**PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT**
Nathaniel, Marcus, Diane —
With the mediation now just over a week away, I want to lay out our strategy, recommended positions, and the items we need confirmed from your side before we walk into the room. This is a lengthy email by design — I want us fully aligned going in. Please review carefully and let us know your thoughts at the earliest opportunity.
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**1. LOGISTICS**
The mediation is set for **Monday, December 4 and Tuesday, December 5, 2023**, before the **Honorable Richard Mendelson (Ret.)** at **Keystone Dispute Resolution Inc., 200 S. Biscayne Boulevard, Suite 3100, Miami, Florida**. We have reserved two full days. Judge Mendelson's fee is $15,000 per day, split among the parties per the mediation order.
Tiffany Rosenthal and I will attend on behalf of Calderwood & Harkness. I would like to confirm that **Nathaniel and Diane** (or Marcus, if Diane is unavailable) will attend in person. As you know, having a corporate representative present with **actual settlement authority** is not optional — it is required by the mediation order and, frankly, essential to the process. If the person with authority changes, please let me know immediately so we can advise the mediator's office.
On the document side: our **confidential mediation position statement** is being finalized and will be submitted directly to Judge Mendelson by **November 28**. This is a mediator-only document and will not be shared with opposing counsel. Separately, we are preparing a **mediation damages summary and exhibit book** — our presentation materials for the opening joint session — which we will circulate internally to your team by **December 1** for review and comment before the mediation.
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**2. POSTURE OF THE CASE GOING INTO MEDIATION**
We enter this mediation from a position of considerable strength, and I want to make sure we all appreciate why.
As you know, we filed VHG's **motion for partial summary judgment** on the windstorm sub-limit issue on **November 1**. The defendants filed their **cross-motion** on **November 15**. Rather than ruling, **Judge Embry ordered the parties to mediation on November 20**. That is significant. If the court believed VHG's position lacked merit, the simplest path would have been to deny our motion and let the case proceed to trial on that issue. The decision to pause and order mediation before ruling strongly suggests Judge Embry sees real merit in our argument that the $15 million windstorm sub-limit was deleted during the July 2022 renewal.
Our evidentiary record on this issue is compelling. The key deposition testimony includes:
- **Victor Haddon** (Ironclad's senior underwriter), deposed **July 10, 2023**: Acknowledged that the underwriting file for the 2022 renewal period **did not contain a signed endorsement retaining the $15 million windstorm sub-limit**. This is the single most damaging admission in the case for the defense.
- **Franklin Orde** (Tidewater Brokerage, VHG's broker), deposed **August 28, 2023**: Confirmed that during the **July 2022 renewal negotiations**, Ironclad's underwriter **agreed to delete the $15 million named-windstorm sub-limit in exchange for an increased premium** — which VHG paid.
- **Sandra Pellegrini** (VHG's VP of Risk Management), deposed **August 14, 2023**: Testified that VHG's understanding, based on Tidewater's representations and the negotiation history, was that the sub-limit had been removed from the renewed policy.
We also filed **declarations from Pellegrini, Orde, and Dr. Vasquez** in support of our summary judgment motion, which reinforce the deposition record.
On the damages side, the expert reports are equally favorable:
- **Dr. Helen Vasquez** (Meridian Forensic Economics), VHG's damages expert, has quantified the **full $60 million in business interruption losses** across the three properties.
- **Dr. Warren Birk** (Graystone Consulting Group), the **defense expert**, conceded at his **October 23 deposition** that even under his more conservative methodology — which we believe understates VHG's losses — **VHG's BI losses exceed $40 million**. That concession is extraordinarily valuable and will feature prominently in our presentation to the mediator.
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**3. OPENING DEMAND — FULL POLICY LIMITS ($60,000,000)**
My recommendation is that VHG **open the mediation at $60,000,000** — the full claimed amount representing the total tower limit above the $500,000 deductible.
The tower structure, as you know, is:
| Layer
The rationale for opening at $60 million is straightforward:
- VHG's **sworn proof of loss** was submitted at $60 million. - **Dr. Vasquez's expert report** supports losses at or above that figure. - Opening at the full tower limit **signals confidence** in VHG's coverage position and damage quantification, and it **preserves maximum negotiating room** as the session progresses. - The $60 million figure is not an arbitrary number — it is the contractual limit of the coverage VHG purchased and paid for. That message will resonate with Judge Mendelson.
For context, the claim breaks down by property as follows:
- **Verimark Grand Key Resort (Marathon, FL) — $31.4 million**: 312-room luxury resort, closed for **178 days** (September 18, 2022 – March 15, 2023). Pre-loss average daily rate ("ADR") of $389, occupancy rate of 82%. This is the largest single component and the crown jewel of VHG's Florida portfolio.
- **Verimark Harborview Hotel & Conference Center (Fort Myers Beach, FL) — $18.7 million**: 224-room hotel with a 40,000 sq. ft. conference facility, closed for **135 days** (September 18, 2022 – January 31, 2023). Pre-loss ADR of $295, occupancy rate of 74%.
- **Verimark Sunset Shores (St. Pete Beach, FL) — $9.9 million**: 186-room boutique resort, **full closure for 73 days** (September 18 – November 30, 2022), with reduced capacity operations continuing through February 2023. Pre-loss ADR of $342, occupancy rate of 79%.
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**4. ANTICIPATED DEFENSE POSTURE**
Understanding what the other side will likely do is critical to our preparation.
**Ironclad and Pinnacle** are represented jointly by Gregory Stanton at Fendowell Rourke & Stanton. I expect them to **open well below the sub-limit figure** — likely in the range of **$10–15 million total**. Their position will be anchored on two pillars: (a) the assertion that the $15 million windstorm sub-limit still applies to the 2022 policy period, and (b) secondary arguments about period-of-restoration duration and VHG's alleged failure to mitigate, which they will use to further discount even a sub-limited recovery. This is an aggressive but predictable opening position, and it will not survive scrutiny once we walk through the underwriting file evidence and the Haddon and Orde deposition testimony.
**Montclair and Sovereign Re**, represented by Patricia Kraus at Delvecchio & Kraus, have taken a notably different posture throughout the litigation. They reserved rights but **never formally denied coverage**. I expect Kraus to take a more **pragmatic and commercially oriented approach** at the mediation. This makes sense: if the windstorm sub-limit is struck down — which is the most likely outcome based on the record — their excess layers are clearly and fully in play. They have every incentive to resolve this before a court enters a ruling that eliminates their best defense.
The **joint defense dynamic** is worth watching. Ironclad has the most at stake with its full $25 million primary layer. Sovereign Re has the least direct exposure (a $10 million layer that attaches only above $50 million). History tells us that the excess carriers are often more motivated to settle once the primary carrier shows meaningful movement, because continued litigation costs money regardless of layer position, and a verdict or ruling against the defense on the sub-limit issue could expose them to the full limits of their layers.
One argument we should prepare for: the defendants will likely try to exploit the **concurrent causation / flood exclusion** issue to reduce the Grand Key Resort component ($31.4 million). Specifically, they will argue that a portion of the Grand Key damage was caused by storm surge — which they characterize as flood excluded under the policy — rather than wind. My view is that **this argument has real but limited force**. Jeffrey Caldwell's forensic engineering report (Caldwell Engineering) attributes the **predominant cause of damage at Grand Key to wind**, with storm surge as a secondary contributing factor. Under Florida's **efficient proximate cause doctrine**, where the covered peril (wind) is the predominant cause and sets in motion the chain of events leading to the loss, coverage applies. This is favorable law for VHG, and while the defense will use it as a negotiating lever, it should not materially change the settlement calculus.
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**5. RECOMMENDED SETTLEMENT RANGE AND AUTHORITY**
I refer you to the **Settlement Authority Analysis and Recommendation memorandum dated November 22, 2023**, which I sent separately to Nathaniel earlier this week. I will not repeat the full analysis here but want to reiterate the key recommendations.
**My recommendation is that VHG authorize settlement for no less than $40,000,000.**
Based on the strength of VHG's position — particularly on the windstorm sub-limit issue, the Haddon and Orde deposition testimony, and the defense expert's concession that losses exceed $40 million even under his methodology — my assessment is that the **likely landing zone for this mediation is $42 million to $50 million**. A settlement at $40 million or above would represent recovery of at least **66.7% of the $60 million claim**; our realistic target is approximately **75–80%** of the claimed amount.
I want to put this in perspective. If we do not settle and proceed through trial, we face:
- **Estimated additional fees and expenses of $500,000–$800,000** through trial, inclusive of expert witness costs, trial preparation, and the trial itself. - A trial date that would **likely not be set until mid-to-late 2024**, meaning an additional 8–12 months of litigation with all of the attendant uncertainty and management distraction. - Trial risk, which, while favorable to VHG, is never zero.
A resolution in the $42–50 million range represents a strong outcome that avoids these costs and delivers certainty.
One additional point: **allocation of a global settlement among the four carriers** will be a topic at the mediation. How the total settlement amount is divided among Ironclad, Pinnacle, Montclair, and Sovereign Re affects each carrier's contribution but should not affect VHG's total recovery. My strong recommendation is that VHG's priority should be **maximizing the total recovery amount** and letting the carriers sort out allocation inter se. We should not allow an allocation dispute among the defendants to slow down or derail a favorable resolution for VHG.
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**6. MEDIATION DAY STRATEGY**
A few process points for the mediation itself:
- I propose we **arrive at Keystone by 8:30 AM on December 4**. Mediations with Judge Mendelson typically begin at 9:00 AM. We will want time to settle in and have a brief team caucus before the opening session.
- Expect the **first day** to involve an opening joint session (where each side presents its position), followed by separate caucuses and initial exchanges of positions through the mediator. Based on my experience with Judge Mendelson and the complexity of this case, **substantive movement is more likely on December 5**. Day one is about framing the issues and testing the parties' resolve.
- In the **opening joint session**, we plan to use our mediation damages summary and exhibit book to walk the mediator and opposing counsel through the claim in detail — property photos, financial data, the restoration timeline, and key deposition excerpts. This is a visual, numbers-driven presentation designed to impress upon the room the magnitude and legitimacy of VHG's losses.
- Our central theme for Judge Mendelson will be the **pending summary judgment motion and VHG's strong position on the windstorm sub-limit**. This is the threshold issue in the case. If VHG prevails on the sub-limit — and the record strongly supports that outcome — the carriers face exposure well in excess of $40 million even under the defense expert's own damage numbers. That is the message we want the mediator carrying into the defense caucus room.
- We should be prepared for **mediator's proposals and bracket negotiations** as the process unfolds. I will walk the team through bracket negotiation mechanics in our pre-mediation preparation call so everyone is comfortable with the process.
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**7. NEXT STEPS — CONFIRMATIONS NEEDED**
I need the following from VHG's side at the earliest opportunity, and preferably by **Wednesday, November 29**:
**(a)** Confirmation of **who will attend in person** with settlement authority. My understanding is Nathaniel and Diane, but please confirm.
**(b)** Confirmation of the **floor for settlement authority**. I am recommending $40 million as the minimum, consistent with the November 22 memorandum. If your board or leadership has a different view, I need to know now so we can calibrate our strategy accordingly.
**(c)** Please advise whether there are any **board-level or internal approval requirements** for a settlement in the recommended range ($40–50+ million). If board action is needed, it should be obtained before December 4 — nothing undermines a mediation more than a party representative who needs to "go back and get approval." We need to walk in with full authority.
One final point worth noting for context: VHG's **annual premium for the entire tower was $1,840,000**. That is the price VHG paid for $60 million in coverage. That premium — and the coverage expectations it reflects — should be part of the narrative we present.
Tiffany and I are **available for a call early the week of November 27** — Monday or Tuesday would be ideal — to discuss any of the foregoing before we finalize the confidential position statement for submission to Judge Mendelson on November 28. Please have your assistants coordinate with Tiffany to find a time.
For reference, the **Settlement Authority Analysis and Recommendation memorandum dated November 22** was previously sent to Nathaniel under separate cover. I am incorporating it by reference here rather than re-attaching. Nathaniel, please ensure Marcus and Diane have received copies. The **confidential mediation position statement** (due November 28 to the mediator) and the **mediation damages summary and exhibit book** (due to you by December 1) will follow under separate cover.
Thank you, all. We are well-positioned going into this mediation, and I am cautiously optimistic about the prospects for a strong resolution. Let's make sure we are fully prepared.
Best regards,
**Elaine R. Forsythe** Senior Partner Calderwood & Harkness LLP One Brickell City Centre, Suite 4200 Miami, FL 33131 Tel: (305) 555-7100
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