driscoll), Ironclad claims personnel, and Denise Whitford of Arbor Claims Services.
13. Satellite and Aerial Imagery. Pre-storm and post-storm satellite imagery and aerial photographs for each property location, obtained from commercial satellite imagery providers and any available governmental or emergency management sources.
Mr. Caldwell should advise Calderwood & Harkness promptly if additional data, documents, or site access is needed to conduct the analysis described in this memorandum. We will work with VHG and, as necessary, with opposing counsel through the discovery process to obtain any additional materials that Mr. Caldwell identifies as necessary or useful.
VI. Site Inspections
Mr. Caldwell should conduct on-site forensic inspections of all three VHG properties as soon as practicable following receipt of this memorandum and the initial set of materials described above. VHG's General Counsel, Nathaniel Driscoll, and Vice President of Risk Management, Sandra Pellegrini, will coordinate site access and arrange for VHG facilities personnel to be available during the inspections.
The on-site inspections should include, at a minimum, the following activities:
• Comprehensive photographic and video documentation of all damaged areas and repaired areas at each property.
• Physical measurements and dimensional verification as needed to assess structural damage, water intrusion pathways, and repair scope.
• Material sampling where appropriate, including samples of construction materials, sediment deposits, waterline residue, or other physical evidence that may assist in distinguishing wind damage from storm-surge damage.
• Interviews with VHG facilities and maintenance personnel who were familiar with the properties' pre-storm condition and who observed or participated in the post-storm damage assessment and restoration process.
• Observation and documentation of completed repairs, including assessment of repair quality, scope, and consistency with the damage documented in post-storm photographs and reports.
We note that the three properties have reopened at the following dates: Grand Key Resort reopened on March 15, 2023; Harborview Hotel reopened on January 31, 2023; and Sunset Shores partially reopened on November 30, 2022, with full capacity achieved on approximately February 28, 2023. Accordingly, restoration work is substantially or fully complete at all three properties. Some evidence of damage and repair may still be visible, but Mr. Caldwell should document both the remaining evidence of damage and the areas where repairs have been completed. Photographs of repaired areas, cross-referenced with post-storm damage photographs, will help illustrate the scope and nature of the damage that existed prior to repair.
To the extent possible, we recommend that the site inspections be completed by June 15, 2023, to allow sufficient time for analysis and report preparation in advance of the September 15, 2023, expert report deadline.
VII. Deliverables and Timeline
The following deliverables are requested from Mr. Caldwell in connection with this engagement, subject to the court-ordered discovery schedule described above:
A. Preliminary Findings Memorandum
Due Date: Approximately July 15, 2023
Mr. Caldwell should prepare an informal memorandum addressed to Calderwood & Harkness summarizing his preliminary conclusions on the cause-of-loss differentiation (wind versus storm surge/flood) at each of the three properties and his preliminary assessment of the reasonableness of VHG's restoration timelines. This memorandum need not be a formal expert report and is intended for counsel's internal use only. It will allow Calderwood & Harkness to assess the engineering conclusions in conjunction with the developing fact-discovery record and to identify any areas where additional investigation, data, or analysis may be needed before the formal expert report is prepared.
The preliminary findings memorandum should be clearly marked as "PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT — DRAFT" and should not be shared with anyone outside of Calderwood & Harkness without prior authorization.
B. Draft Expert Report
Due Date: No later than September 1, 2023
Mr. Caldwell should prepare a complete draft expert report suitable for review by counsel. The draft should be substantively complete and should include all opinions, supporting analysis, exhibits, and appendices that Mr. Caldwell intends to include in the final report. The two-week window between the draft report submission and the September 15, 2023, service deadline will allow Calderwood & Harkness to review the report, provide feedback, and work with Mr. Caldwell on any necessary revisions, clarifications, or supplementation.
The expert report must comply with the requirements of the Florida Rules of Civil Procedure governing expert disclosures, including:
• A complete statement of all opinions the witness will express and the basis and reasons for them.
• The facts and data considered by the witness in forming the opinions.
• Any exhibits that will be used to summarize or support the opinions.
• The witness's qualifications, including a list of all publications authored in the preceding ten years.
• A list of all other cases in which, during the previous four years, the witness testified as an expert at trial or by deposition.
• A statement of the compensation to be paid for the study and testimony in the case.
C. Final Expert Report
Due Date: No later than September 10, 2023
Following Calderwood & Harkness's review of the draft report and any revisions or edits, Mr. Caldwell should prepare and deliver the final expert report no later than September 10, 2023. This will allow five business days for final formatting, reproduction, and service on opposing counsel by the September 15, 2023, deadline.
D. Availability for Deposition
Mr. Caldwell should hold availability for a deposition by defense counsel in the October 2023 timeframe. Under the court's scheduling order, the defendants' rebuttal expert reports are due October 2, 2023, and expert discovery is to be completed by November 15, 2023. Defense counsel will likely seek to depose Mr. Caldwell during the October–November 2023 window. Calderwood & Harkness will coordinate the scheduling of Mr. Caldwell's deposition and will prepare him in advance.
E. Trial Testimony
While the trial date has not yet been set by the Court, it is anticipated that trial will take place in the spring or summer of 2024, following resolution of any dispositive motions. Mr. Caldwell should anticipate potential trial testimony during that timeframe and should maintain his availability accordingly. Calderwood & Harkness will provide advance notice of the trial date and will conduct a thorough trial preparation session with Mr. Caldwell prior to his testimony.
VIII. Coordination with Other Experts