PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
INTERNAL MEMORANDUM
FROM: Tiffany Rosenthal, Lead Associate, Calderwood & Harkness LLP
TO: Elaine Forsythe, Responsible Partner, Calderwood & Harkness LLP
DATE: September 8, 2023
RE: Review and Analysis of Draft Expert Report of Dr. Helen Vasquez, CPA, CFF — Quantification of Business-Interruption Losses, Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al.
MATTER: 1021-00003
CASE: No. 2022-CA-031547, Eleventh Judicial Circuit of Florida, Miami-Dade County (Hon. Catherine Embry)
PRIVILEGE DESIGNATION: This memorandum constitutes attorney work product prepared in anticipation of litigation and is protected from disclosure under the work-product doctrine. It reflects the mental impressions, conclusions, opinions, and legal theories of counsel. This document should not be disclosed to any person or entity outside of Calderwood & Harkness LLP and its authorized representatives without the express written consent of the undersigned or Elaine Forsythe.
I. Purpose and Summary
The purpose of this memorandum is to provide Elaine Forsythe with a detailed analysis of the draft expert report prepared by Dr. Helen Vasquez, CPA, CFF, of Meridian Forensic Economics LLC, which was received by Calderwood & Harkness on September 5, 2023. Dr. Vasquez's report quantifies the total business-interruption ("BI") losses sustained by our client, Verimark Hospitality Group Inc. ("VHG"), arising from Hurricane Callista, which made landfall in southwestern Florida on September 18, 2022. The report reaches an aggregate BI loss conclusion of $60,000,000 across VHG's three resort properties that were damaged by the hurricane.
Under the discovery schedule established at the May 1, 2023 case management conference before Judge Embry, affirmative expert reports are due to be served on all parties by September 15, 2023. We therefore have a narrow window in which to identify any issues with the draft report, communicate necessary revisions to Dr. Vasquez, and finalize the report for service.
This memorandum is organized as follows. First, I provide an overview of the draft report's structure, scope, and aggregate loss conclusions. Second, I analyze each of the three property-level loss calculations in detail, identifying the strengths of Dr. Vasquez's analysis, potential vulnerabilities that defense counsel and the defense expert are likely to target, and suggested revisions to the draft before finalization. Third, I discuss cross-cutting methodological strengths that apply to the report as a whole. Fourth, I address the anticipated defense challenges and vulnerabilities, including the windstorm sub-limit issue, period-of-restoration disputes, concurrent causation and flood exclusion arguments, the failure-to-mitigate defense, and potential Daubert reliability challenges. Fifth, I offer a comparison with the anticipated positions of the defense expert, Dr. Warren Birk of Graystone Consulting Group LLC. Sixth, I provide a consolidated list of all suggested revisions. Finally, I outline the timeline and next steps for finalizing and serving the report.
Andrew Fitzpatrick assisted with certain portions of this review, particularly the analysis of the concurrent causation and flood exclusion issues and the review of the Caldwell Engineering restoration-timeline data referenced in Section III below.
The bottom line is that Dr. Vasquez's draft report is fundamentally sound and well-supported. The primary areas of concern relate to external legal issues — particularly the windstorm sub-limit dispute and concurrent causation doctrine — rather than methodological deficiencies. With targeted revisions, the report will be well-positioned to withstand defense challenges, cross-examination at deposition, and any reliability challenge under Florida's Daubert standard.
II. Overview of Dr. Vasquez's Draft Report
A. Report Structure and Scope
Dr. Vasquez was retained by Calderwood & Harkness on behalf of VHG on April 20, 2023, pursuant to an expert retention letter executed on that date. Her engagement is to quantify VHG's business-interruption losses under the all-risk property and BI policies at issue in this litigation. A scope memorandum dated May 1, 2023, prepared by Dr. Vasquez and approved by this office, outlined the data requirements for the engagement, including: (i) historical financial performance data for each property; (ii) property-level revenue data, including room revenue, food-and-beverage revenue, conference and event revenue, spa and ancillary revenue, and marina revenue; (iii) average daily rates ("ADR") and occupancy rates on a monthly and seasonal basis; (iv) extra expenses incurred by VHG to mitigate losses and expedite restoration; (v) saved expenses — i.e., costs that did not continue during the closure or reduced-capacity periods; and (vi) the period-of-restoration definition as set forth in the applicable insurance policies.
The draft report is organized into four principal sections:
1. Qualifications and Methodology — This section sets forth Dr. Vasquez's professional qualifications, her retention and the scope of her assignment, the data and materials she reviewed, and a detailed explanation of the "but-for" analytical methodology she employed to quantify BI losses.
2. Property-by-Property Loss Calculations — This section presents the BI loss analysis for each of the three VHG properties: (a) Verimark Grand Key Resort, Marathon, Florida; (b) Verimark Harborview Hotel & Conference Center, Fort Myers Beach, Florida; and (c) Verimark Sunset Shores, St. Pete Beach, Florida.
3. Aggregate Loss Summary — This section aggregates the property-level losses into a total BI loss figure and reconciles the total with the insurance tower.
4. Supporting Exhibits and Appendices — The report is accompanied by detailed exhibits, including historical financial data, ADR and occupancy trend analyses, reservation and booking records, saved-expense calculations, extra-expense documentation, and supporting schedules for each property.
Dr. Vasquez's professional credentials are as follows: she holds a CPA license and has obtained the Certified in Financial Forensics ("CFF") credential from the American Institute of Certified Public Accountants. She is a principal at Meridian Forensic Economics LLC, located at 1201 Peachtree Street NE, Suite 1000, Atlanta, Georgia 30361. Her billing rate is $625 per hour, and her supporting analysts bill at $375 per hour. Her curriculum vitae, which is attached as Exhibit A to the draft report, reflects extensive experience in insurance-related forensic accounting and damages quantification, including prior BI loss analyses in hurricane and catastrophic-event cases in Florida, Texas, Louisiana, and the U.S. Virgin Islands.
B. Aggregate Loss Conclusion
Dr. Vasquez's draft report concludes that VHG's total business-interruption losses resulting from Hurricane Callista amount to $60,000,000, comprised of the following property-level losses:
The reconciliation is straightforward: $31,400,000 + $18,700,000 + $9,900,000 = $60,000,000. This total equals the aggregate limit of the insurance tower, which consists of: (a) the Ironclad Indemnity Corp. ("Ironclad") primary layer of $25,000,000 (policy number IIC-PRP-2022-07541); (b) the Pinnacle Specialty Lines ("Pinnacle") first excess layer of $15,000,000 excess of $25,000,000 (policy number PSL-XS1-2022-3390); (c) the Montclair Assurance Company ("Montclair") second excess layer of $10,000,000 excess of $40,000,000 (policy number MAC-XS2-2022-09817); and (d) the Sovereign Reinsurance Ltd. ("Sovereign Re") third excess layer of $10,000,000 excess of $50,000,000 (policy number SRL-XS3-2022-5102) — for a total tower of $60,000,000 above the $500,000 deductible. The fact that VHG's total claimed BI losses reach the full extent of the insurance tower reinforces that every layer of coverage is implicated by the claim, and every carrier defendant has direct exposure in this litigation.
C. Methodology. Dr. Vasquez employs a standard "but-for" analysis to quantify VHG's BI losses at each property. This methodology involves two principal components: first, a projection of what each property would have earned during the relevant period absent Hurricane Callista (the "but-for" scenario); and second, a determination of each property's actual earnings during the closure and/or reduced-capacity periods following the hurricane (the "actual" scenario). The difference between the but-for projected earnings and the actual earnings, adjusted for saved expenses and extra expenses, yields the BI loss for each property.
The key features of the methodology are as follows:
• Baseline Performance Period. Dr. Vasquez uses VHG's fiscal year 2021 ("FY 2021") as the primary reference year for establishing baseline performance. In FY 2021, VHG's total revenue was approximately $412,000,000 and its earnings before interest, taxes, depreciation, and amortization ("EBITDA") was approximately $78,000,000. FY 2021 is a strong and appropriate comparator because it reflects normalized post-COVID operations; FY 2020 would be a highly problematic baseline due to the well-documented impacts of the COVID-19 pandemic on the hospitality industry, particularly in Florida resort markets.
• Seasonal and Growth Adjustments. Dr. Vasquez adjusts the FY 2021 baseline to reflect seasonality patterns at each property (since BI losses are concentrated in specific months) as well as historical growth trends in ADR, occupancy, and revenue per available room ("RevPAR"). Where applicable, she incorporates data from FY 2019 and FY 2022 (pre-hurricane months) to validate growth assumptions.
• Confirmed Bookings and Reservations. For each property, Dr. Vasquez reviewed VHG's property management system data to identify confirmed reservations and bookings that were canceled as a direct result of Hurricane Callista. This provides an additional layer of support for the but-for revenue projections, particularly at the Harborview Hotel & Conference Center, where significant group and conference bookings were affected.
• Saved-Expense Deduction. Consistent with standard forensic accounting methodology and the BI coverage formula in the Ironclad primary policy, Dr. Vasquez deducts "saved expenses" — i.e., costs that ceased or were reduced during the closure periods because the properties were not operational. These include variable operating costs such as housekeeping, food-and-beverage cost of goods sold, certain utility costs, and per-occupied-room amenity costs. Fixed costs that continued during closure (e.g., property taxes, insurance premiums, debt service, management salaries) are not deducted.
• Extra-Expense Inclusion. Dr. Vasquez separately identifies and includes extra expenses that VHG incurred to accelerate the restoration process and mitigate BI losses. These include costs related to expedited construction, temporary facilities, emergency repairs, and guest-relocation expenses.
• Period of Restoration. For each property, Dr. Vasquez defines the BI loss period based on the actual dates of closure and, where applicable, the period of reduced-capacity operations. These dates are consistent with the period-of-restoration clause in the Ironclad primary policy, which provides coverage for the period beginning at the time of the physical loss and ending when the property "should be repaired, rebuilt, or replaced with reasonable speed and similar quality." Dr. Vasquez relies on the actual closure dates as documented by VHG's management and corroborated by the engineering assessment performed by Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc.
III. Property-by-Property Analysis
A. Verimark Grand Key Resort (Marathon, FL — Mile Marker 48, Marathon, FL 33050)
The Verimark Grand Key Resort is VHG's flagship Florida Keys property, a 312-room luxury resort and full-service marina located at Mile Marker 48 in Marathon, Monroe County, Florida. The property features a deep-water marina with 85 slips, a full-service spa, four dining outlets, and a water-sports center. It is VHG's highest-revenue property among the three affected by Hurricane Callista.
Pre-Loss Performance Metrics. Prior to Hurricane Callista, Grand Key's trailing twelve-month performance showed an average daily rate of $389 and an occupancy rate of 82%. Revenue per available room ("RevPAR") was approximately $319. These metrics placed Grand Key in the upper tier of luxury resort properties in the Florida Keys market, consistent with STR (Penmark Enterprises) competitive set benchmarking data reviewed by Dr. Vasquez.
Closure Period. Grand Key was fully closed from September 18, 2022 (the date of Hurricane Callista's landfall) through March 15, 2023, a total of 178 days. This is the longest closure period of the three affected properties, reflecting the severity of the damage sustained by the Grand Key property. The property suffered significant wind damage to roof structures, exterior facades, and guest-room interiors, as well as substantial storm-surge inundation of ground-floor facilities and the marina complex.
Claimed BI Loss. Dr. Vasquez calculates the BI loss for Grand Key at $31,400,000. This figure represents the largest single-property component of VHG's claim and, by itself, exceeds the $25,000,000 primary layer limit, meaning that Grand Key's losses alone are sufficient to exhaust Ironclad's layer and implicate the excess carriers.
Strengths of the Analysis:
Dr. Vasquez's analysis of the Grand Key losses is supported by robust historical revenue data spanning FY 2019 through the pre-hurricane portion of FY 2022. She employs a three-year trailing average with seasonal adjustments to project but-for revenue, which is a well-accepted approach that smooths out year-to-year variability while capturing growth trends. The analysis properly includes all revenue streams associated with the property — not only room revenue, but also marina revenue, spa revenue, food-and-beverage revenue, and water-sports revenue. The inclusion of these ancillary revenue streams is appropriate because they are integral to the property's operations and would have been earned absent the hurricane closure.
The saved-expense methodology applied to Grand Key is conservative and well-documented. Dr. Vasquez identifies each category of variable expense that was eliminated or reduced during the closure period and provides supporting detail for the deduction amounts. This conservative approach reduces the risk that defense counsel can credibly argue the BI calculation is inflated by a failure to properly deduct costs that did not continue.
Critically, the 178-day closure period aligns with the repair and restoration timeline documented by Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc., who is VHG's engineering expert in this matter. Caldwell's draft report (currently under separate review) confirms that the scope and severity of the structural damage at Grand Key, combined with post-hurricane contractor availability constraints and building permit delays in Monroe County, rendered a 178-day restoration period reasonable and consistent with industry standards for comparable hurricane-damage repairs in the Florida Keys.
Potential Vulnerabilities:
Wind vs. Storm Surge Allocation. The most significant vulnerability at Grand Key relates to the concurrent-causation and flood-exclusion issue. Hurricane Callista generated storm surge of 8 to 14 feet in Monroe County, which caused substantial flooding at the Grand Key property. Ironclad will argue — and has argued in its denial letter and coverage correspondence — that a portion of the damage at Grand Key resulted from storm surge (i.e., flood) rather than wind, thereby triggering the flood exclusion in the policy. Dr. Vasquez's report does not separately allocate BI losses attributable to wind damage versus storm-surge damage. This is fundamentally an engineering and causation question that is addressed by Caldwell's report rather than by the damages expert. However, we should anticipate that Dr. Birk may attempt to reduce the BI figure by apportioning some portion of the closure period to flood-related downtime and excluding those losses under the flood exclusion. Dr. Vasquez should be prepared to explain at deposition why a separate allocation was not performed and why her approach is consistent with VHG's legal position on the concurrent causation issue.
Period of Restoration — "Reasonable Speed" Argument. The 178-day closure period at Grand Key is the longest of the three properties and will be the primary target of Ironclad's argument that VHG unreasonably delayed restoration. Ironclad's position, as articulated in its February 3, 2023 denial letter signed by Victor Haddon (Senior Vice President, Complex Claims), is that the policy's period-of-restoration clause limits coverage to the period during which repairs "could have been completed with reasonable speed." Defense counsel Gregory Stanton at Fendowell Rourke & Stanton LLP will likely argue that Grand Key could have been reopened 30 to 45 days earlier than it actually was. Dr. Vasquez currently relies on the actual closure dates rather than constructing a theoretical minimum restoration timeline. While this is defensible, we need to ensure that Dr. Vasquez can robustly defend why the actual 178-day period was reasonable and was not inflated by delays attributable to VHG's own conduct rather than the physical damage or external constraints.
ADR Assumption. The ADR of $389 used in the Grand Key analysis is a high-season weighted average. Defense counsel may argue that the blended ADR across the full 178-day closure period (September 18, 2022 through March 15, 2023) should account for lower off-season rates, particularly during the late-September and October period. However, this argument is significantly weakened by the fact that the Florida Keys high season runs from approximately November through April, meaning that the majority of the closure period — roughly four and a half of the six months — falls within the high season. Q4 (November–December) and Q1 (January–March) are peak season in the Keys, which strongly supports the $389 ADR figure. Nevertheless, Dr. Vasquez's report would benefit from an explicit discussion of this seasonality dynamic.
Suggested Revisions:
1. Seasonality Discussion. Dr. Vasquez should add a paragraph explicitly addressing the seasonality of the Florida Keys hospitality market, noting that the September 18, 2022 through March 15, 2023 closure period encompasses the heart of the high season (November through April). This discussion should reference STR data and VHG's own historical monthly ADR trends to demonstrate that the $389 ADR assumption is, if anything, conservative for the period at issue. By proactively addressing this point, the report will preempt a predictable defense argument and demonstrate methodological rigor.
2. Cross-Reference to Caldwell Engineering Report. The draft report should cross-reference the Caldwell Engineering draft report's conclusion regarding the restoration timeline at Grand Key. Specifically, Dr. Vasquez should cite Caldwell's findings on the nature and severity of the structural damage, the sequence of required repairs, and the external factors (contractor availability, permit delays, material supply constraints) that contributed to the 178-day restoration period. This cross-reference will buttress the closure-period assumption and make it more difficult for defense to attack the period of restoration in isolation from the engineering evidence.
3. Sensitivity Analysis. Dr. Vasquez should include a sensitivity analysis demonstrating that even under the shortened restoration scenarios proposed by Arbor Claims Services (Ironclad's adjusting firm, through adjuster Denise Whitford), the BI losses at Grand Key alone would still exceed $25,000,000 — the Ironclad primary layer limit. This analysis would show that even if the defense succeeds in compressing the restoration period by 30 to 45 days, Ironclad's full layer is still exhausted by Grand Key losses alone, and the excess carriers remain exposed. This is a powerful strategic point that neutralizes the period-of-restoration defense as to the primary layer.
B. Verimark Harborview Hotel & Conference Center (1400 Estero Boulevard, Fort Myers Beach, FL 33931)
The Verimark Harborview Hotel & Conference Center is a 224-room hotel situated on Estero Boulevard on Fort Myers Beach, Lee County, Florida. In addition to guest rooms, the property includes a 40,000-square-foot conference and meeting facility, which is one of the largest dedicated conference venues on Florida's Gulf Coast. The conference facility generates substantial revenue from group bookings, corporate events, and industry conferences, along with associated food-and-beverage revenue. The property also features two dining outlets, a rooftop bar, a pool and fitness center, and beachfront amenities.
Pre-Loss Performance Metrics. Harborview's trailing twelve-month performance prior to Hurricane Callista showed an average daily rate of $295 and an occupancy rate of 74%. These metrics reflect a mixed transient and group-booking demand profile, with group and conference business comprising a significant share of total revenue and occupancy.
Closure Period. Harborview was fully closed from September 18, 2022 through January 31, 2023, a total of 135 days. The property sustained substantial wind and water damage, though storm surge in Lee County (6 to 10 feet) was generally less severe than in Monroe County, which somewhat weakens the flood exclusion argument at this property relative to Grand Key.
Claimed BI Loss. Dr. Vasquez calculates the BI loss for Harborview at $18,700,000.
Strengths of the Analysis:
The conference-revenue component is a distinguishing feature of the Harborview analysis, and Dr. Vasquez has done a commendable job of documenting the lost conference and group-booking revenue. VHG's booking records show specific conferences, corporate meetings, and events that were confirmed for dates during the closure period and were canceled as a direct result of Hurricane Callista. Dr. Vasquez properly includes not only the room-block revenue associated with these group bookings, but also the associated food-and-beverage revenue, audiovisual rental charges, and meeting-room rental fees that would have been generated.
The relative severity of storm surge at Harborview (6–10 feet in Lee County versus 8–14 feet in Monroe County) weakens the flood exclusion argument at this property. While some storm-surge damage did occur, the ratio of wind damage to flood damage is more favorable to VHG at Harborview than at Grand Key, making it more difficult for Ironclad to invoke the flood exclusion or anti-concurrent causation clause to exclude a substantial portion of the losses.
Dr. Vasquez's analysis of transient (non-group) revenue at Harborview is consistent with her methodology at the other properties, using the three-year trailing average with seasonal adjustments and incorporating STR benchmarking data for the Fort Myers Beach competitive set.
Potential Vulnerabilities:
Conference Revenue as "Speculative." The conference-revenue component of the Harborview loss represents a significant portion of the $18,700,000 total, and defense counsel will predictably challenge this component as speculative. The defense argument will be that some of the canceled conferences would have been relocated to alternative venues or postponed rather than entirely lost, meaning that the revenue loss was not a direct and proximate result of the hurricane damage to Harborview specifically. Dr. Vasquez should be prepared to address the non-substitutability of the Harborview venue — for example, many conference organizers selected Harborview specifically for its beachfront location, its conference-facility size and configuration, and its integrated hotel accommodations, and these features are not readily replicated at alternative venues in the Fort Myers market. Additionally, the analysis should distinguish between events that were actually canceled (with forfeited deposits and documented organizer communications confirming cancellation) and any events that were merely deferred to a later date.
Occupancy Rate. The 74% occupancy rate at Harborview, while solid, is lower than Grand Key's 82% and Sunset Shores' 79%. Defense may attempt to use this comparatively lower occupancy to argue that Harborview was not performing at the level Dr. Vasquez's projections assume, or that periods of historically lower occupancy within the closure period were not properly accounted for. It is important to verify that the 74% figure is properly supported by the three-year historical average and is not skewed by any anomalous period. We should also confirm that Dr. Vasquez's month-by-month projections reflect the actual seasonal occupancy pattern at Harborview rather than applying a flat annual average.
Period of Restoration. The 135-day closure period at Harborview is shorter than Grand Key's 178 days but will still be subject to Ironclad's "reasonable speed" argument. We anticipate Dr. Birk will argue that Harborview could have reopened 20 to 30 days earlier. We should verify that the 135-day figure aligns with the Caldwell Engineering restoration timeline for this property and that the supporting documentation adequately explains the duration.
Suggested Revisions:
1. Conference-Revenue Documentation. Dr. Vasquez should strengthen the conference-revenue section of the Harborview analysis with specific references to the documentary evidence supporting each canceled event. This should include: (a) executed booking contracts or letters of intent for the canceled conferences; (b) evidence of forfeited deposits or cancellation fees; (c) correspondence between VHG and event organizers confirming cancellation and the reasons therefor; and (d) any evidence that canceled events were not rescheduled at Harborview or relocated to competing venues.
2. Historical Booking Patterns. Dr. Vasquez should add a footnote or brief discussion noting that several of the canceled conferences were annual recurring events with multi-year booking histories at Harborview. For example, if a particular industry conference had been held at Harborview for three or more consecutive years and was canceled in 2022–2023 solely due to the hurricane closure, this historical pattern substantially reduces the characterization of the lost revenue as "speculative" and establishes that Harborview's conference revenue was based on documented, recurring demand rather than hypothetical projections.
C. Verimark Sunset Shores (7200 Gulf Boulevard, St. Pete Beach, FL 33706)
The Verimark Sunset Shores is a 186-room boutique resort located on Gulf Boulevard in St. Pete Beach, Pinellas County, Florida. The property is positioned as a premium boutique offering within VHG's portfolio, featuring a spa, a signature restaurant, and direct Gulf-front beach access. Sunset Shores is the smallest of the three affected properties by room count and total revenue.
Pre-Loss Performance Metrics. Sunset Shores' trailing twelve-month performance prior to Hurricane Callista reflected an average daily rate of $342 and an occupancy rate of 79%.
Closure Period. Sunset Shores experienced a two-phase operational disruption. The property was fully closed from September 18, 2022 through November 30, 2022, a period of 73 days. Following the full-closure period, the property reopened at reduced capacity, operating with a limited number of available rooms while ongoing repairs continued in other portions of the resort. The reduced-capacity period extended from December 1, 2022 through February 28, 2023. Thus, the total period of operational disruption — combining full closure and reduced capacity — spanned approximately 163 days.
Claimed BI Loss. Dr. Vasquez calculates the BI loss for Sunset Shores at $9,900,000.
Strengths of the Analysis:
Dr. Vasquez's two-phase analytical approach — separately quantifying losses during the full-closure period and the partial-closure/reduced-capacity period — is methodologically sound and reflects the actual operational reality at the property. This approach is more nuanced than a simple binary (open/closed) analysis and demonstrates a careful effort to match the loss calculation to the facts on the ground.
The loss calculation during the partial-closure period is conservative. Dr. Vasquez quantifies the reduced-capacity loss based on the specific number of rooms that remained out of service due to ongoing repairs, rather than applying a blanket percentage reduction. This granular approach is less susceptible to criticism that the loss figure is overstated.
Additionally, the fact that Sunset Shores sustained less damage than Grand Key or Harborview — consistent with the property's location in Pinellas County, which was farther from Hurricane Callista's landfall point — aligns with and lends credibility to the comparatively lower loss figure of $9,900,000. The proportionality among the three property-level loss figures is internally consistent and reflects the relative severity of damage at each location.
Potential Vulnerabilities:
Reduced-Capacity Period Scrutiny. The partial-closure period (December 2022 through February 2023) is likely to draw scrutiny from defense counsel. Because the property was operational during this period — albeit at reduced capacity — Ironclad may argue that any shortfall in revenue during December through February was attributable to general market conditions, reduced consumer demand in the aftermath of a major hurricane, or other factors unrelated to the physical damage at Sunset Shores. This is a causation argument: the defense will contend that a portion of the reduced revenue during the partial-closure period would have been experienced even if Sunset Shores had been fully operational, because of broader market disruption from Hurricane Callista. Dr. Vasquez should be prepared to address this argument, ideally by referencing STR data showing that comparable properties in the St. Pete Beach market that were not damaged by the hurricane experienced normal or near-normal performance during the December–February period.
ADR During Partial Operations. The ADR of $342 used in the but-for projections for Sunset Shores may not reflect the actual rates charged during the reduced-capacity period. It is common for hotels operating at reduced capacity during renovation or reconstruction to offer discounted rates to attract guests and mitigate losses. If VHG offered discounted rates at Sunset Shores during the December–February period, the defense may argue that the actual ADR during partial operations — rather than the but-for ADR — should be used to calculate losses. This argument would be incorrect as a matter of BI loss quantification methodology: the but-for analysis properly measures what VHG would have earned absent the hurricane, and the actual reduced rates are a consequence of the hurricane damage rather than a baseline. However, Dr. Vasquez should verify that she is consistently using the but-for ADR (i.e., what the property would have charged absent the hurricane) in her projections and not inadvertently incorporating any discounted actual rates into her model.
Strategic Concessions by Defense. Sunset Shores represents the smallest component of VHG's total BI claim at $9,900,000. It is possible that defense counsel may adopt a strategy of conceding a portion of the Sunset Shores claim — or at least not aggressively contesting it — in order to focus their firepower on the larger Grand Key and Harborview claims. While any such concession would benefit VHG, we should consider how partial concessions at Sunset Shores might interact with the insurance tower and the allocation of losses across layers. Because the total claim of $60,000,000 precisely equals the full tower limit, any reduction in the total claim would result in the highest excess layer (Sovereign Re, $10,000,000 excess of $50,000,000) being the first to benefit, which could potentially affect Sovereign Re's litigation posture and settlement incentives.
Suggested Revisions:
1. Reduced-Capacity Methodology. Dr. Vasquez should clarify in the report that the "reduced capacity" during the December 2022 through February 2023 period is quantified based on the specific number of rooms that were out of service due to ongoing repairs. This quantification should be supported by VHG's internal daily occupancy tracking records (from the property management system) showing which rooms were available for sale and which were blocked due to construction activity. The room-out-of-service data should be cross-referenced with Caldwell Engineering's damage assessment, which identifies the specific building wings and floor sections that were undergoing repair during the partial-closure period.
2. Daubert Readiness. The partial-closure methodology at Sunset Shores is more complex than a straightforward full-closure analysis and therefore presents a somewhat larger target for a reliability challenge under Florida's Daubert standard (which became effective in 2019 under Fla. Stat. § 90.702). Dr. Vasquez should ensure that the partial-closure methodology is explained with sufficient granularity and transparency that it withstands a challenge to the reliability of the expert's methodology. Although this case is in state court, defense counsel may raise a motion to exclude or limit Dr. Vasquez's testimony on the ground that the partial-closure loss calculation is based on insufficient data or unreliable methods. A clear, step-by-step explanation of the methodology, with explicit identification of the inputs and assumptions, will mitigate this risk.
IV. Cross-Cutting Methodological Strengths
In addition to the property-specific strengths identified above, several cross-cutting features of Dr. Vasquez's draft report merit recognition as overall strengths that enhance the report's credibility and resilience against anticipated defense challenges:
Reliable Data Sources. Dr. Vasquez relied on a comprehensive set of reliable data sources in constructing her analysis. These include: (i) VHG's audited financial statements for FY 2019 through FY 2022, prepared by VHG's independent auditor, Mason & Sullivan CPAs; (ii) property management system ("PMS") data from each of the three affected properties, which provides daily room-level detail on occupancy, ADR, and revenue; (iii) STR (Penmark Enterprises) reports, which are the industry-standard benchmarking tool for hotel and resort performance, providing competitive-set comparisons for ADR, occupancy, and RevPAR; and (iv) historical booking and reservation records, including confirmed reservations that were canceled due to the hurricane. The use of audited financial data as the foundation for the analysis is particularly important because it provides an independent, third-party-verified baseline that is difficult for the defense to challenge on reliability grounds.
FY 2021 Baseline Selection. Dr. Vasquez's selection of FY 2021 as the primary reference year for baseline performance is well-reasoned and defensible. FY 2021 revenue of $412,000,000 and EBITDA of $78,000,000 provide strong pre-loss comparators. Critically, FY 2021 reflects normalized post-COVID-19 operations for VHG's Florida resort properties, which experienced a significant rebound in demand during 2021 as travel restrictions eased and the Florida hospitality market benefited from substantial domestic leisure demand. FY 2020, by contrast, would be a highly problematic baseline due to the severe and well-documented impacts of the COVID-19 pandemic on the hospitality industry, including government-mandated shutdowns, reduced travel demand, and capacity restrictions. By using FY 2021 — supplemented by FY 2019 and pre-hurricane FY 2022 data for validation and growth-trend analysis — Dr. Vasquez avoids the distortive effects of the pandemic year while still capturing a representative snapshot of VHG's earning capacity.
Saved-Expense Analysis. Dr. Vasquez properly deducts saved expenses from the BI loss calculation for each property, distinguishing between continuing expenses (which were incurred during the closure period and are included in the loss) and non-continuing expenses (which ceased during closure and are deducted from the loss). This treatment is consistent with standard forensic accounting methodology for BI loss quantification and, importantly, tracks the business-interruption coverage formula in the Ironclad primary policy, which defines the covered loss as the reduction in gross earnings less charges and expenses that do not necessarily continue during the period of interruption. The saved-expense analysis is detailed and transparent, which reduces the likelihood that the defense can argue the BI claim is inflated by a failure to account for cost savings during closure.
Extra-Expense Documentation. Dr. Vasquez separately identifies and quantifies the extra expenses that VHG incurred to accelerate the restoration process and mitigate its BI losses. These expenses include costs for expedited construction contractors, temporary structures and facilities, emergency generator rentals, guest-relocation accommodations at alternative properties, and other costs incurred to shorten the interruption period and resume revenue-generating operations as quickly as possible. The documentation of these extra expenses serves a dual purpose: it supports VHG's claim for extra-expense coverage under the policies, and it affirmatively rebuts Ironclad's failure-to-mitigate defense by demonstrating that VHG took significant, costly steps to reduce the duration and magnitude of the business interruption.
Consistency with Policy Terms. Dr. Vasquez's methodology tracks the business-interruption coverage grant and period-of-restoration definition in the Ironclad primary policy (policy number IIC-PRP-2022-07541). The excess policies issued by Pinnacle (PSL-XS1-2022-3390), Montclair (MAC-XS2-2022-09817), and Sovereign Re (SRL-XS3-2022-5102) follow form to the Ironclad primary policy with respect to the BI coverage terms. The alignment between Dr. Vasquez's analytical framework and the policy language is a significant strength because it demonstrates that the loss quantification is anchored in the contractual terms governing the claim, rather than reflecting an abstract or unconstrained damages model.
V. Anticipated Defense Challenges and Vulnerabilities
This section addresses the principal challenges that defense counsel and the defense expert are expected to raise against Dr. Vasquez's report, and identifies the vulnerabilities in the current draft that should be addressed before finalization.
A. Windstorm Sub-Limit Issue
This is the single most consequential coverage issue in the case. Ironclad asserts that a $15,000,000 named-windstorm sub-limit applies to business-interruption losses under the primary policy. If Ironclad's position is sustained, the sub-limit would cap VHG's entire BI recovery at $15,000,000 regardless of the total losses actually sustained, and the excess layers would not be reached because the BI loss would not exhaust the primary layer.
Dr. Vasquez's draft report does not address the windstorm sub-limit. It calculates total BI losses without applying any sub-limit, which is the correct approach because VHG's legal position is that the named-windstorm sub-limit was deleted from the policy at the July 2022 renewal. VHG's position is supported by the renewal correspondence, the insurance broker's (Kelton & Associates) placement memorandum, and the absence of a named-windstorm sub-limit endorsement in the final policy form. This coverage dispute is the subject of VHG's planned motion for partial summary judgment, which we intend to file on or about November 1, 2023.
Although Dr. Vasquez correctly does not apply the sub-limit in her loss calculation, the draft report is currently silent on this issue. To preempt any suggestion that the report is incomplete or that Dr. Vasquez failed to consider the sub-limit, we recommend that she include a brief statement clarifying that her report quantifies total BI losses without reference to disputed coverage limitations. The statement should note that the application of any policy sub-limit is a legal question outside the scope of her damages analysis and that she has not been asked to calculate an alternative loss figure assuming the application of a sub-limit. If the court ultimately rules that the sub-limit applies, a supplemental calculation could be prepared, but there is no reason to include such a calculation in the affirmative expert report.
B. Period of Restoration Challenges
Ironclad's position, as stated in its February 3, 2023 denial letter issued over the signature of Victor Haddon (Senior Vice President, Complex Claims, Ironclad Indemnity Corp.), is that VHG unreasonably delayed the restoration of its properties following Hurricane Callista. Ironclad contends that the policy's period-of-restoration clause limits BI coverage to the period during which repairs "could have been completed with reasonable speed and similar quality," and that VHG's actual closure periods exceeded the reasonable-speed benchmark at each property.
We anticipate that the defense expert, Dr. Warren Birk of Graystone Consulting Group LLC, will offer an alternative, compressed restoration timeline in his expert report. Based on prior engagements involving Dr. Birk and Graystone's typical approach in hurricane BI cases, we anticipate that Dr. Birk will argue that Grand Key could have reopened 30 to 45 days earlier than its actual reopening date, and that Harborview could have reopened 20 to 30 days earlier. Any such compression would reduce the BI loss calculation by eliminating revenue losses and continuing expenses attributable to the "excess" closure days.
Dr. Vasquez should be prepared to justify each property's actual closure period with reference to the following factors:
(a) Contractor Availability. Following a major hurricane event in Florida, the demand for qualified construction contractors far exceeds supply. Hurricane Callista caused widespread damage across southwestern Florida, and the competition for contractor services was intense. VHG's ability to retain and mobilize contractors was constrained by the same regional demand pressures faced by every property owner in the affected area.
(b) Building Permit Delays. Post-hurricane building permit processing in Monroe County, Lee County, and Pinellas County experienced significant delays due to the volume of permit applications and the limited capacity of local building departments. VHG submitted its permit applications promptly but was subject to processing timelines outside its control.
(c) Supply-Chain Constraints. The restoration of luxury resort properties requires specialty materials, finishes, fixtures, and furnishings that are not readily available from local suppliers and often have extended lead times. Supply-chain disruptions — exacerbated by the post-hurricane demand surge and broader global supply-chain challenges — contributed to the duration of the restoration process.
(d) Structural Damage Severity. Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc. has assessed the structural damage at each property and has concluded that the actual restoration periods were reasonable in light of the nature and extent of the damage sustained. Dr. Vasquez's closure-period assumptions should be cross-referenced with Caldwell's engineering conclusions to provide a unified, mutually reinforcing factual basis.
Suggested Revision: Dr. Vasquez should add a section or appendix to the report specifically addressing the reasonableness of the actual restoration periods at each property. This section should present data on regional contractor demand, permit processing timelines, and supply-chain lead times in the aftermath of Hurricane Callista. By proactively addressing the reasonableness of the closure periods, the report will reduce the effectiveness of the defense's "reasonable speed" argument and provide Dr. Vasquez with a well-documented foundation for her deposition testimony on this issue.
C. Concurrent Causation / Flood Exclusion
At the Grand Key Resort, Ironclad argues that storm-surge (flood) damage triggers the flood exclusion in the policy. Ironclad further invokes the policy's anti-concurrent causation ("ACC") clause, which purports to exclude losses caused by any combination of covered and excluded perils when the excluded peril (here, flood) is a contributing cause. If the ACC clause is enforced as written, Ironclad could potentially exclude all losses at Grand Key attributable to any period of closure caused in part by flood damage, even if wind damage was also a substantial contributing cause.
Dr. Vasquez's loss calculation does not distinguish between wind-caused closure days and flood-caused closure days at any of the three properties. This approach is appropriate and consistent with VHG's legal position. As analyzed in the anti-concurrent causation research memorandum dated November 1, 2022, prepared by Andrew Fitzpatrick, VHG's position is that Florida's efficient proximate cause doctrine applies, and that wind — as the efficient proximate cause of the losses — renders the entire BI loss covered regardless of the concurrent contribution of storm surge. Under this legal theory, a separate allocation of losses by cause is neither necessary nor appropriate.
However, there is litigation risk on this issue. If the court were to rule against VHG on the concurrent causation question — for example, by enforcing the ACC clause or by applying a different causation framework — we would need a supplemental analysis from Dr. Vasquez allocating BI losses between wind-caused and flood-caused closure periods. This contingency should be flagged internally but should not be elaborated in the report in a way that invites the defense to demand the supplemental allocation as part of Dr. Vasquez's affirmative expert obligations.
Suggested Revision: Dr. Vasquez should include a brief note in her report stating that her analysis assumes the full period of closure at each property is covered under the policies, and that she has not been asked to allocate BI losses by cause of damage (wind versus flood). The note should state this as a scope limitation rather than a methodological omission, making clear that the decision not to perform a causal allocation reflects the scope of her retention and VHG's legal position, not a gap in her analysis.
D. Failure to Mitigate Defense
Ironclad has alleged in its pleadings and coverage correspondence that VHG failed to take reasonable steps to reduce the duration of the business interruption at its properties. This is an affirmative defense that Ironclad bears the burden of proving. If sustained, it could result in a reduction of the BI recovery to account for losses that VHG could have avoided through reasonable mitigation efforts.
Dr. Vasquez's extra-expense analysis actually cuts strongly against Ironclad's failure-to-mitigate defense. The report documents significant expenditures that VHG incurred specifically to expedite the restoration process and accelerate the reopening of its properties. These expenditures include premium charges for expedited construction (including overtime and weekend labor), costs for temporary structures and facilities to enable partial operations, emergency generator and dehumidification equipment rentals, and costs for relocating guests with confirmed reservations to alternative accommodations. The magnitude of these extra expenses — which VHG incurred voluntarily and at its own cost — demonstrates that VHG actively and aggressively mitigated its losses, directly refuting Ironclad's contention to the contrary.
This is a significant strength of the report that is currently somewhat underemphasized. The extra-expense data is presented in the report but is not framed as affirmative evidence of mitigation. By elevating the presentation of these costs and explicitly connecting them to VHG's mitigation efforts, the report can serve as both a damages quantification and an evidentiary counter-narrative to the failure-to-mitigate defense.
Suggested Revision: Dr. Vasquez should expand the extra-expense discussion into a dedicated subsection titled "VHG's Mitigation Efforts and Associated Costs" or similar. This subsection should: (a) identify each category of extra expense incurred; (b) quantify the total extra expenses at each property; (c) explain how each category of expense was directed at reducing the duration or magnitude of the business interruption; and (d) where possible, estimate the number of closure days that were avoided as a result of VHG's mitigation expenditures. This last point — quantifying the benefit of mitigation — would be particularly powerful in rebutting the defense's argument that VHG failed to mitigate.
E. Potential Daubert / Reliability Challenges
Florida adopted the Daubert standard for expert testimony admissibility in 2019, codified at Florida Statutes § 90.702. Under Daubert, expert testimony must be based on sufficient facts or data, must be the product of reliable principles and methods, and the expert must have reliably applied the principles and methods to the facts of the case. Defense counsel may challenge Dr. Vasquez's methodology under this standard, particularly the use of "but-for" projections that necessarily involve some degree of forecasting and judgment.
We do not view a Daubert challenge as a serious threat to Dr. Vasquez's report. The but-for methodology is a well-established and widely accepted approach in forensic economics and insurance damages quantification. Florida courts have routinely admitted expert testimony based on but-for analyses in analogous business-interruption disputes. Dr. Vasquez's methodology is consistent with generally accepted accounting principles ("GAAP"), forensic accounting standards, and the guidelines of the American Institute of Certified Public Accountants for litigation support engagements.
Nevertheless, as a precautionary measure, we should ensure that the methodology section of the report clearly articulates the reliability factors that courts consider under Daubert: (i) whether the methodology can be and has been tested; (ii) whether it has been subjected to peer review and publication; (iii) the known or potential rate of error; and (iv) whether the methodology is generally accepted within the relevant professional community. Dr. Vasquez's methodology satisfies all four factors, and the report should say so explicitly.
VI. Comparison with Defense Expert (Anticipated Positions of Dr. Warren Birk, Graystone Consulting Group LLC)
Dr. Birk's affirmative expert report is also due to be served on September 15, 2023, the same date as Dr. Vasquez's report. We do not have access to Dr. Birk's draft and have no advance knowledge of his specific conclusions. However, based on Dr. Birk's prior engagements in hurricane BI disputes (including his expert work in Gulf Coast Resorts LLC v. Allied Coastal Insurers, No. 2019-CA-07422 (Collier County), and Palmetto Lodging Group v. National Property Indemnity Corp., No. 2018-CA-14390 (Lee County)), as well as Graystone Consulting Group's typical methodological approach, we anticipate the following positions in Dr. Birk's report:
1. Compressed Period of Restoration. Dr. Birk will likely propose a shortened restoration timeline for each property, arguing that VHG could have completed repairs more quickly with reasonable diligence. Based on his prior reports, we anticipate he will argue Grand Key could have reopened 30 to 45 days earlier, Harborview 20 to 30 days earlier, and Sunset Shores 10 to 15 days earlier. Each day of compression directly reduces the calculated BI loss by eliminating the revenue shortfall and continuing expenses attributable to that day.
2. Lower ADR and/or Occupancy Assumptions. Dr. Birk may argue that Dr. Vasquez's ADR and occupancy assumptions are overstated, possibly contending that post-hurricane market conditions in southwestern Florida would have depressed demand and rates even absent VHG's specific property closures. This is a market-disruption argument: that the hurricane itself would have reduced travel demand to the affected areas regardless of whether VHG's properties were open, and therefore the but-for scenario should assume lower revenue than historical baselines suggest.
3. Application of the $15M Windstorm Sub-Limit. If Dr. Birk has been instructed by defense counsel to assume the $15,000,000 named-windstorm sub-limit applies, his report may present a capped loss figure of $15,000,000. Alternatively, he may present a loss figure both with and without the sub-limit, or he may address the sub-limit as a legal assumption and present his loss figure without it. In any event, the sub-limit issue will likely feature in his report in some fashion.
4. Flood / Storm Surge Allocation at Grand Key. Dr. Birk may attempt to allocate a portion of the Grand Key losses to flood/storm surge damage and exclude those amounts under the flood exclusion. This would involve constructing a hypothetical timeline separating wind-damage restoration from flood-damage restoration and attributing a portion of the closure period (and corresponding losses) to flood. Such an allocation would be speculative and would depend on engineering assumptions about the relative contribution of wind and flood damage to the closure period — assumptions that are properly within the domain of the engineering experts rather than the damages expert.
5. Challenge to Conference Revenue at Harborview. As discussed in Section III.B above, Dr. Birk will likely challenge the conference-revenue component of the Harborview loss as speculative, arguing that some conferences would have been relocated to alternative venues and that the associated revenue was not entirely lost to VHG.
Dr. Vasquez's rebuttal expert report, which is due on October 2, 2023, will need to address each of Dr. Birk's positions point by point. We will not be able to begin preparing the rebuttal until we receive and analyze Dr. Birk's affirmative report, but the issues identified above should guide our preliminary planning.
Dr. Vasquez's deposition has been scheduled for October 16, 2023, and Dr. Birk's deposition has been scheduled for October 23, 2023. Deposition preparation for Dr. Vasquez will be a priority following the exchange of rebuttal reports.
VII. Summary of Suggested Revisions
The following is a consolidated list of all revisions recommended to Dr. Vasquez's draft report before finalization and service on September 15, 2023:
1. Add Explicit Seasonality Discussion for Grand Key Resort ADR. Include a paragraph addressing the seasonality of the Florida Keys hospitality market, noting that the high-season months (November through April) fall within the September 18, 2022 through March 15, 2023 closure period, thereby supporting the $389 ADR assumption. Reference STR data and VHG's historical monthly ADR trends.
2. Include Sensitivity Analysis at Grand Key. Prepare and include a sensitivity analysis demonstrating that even under the shortened restoration scenarios proposed by Arbor Claims Services (Denise Whitford's adjustment), BI losses at Grand Key alone would still exceed $25,000,000 — the Ironclad primary layer limit — thereby confirming that Ironclad's full layer is exhausted regardless of the period-of-restoration outcome.
3. Cross-Reference Caldwell Engineering Restoration-Timeline Conclusions. For each property, cross-reference the conclusions of Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc. regarding the restoration timeline, structural damage severity, and the reasonableness of the actual closure periods.
4. Strengthen Conference-Revenue Documentation at Harborview. Supplement the conference-revenue section with specific references to canceled event booking contracts, forfeited deposits, event-organizer correspondence confirming cancellations, and historical booking data showing multi-year recurring events.
5. Clarify Reduced-Capacity Quantification Methodology at Sunset Shores. Provide granular room-out-of-service data for the December 2022 through February 2023 partial-closure period, supported by VHG's property management system records and Caldwell Engineering's damage assessment of the specific building sections undergoing repair.
6. Add Statement Regarding Disputed Coverage Limitations. Include a statement that the report quantifies total BI losses without reference to disputed coverage limitations, including the named-windstorm sub-limit. Note that the application of any sub-limit is a legal question outside the scope of the damages analysis.
7. Add Note Regarding Non-Allocation of Losses by Cause. Include a note that the analysis does not allocate BI losses between wind-caused and flood-caused closure periods, consistent with VHG's legal position on the concurrent causation issue, and that no supplemental causal allocation has been requested.
8. Expand Extra-Expense / Mitigation-Effort Section. Create a dedicated subsection highlighting VHG's affirmative mitigation efforts and the associated extra expenses incurred to expedite restoration, with categories, amounts, and an explanation of how each expenditure reduced the duration or magnitude of the business interruption.
9. Add Restoration-Period Reasonableness Section or Appendix. Include a section or appendix addressing the reasonableness of the actual restoration periods at each property, incorporating data on regional contractor demand, building permit processing timelines, specialty material supply-chain constraints, and other post-Callista conditions that contributed to the restoration durations.
10. Strengthen Daubert Readiness of Methodology Section. Ensure that the methodology section explicitly articulates the reliability factors relevant under Florida's Daubert standard (Fla. Stat. § 90.702): testability, peer review and acceptance, known error rates, and consistency with generally accepted accounting and forensic economics principles.
11. Verify Internal Consistency of Financial Figures. Review all financial figures in the report for internal consistency and verify against VHG's audited financial statements and property management system data produced in discovery. Confirm that all amounts reconcile across the property-level analyses, the aggregate loss summary, and the supporting exhibits.
12. Proofread Exhibit References and Supporting Schedules. Proofread all exhibit references throughout the report body and ensure that every referenced exhibit and supporting schedule is complete, properly labeled, internally consistent, and correctly cross-referenced.
VIII. Timeline and Next Steps
The following timeline governs the finalization and service of Dr. Vasquez's expert report, as well as the related milestones in the expert discovery phase of this litigation:
Separately, Andrew Fitzpatrick's memorandum reviewing the draft expert report of Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc. (the engineering/causation expert) is dated September 10, 2023 and is proceeding on a parallel track. Coordination between Dr. Vasquez and Mr. Caldwell on restoration-period conclusions is essential, and we should ensure that the two reports are mutually consistent on all overlapping factual issues, including the nature and severity of structural damage at each property, the scope and sequence of required repairs, and the factors contributing to the duration of the restoration peri