1021-00003 · Verimark Hospitality Group · Motions Practice

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IN THE CIRCUIT COURT OF THE ELEVENTH JUDICIAL CIRCUIT IN AND FOR MIAMI-DADE COUNTY, FLORIDA

GENERAL JURISDICTION DIVISION

CASE NO.: 2022-CA-031547

DECLARATION OF DR. HELEN VASQUEZ, CPA, CFF, IN SUPPORT OF PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT RE: WINDSTORM SUB-LIMIT

Filed: November 1, 2023 Before: Hon. Catherine Embry, Circuit Court Judge

I, Dr. Helen Vasquez, declare under penalty of perjury pursuant to 28 U.S.C. § 1746 and Section 92.525, Florida Statutes, that the following is true and correct:

1. Personal Background and Qualifications

My name is Dr. Helen Vasquez. I am a Certified Public Accountant ("CPA") licensed in the States of Georgia and Florida, and I hold the Certified in Financial Forensics ("CFF") credential issued by the American Institute of Certified Public Accountants. I currently serve as Managing Director and Lead Forensic Economist at Meridian Forensic Economics LLC, a forensic-accounting and economic-consulting firm with its principal office located at 1201 Peachtree Street NE, Suite 1000, Atlanta, Georgia 30361. I founded Meridian Forensic Economics LLC in 2011, and I have led the firm's forensic-accounting and business-interruption loss-quantification practice since that time.

I have over twenty-two years of professional experience in forensic accounting, business-interruption loss quantification, and insurance damage assessment. I hold a Ph.D. in Economics from Duke University, a Master of Science in Accounting from the University of Virginia McIntire School of Commerce, and a Bachelor of Science in Finance from the University of Florida. I have specific and substantial expertise in hospitality-industry financial analysis, including hotel revenue modeling, occupancy-rate analysis, average-daily-rate trend analysis, revenue-per-available-room ("RevPAR") benchmarking, food-and-beverage revenue estimation, and period-of-restoration economics. Over the course of my career, I have been retained as a forensic-accounting expert in over one hundred and forty property-insurance and business-interruption matters in both state and federal courts across the United States, including matters in Florida, Georgia, Louisiana, Texas, New York, and California. I have been qualified as an expert witness and have provided trial and deposition testimony in over sixty of those matters. My curriculum vitae, which includes a complete listing of my publications, prior testimony, and professional engagements, is attached as Exhibit A to the Vasquez Report referenced below and has been produced in this litigation.

2. Retention and Engagement

I was retained by Calderwood & Harkness LLP, counsel for Plaintiff Verimark Hospitality Group Inc. ("VHG"), on or about April 20, 2023. A written engagement letter was executed between Calderwood & Harkness LLP and Meridian Forensic Economics LLC on that date, which set forth the scope of my retention and the terms of my compensation.

The scope of my retention is to quantify VHG's business-interruption losses arising from Hurricane Callista, which made landfall on September 18, 2022, at three resort properties owned and operated by VHG in the State of Florida. My engagement also includes, as necessary, the review and analysis of competing expert opinions and the provision of expert testimony in this matter.

My compensation for this engagement is at a rate of $625 per hour for my personal time. Supporting analysts at Meridian Forensic Economics LLC who have assisted in this engagement are compensated at a rate of $375 per hour. Neither my fees nor the fees of my supporting analysts are in any way contingent upon the outcome of this litigation, the content or substance of the opinions I express, or the amount of any recovery obtained by VHG. My compensation is based solely on the time expended and is payable regardless of the result in this case.

3. Materials Reviewed

In forming the opinions expressed in this declaration and in the Vasquez Report, I have reviewed and considered a substantial volume of documents, data, and information. The materials I reviewed and relied upon include, but are not limited to, the following:

(a) VHG's audited consolidated financial statements and internal management reports for fiscal years 2019, 2020, 2021, and 2022 (partial year through the date of Hurricane Callista and subsequent months);

(b) Property-level revenue and expense data for each of the three insured properties, including departmental profit-and-loss statements, general ledgers, and monthly operating reports;

(c) VHG's Annual Report on Form 10-K and quarterly reports on Form 10-Q filed with the U.S. Securities and Exchange Commission for the applicable periods (Nasdaq ticker: VMRK), reflecting, among other things, fiscal year 2021 total consolidated revenue of approximately $412 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $78 million;

(d) Historical average daily rate ("ADR"), occupancy percentage, and revenue per available room ("RevPAR") data for each of the three insured properties, drawn from VHG's internal property management systems and cross-referenced against independent industry sources;

(e) The Ironclad Indemnity Corporation primary property and business-interruption insurance policy, Policy No. IIC-PRP-2022-07541, including all endorsements, declarations pages, coverage forms, business-interruption coverage provisions, period-of-restoration definitions, named-windstorm sub-limit provisions, and all renewal correspondence related to the July 2022 policy renewal;

(f) The excess-layer insurance policies in the VHG insurance tower, specifically: Pinnacle Surplus Lines Inc. (Policy No. PSL-XS1-2022-3390), Montclair Assurance Company (Policy No. MAC-XS2-2022-09817), and Sovereign Re Ltd. (Policy No. SRL-XS3-2022-5102), including all declarations pages, follow-form provisions, and endorsements;

(g) VHG's sworn statement in proof of loss submitted to Ironclad Indemnity Corporation on November 15, 2022;

(h) Ironclad Indemnity Corporation's coverage denial letter dated February 3, 2023, authored by Victor Haddon, Senior Vice President of Claims;

(i) The independent adjustment reports prepared by Arbor Claims Services LLC, including the reports authored and signed by Denise Whitford, Lead Adjuster, and all supporting schedules, photographs, and site-inspection documentation;

(j) The forensic engineering report prepared by Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc., which documents the nature, scope, and extent of physical damage to each of the three VHG properties and provides engineering opinions regarding causation and restoration timelines;

(k) Property damage documentation, including repair invoices, contractor bids, construction contracts, contractor schedules, change orders, certificates of substantial completion, temporary and final certificates of occupancy, and closure and reopening records for each property;

(l) Deposition transcripts of the following individuals:

(i) Marcus Ellsworth, Chief Executive Officer of VHG, deposed August 7, 2023;

(ii) Diane Calder, Chief Financial Officer of VHG, deposed August 8, 2023;

(iii) Sandra Pellegrini, Vice President of Risk Management of VHG, deposed August 14, 2023;

(iv) Victor Haddon, Senior Vice President of Claims, Ironclad Indemnity Corporation, deposed July 10, 2023; and

(v) Denise Whitford, Lead Adjuster, Arbor Claims Services LLC, deposed July 24, 2023;

(m) Industry benchmarks and data obtained from STR, Inc. (formerly Penmark Enterprises), the recognized standard source for hotel-industry performance data, including competitive-set reports and market-level performance data for the Florida Keys and Gulf Coast markets for the periods relevant to this analysis;

(n) Monroe County Emergency Management evacuation orders issued September 16, 2022, and Lee County Emergency Management evacuation orders issued September 17, 2022, applicable to the zones in which VHG's properties are located;

(o) The expert report of Dr. Warren Birk of Graystone Consulting Group LLC, served on behalf of defendants on September 15, 2023, and Dr. Birk's rebuttal report served October 2, 2023; and

(p) Such other documents, data, and information as are specifically identified in Appendix B to the Vasquez Report.

4. Authentication of Expert Report

On September 15, 2023, I prepared and caused to be served on all parties my expert report in this matter (the "Vasquez Report"). A true and correct copy of the Vasquez Report, as served on that date, is attached hereto as Exhibit 1 and is incorporated by reference into this declaration. The Vasquez Report contains my opinions, the bases and reasons for each opinion, the data and information I considered in forming those opinions, all exhibits relied upon, and a summary of my qualifications, including a listing of all publications I have authored in the preceding ten years and all cases in which I have testified as an expert at trial or by deposition within the preceding four years. I also prepared and served a rebuttal report on October 2, 2023, a true and correct copy of which is attached hereto as Exhibit 2. I was deposed regarding the Vasquez Report and my rebuttal report on October 16, 2023, by counsel for defendants. I stand by all of the opinions expressed in the Vasquez Report, my rebuttal report, and my deposition testimony, and I reaffirm them in this declaration.

5. Summary of Hurricane Callista and VHG Property Impacts

Hurricane Callista made landfall on September 18, 2022, as a Category 4 hurricane on the Saffir-Veltason Hurricane Wind Scale, with maximum sustained winds of approximately 145 miles per hour. The storm made initial landfall near Big Pine Key in the Lower Florida Keys at approximately 2:10 p.m. Eastern Daylight Time on September 18, 2022, and subsequently tracked northward through the Gulf of Mexico, bringing destructive winds, torrential rainfall, and catastrophic storm surge to communities along Florida's southwestern Gulf Coast. Storm surge of eight to fourteen feet was recorded in Monroe County, and storm surge of six to ten feet was recorded in Lee County, according to data from the National Hurricane Center and the United States Geological Survey.

Three properties owned and operated by VHG sustained significant physical damage from Hurricane Callista and were forced to close to all guests and business operations as a direct result of that damage. Those three properties are as follows:

(1) Verimark Grand Key Resort, located at Mile Marker 48, Marathon, Florida 33050. The Grand Key Resort is a luxury resort and full-service marina comprising 312 guest rooms, multiple restaurants and bars, a full-service spa, retail outlets, and a 96-slip marina. It is VHG's flagship property and its highest revenue-generating asset within the company's portfolio of hospitality properties.

(2) Verimark Harborview Hotel & Conference Center, located at 1400 Estero Boulevard, Fort Myers Beach, Florida 33931. The Harborview is a 224-room full-service hotel with a 40,000 square-foot conference and event facility that generates significant revenue from corporate conferences, conventions, weddings, and other group events, in addition to transient room revenue, food-and-beverage operations, and ancillary revenue streams.

(3) Verimark Sunset Shores, located at 7200 Gulf Boulevard, St. Pete Beach, Florida 33706. Sunset Shores is a 186-room boutique resort property with restaurant and pool-bar operations, a small spa, and beachfront amenities.

All three properties sustained substantial wind and water damage as documented in the forensic engineering report of Jeffrey Caldwell, PE, including structural damage to buildings, destruction of roofing systems, water intrusion, damage to mechanical, electrical, and plumbing systems, damage to furnishings and fixtures, and, in the case of the Grand Key Resort, significant damage to the marina infrastructure. Each property was evacuated in advance of Hurricane Callista's landfall pursuant to local government mandatory evacuation orders and remained closed for extended periods during restoration, as described in greater detail below.

6. Methodology

In quantifying VHG's business-interruption losses at each of the three insured properties, I employed a standard forensic-accounting methodology for business-interruption loss quantification that is widely recognized and accepted in the forensic-accounting profession and in the insurance industry. This methodology is consistent with generally accepted forensic-accounting standards, including the standards and guidance published by the American Institute of Certified Public Accountants, and has been accepted by state and federal courts in numerous business-interruption insurance disputes throughout the United States, including cases in which I have provided expert testimony.

My methodology involves the following principal analytical steps:

(a) Establishing a "But-For" Baseline. The first step is to establish a "but-for" baseline of projected revenue and net income for each property — that is, the revenue and net income each property would have earned during the period of interruption if Hurricane Callista had not occurred. To establish this baseline, I analyzed each property's historical financial performance, with primary reliance on fiscal year 2021 as the most representative pre-loss year. I selected fiscal year 2021 because it represents the most recent full fiscal year prior to the hurricane loss in which the properties were operating at or near normal capacity, without significant disruption. While fiscal year 2020 data was also available, the COVID-19 pandemic caused widespread disruption to the hospitality industry during that year, rendering FY 2020 performance data less representative of the properties' normal earnings capacity. I also considered FY 2019 performance data and early FY 2022 (pre-hurricane) data to validate and cross-check the reasonableness of my projections. In addition to historical financial data, I considered seasonal booking trends at each property, forward-looking booking data and reservations on the books at the time of the hurricane, management forecasts and budgets, competitive-set data, and STR industry benchmark data for the relevant Florida markets.

(b) Calculating Actual Revenue During the Period of Interruption. The second step is to calculate the actual revenue earned by each property during the period of business interruption. In the case of all three properties, actual revenue during the period of full closure was zero. In the case of Sunset Shores, which experienced a partial reopening at reduced capacity on November 30, 2022, I calculated actual revenue earned during the reduced-capacity operating period based on VHG's financial records and property management system data.

(c) Determining the Loss of Net Income. The third step is to determine the loss of net income at each property by subtracting actual revenue from projected "but-for" revenue and then deducting expenses that were saved or discontinued as a result of the closure. Saved and discontinued expenses include variable costs that VHG did not incur during the closure period, such as variable labor costs (hourly wages for housekeeping, food-and-beverage service staff, front-desk personnel, and similar positions), food and beverage cost of goods sold, guest amenity costs, certain utility costs that were reduced during the closure, and other variable operating expenses. Fixed expenses that VHG was obligated to continue paying during the closure period — including management salaries, insurance premiums, property taxes, debt service, franchise fees, and contractual obligations — are not deducted and are included in the loss calculation as continuing expenses.

(d) Adding Continuing Fixed Expenses. Continuing fixed expenses that VHG was required to pay during the period of interruption, regardless of whether the properties were generating revenue, are added to the loss-of-net-income calculation. These expenses represent ongoing costs that VHG could not avoid or reduce during the closure and that contributed directly to VHG's economic loss.

(e) Adding Extra Expenses. Extra expenses reasonably incurred by VHG to expedite the resumption of operations are also included in the loss calculation to the extent they are covered under the applicable insurance policies. Such extra expenses include, among other things, costs of temporary facilities, expedited shipping charges for building materials, overtime and premium-rate labor costs for accelerated construction schedules, and other reasonable expenditures undertaken to minimize the duration of the business interruption.

This methodology is well established in the forensic-accounting profession, is consistent with the approach I have employed in prior engagements involving business-interruption loss quantification, and has been accepted by courts as a reliable methodology for calculating business-interruption insurance losses.

7. Business-Interruption Loss: Verimark Grand Key Resort

The Verimark Grand Key Resort is VHG's flagship property and its highest revenue-generating asset. The property comprises 312 luxury guest rooms, a full-service marina with 96 boat slips, multiple dining venues, a full-service spa, retail outlets, and extensive recreational amenities. Based on my analysis of the property's historical financial performance, the Grand Key Resort's pre-loss average daily rate ("ADR") was $389, and its pre-loss average occupancy rate was 82%. These figures are consistent with the property's positioning as a premier luxury resort in the Florida Keys and are supported by both VHG's internal records and independent STR competitive-set data.

The Grand Key Resort was closed from September 18, 2022, through March 15, 2023, a total period of 178 days. During this entire period, the property generated zero guest revenue.

I calculated the "but-for" projected room revenue for the Grand Key Resort based on 312 rooms multiplied by an ADR of $389, multiplied by an average occupancy rate of 82%, over the 178-day closure period, with appropriate adjustments for seasonal variation in rates and occupancy. The Florida Keys market experiences significant seasonal fluctuations, with peak-season rates and occupancy during the winter months (December through April) substantially exceeding the annual average. Because the Grand Key Resort's closure period encompassed a substantial portion of the peak winter season, the seasonal adjustment resulted in projected revenue during the closure period that was higher on a per-day basis than the annual average would suggest. In addition to room revenue, I calculated projected ancillary revenue from the marina, spa, food and beverage operations, and retail based on historical contribution ratios and seasonal patterns.

From the total projected "but-for" revenue, I deducted saved and discontinued variable expenses, including variable labor costs, food and beverage cost of goods sold, guest supply costs, certain reduced utility expenses, and other variable operating costs that VHG did not incur during the closure.

Based on this analysis, my total calculated business-interruption loss for the Verimark Grand Key Resort is $31,400,000. This figure accounts for the full 178-day closure period, which I have independently determined to be a reasonable period of restoration based on the severity of the physical damage sustained by the property, the availability of qualified contractors in the post-hurricane environment in the Florida Keys (where demand for construction and restoration services was extraordinarily high), documented supply-chain delays for building materials including specialized marine-grade construction materials required for the marina facilities, and permitting requirements imposed by Monroe County and applicable state and federal regulatory agencies. The reasonableness of this restoration period is further corroborated by the forensic engineering report of Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc., which documented the scope of damage and estimated restoration timelines consistent with VHG's actual experience.

8. Business-Interruption Loss: Verimark Harborview Hotel & Conference Center

The Verimark Harborview Hotel & Conference Center is a 224-room full-service hotel with a 40,000 square-foot conference and event facility located on Fort Myers Beach, Florida. The property generates revenue from both transient and group hotel room bookings and from its conference and event operations, which include corporate conferences, conventions, trade shows, weddings, and other special events. The conference facility is a significant revenue driver for the property and is a key differentiator in the competitive Fort Myers Beach and greater Lee County hospitality market.

Based on my analysis of the property's historical financial performance, the Harborview's pre-loss average daily rate was $295, and its pre-loss average occupancy rate was 74%. These figures reflect the property's competitive position in the Fort Myers Beach market and are supported by VHG's internal records, STR data, and historical booking patterns.

The Harborview was closed from September 18, 2022, through January 31, 2023, a total period of 135 days. During this entire period, the property generated zero revenue from either room operations or conference and event bookings.

I calculated the "but-for" projected revenue for the Harborview based on 224 rooms multiplied by an ADR of $295, multiplied by an average occupancy rate of 74%, over the 135-day closure period, with appropriate adjustments for seasonal variation. In addition to room revenue, I calculated projected conference and event facility revenue based on the property's historical booking data, forward-looking event bookings that were on the books at the time of Hurricane Callista and were subsequently cancelled or relocated, and seasonal patterns in event bookings. Ancillary revenue from food and beverage operations, parking, and other services was also included in the projection.

From the total projected "but-for" revenue, I deducted saved and discontinued variable expenses consistent with the methodology described in Paragraph 6 above.

Based on this analysis, my total calculated business-interruption loss for the Verimark Harborview Hotel & Conference Center is $18,700,000. This figure accounts for the full 135-day closure period, the loss of both room revenue and conference/event revenue, and appropriate deductions for saved variable expenses.

9. Business-Interruption Loss: Verimark Sunset Shores

The Verimark Sunset Shores is a 186-room boutique resort property located on St. Pete Beach, Florida. The property features beachfront guest rooms, restaurant and pool-bar dining venues, a small spa, and beach and pool amenities. Based on my analysis of the property's historical financial performance, the Sunset Shores' pre-loss average daily rate was $342, and its pre-loss average occupancy rate was 79%.

The Sunset Shores experienced a period of full closure from September 18, 2022, through November 30, 2022, a total of 73 days, during which the property generated zero revenue. On November 30, 2022, the property achieved a partial reopening at significantly reduced capacity, with only a portion of its guest rooms available for occupancy due to ongoing repairs to certain wings of the property, limited food-and-beverage operations, and reduced amenity availability. The property did not reach full operating capacity until approximately February 28, 2023, representing an additional period of approximately 90 days of reduced-capacity operations.

My loss calculation for Sunset Shores encompasses both the 73-day period of full closure and the approximately 90-day period of partial-closure and reduced-capacity operations. For the full-closure period, I calculated the "but-for" projected revenue based on 186 rooms multiplied by an ADR of $342, multiplied by an occupancy rate of 79%, over 73 days, with appropriate seasonal adjustments. For the partial-closure and reduced-capacity period, I calculated the difference between projected "but-for" revenue at full capacity and the actual revenue earned during reduced operations, based on VHG's financial records, property management system data, and the actual number of rooms available for sale during each phase of the partial reopening.

From the total projected "but-for" revenue for both the full-closure and partial-closure periods, I deducted saved and discontinued variable expenses, appropriately adjusted to reflect the fact that certain variable expenses were partially incurred during the reduced-capacity operating period.

Based on this analysis, my total calculated business-interruption loss for the Verimark Sunset Shores is $9,900,000.

10. Aggregate Business-Interruption Loss

My calculation of VHG's total aggregate business-interruption loss across all three insured properties resulting from Hurricane Callista is as follows:

This total of $60,000,000 represents my opinion of VHG's actual business-interruption losses resulting from Hurricane Callista, calculated in accordance with the methodology described in this declaration and set forth in detail in the Vasquez Report. I note that this figure is a conservative estimate of VHG's total economic losses. In preparing my analysis, I intentionally excluded certain categories of loss that are more difficult to quantify with precision but that VHG undoubtedly suffered, including extended reputational harm to the VHG brand and the individual property brands, the loss of future bookings and long-term customer relationships resulting from the prolonged closures, incremental marketing and promotional costs that VHG incurred and will continue to incur to rebuild brand awareness and recapture market share, and the loss of customer loyalty program value. The exclusion of these categories was a deliberate methodological choice to ensure that my loss calculation is conservative and well-supported by the available financial data.

11. VHG's Losses Exceed $60 Million Regardless of the Windstorm Sub-Limit

I understand that a central coverage dispute in this litigation concerns whether a $15,000,000 named-windstorm sub-limit applies to the business-interruption coverage under the Ironclad Indemnity Corporation primary policy (Policy No. IIC-PRP-2022-07541). Specifically, I understand that VHG contends the named-windstorm sub-limit was deleted from the policy at the July 2022 renewal, while defendants contend that the sub-limit remained in effect.

It is my expert opinion that VHG's total business-interruption losses exceed $60 million regardless of how the windstorm sub-limit coverage dispute is resolved by this Court. My analysis demonstrates the following:

(a) VHG's total business-interruption losses of at least $60,000,000 substantially exceed the $15,000,000 named-windstorm sub-limit that defendants contend applies. Even if the Court were to determine that the $15 million named-windstorm sub-limit was not deleted from the policy at the July 2022 renewal and that the sub-limit remains in effect, VHG's total business-interruption losses would still substantially exceed the total available coverage under the full insurance tower.

(b) The total insurance tower available to VHG, as described in greater detail in Paragraph 13 below, provides a maximum of $60,000,000 in aggregate coverage above the $500,000 deductible, comprising $25,000,000 under the Ironclad primary layer, $15,000,000 under the Pinnacle first excess layer, $10,000,000 under the Montclair second excess layer, and $10,000,000 under the Sovereign Re third excess layer. VHG's total business-interruption losses of at least $60,000,000 are sufficient to exhaust the entire tower regardless of the windstorm sub-limit issue.

(c) The windstorm sub-limit issue affects the allocation of losses among the policy layers and the total amount of coverage available to VHG under the insurance program, but it does not reduce the actual economic losses suffered by VHG, which I calculate at no less than $60 million.

(d) To the extent VHG's losses are measured under any reasonable alternative methodology, including any methodology that makes reasonable adjustments to the assumptions I have employed, the total loss figure exceeds $60 million. As noted in Paragraph 10 above, my methodology intentionally understates certain categories of loss in the interest of conservatism.

12. Response to Defense Expert's Competing Analysis

I have reviewed the expert report of Dr. Warren Birk of Graystone Consulting Group LLC, which was served on behalf of defendants on September 15, 2023, as well as Dr. Birk's rebuttal report, which was served on October 2, 2023.

Dr. Birk's analysis applies alternative assumptions in several key areas that differ from mine, including: (a) the period of restoration, where Dr. Birk argues for shorter restoration periods at each property based on what he characterizes as a theoretical minimum repair timeline that, in my opinion, fails to account for actual post-hurricane conditions; (b) projected occupancy rates, where Dr. Birk applies lower occupancy projections that are inconsistent with the properties' historical performance and forward-looking booking data; and (c) saved-expense calculations, where Dr. Birk applies larger deductions for purportedly saved expenses that, in my opinion, overstate the extent to which VHG was able to reduce its cost structure during the closure periods.

I believe Dr. Birk's alternative assumptions are inconsistent with the actual facts established in the record, with the properties' documented historical performance, with the conditions that existed in the Florida Keys and Gulf Coast markets in the aftermath of Hurricane Callista, and with generally accepted standards and practices in the forensic-accounting profession for business-interruption loss quantification. I provided detailed, point-by-point critiques of Dr. Birk's methodology, data sources, and assumptions in my rebuttal report, which was served on October 2, 2023, and in my deposition testimony on October 16, 2023.

Importantly, and critically for purposes of VHG's motion for partial summary judgment, even under Dr. Birk's most aggressive downward adjustments, VHG's business-interruption losses remain well in excess of the $15 million that would constitute the applicable limit if the named-windstorm sub-limit were enforced. Dr. Birk's own calculations, even with the assumptions most favorable to defendants, yield a total business-interruption loss figure that substantially exceeds the $15 million sub-limit. This fact further supports my opinion that VHG's losses exceed the available coverage regardless of how the windstorm sub-limit issue is resolved.

13. Insurance Tower Structure

Based on my review of the applicable insurance policies and the information provided to me in connection with this engagement, I understand the VHG insurance tower for the 2022-2023 policy period to be structured as follows:

The total aggregate annual premium for the tower was approximately $1,840,000.

VHG's business-interruption losses of at least $60,000,000 are sufficient to exhaust the entire insurance tower, including the primary layer and all three excess layers, above the $500,000 deductible. This conclusion holds true regardless of whether the $15 million named-windstorm sub-limit is determined to apply or not apply under the Ironclad primary policy.

14. Basis for Period-of-Restoration Opinions

My loss calculations for each of the three VHG properties are based on the actual period of business interruption experienced by VHG, which I have independently analyzed and determined to be reasonable under the circumstances. In evaluating the reasonableness of the restoration periods, I considered the following factors:

(a) Severity of Hurricane Damage. Hurricane Callista was a Category 4 hurricane with sustained winds of approximately 145 miles per hour and catastrophic storm surge of eight to fourteen feet in Monroe County and six to ten feet in Lee County. The severity of this storm resulted in extensive structural, mechanical, electrical, and cosmetic damage to all three VHG properties, as documented in the forensic engineering report of Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc.

(b) Post-Hurricane Demand Surge. In the aftermath of Hurricane Callista, there was an extraordinary demand surge for licensed contractors, skilled construction labor, and building materials throughout the Florida Keys and Gulf Coast region. This demand surge resulted in significant delays in the commencement and completion of restoration work at all affected properties in the region, including VHG's properties. These conditions are well-documented and are a predictable and recognized consequence of major hurricane events.

(c) Local Permitting Delays. Monroe County (applicable to the Grand Key Resort) and Lee County (applicable to the Harborview Hotel & Conference Center) both experienced significant permitting backlogs and processing delays in the months following Hurricane Callista due to the volume of repair and rebuilding applications and the strain on local government resources. These permitting delays directly contributed to the duration of the restoration periods at the Grand Key Resort and the Harborview property.

(d) Scope of Required Repairs. The scope of structural, mechanical, electrical, plumbing, and cosmetic repairs required at each property was extensive, as documented in the forensic engineering report of Jeffrey Caldwell, PE. At the Grand Key Resort, repairs included significant structural work, complete replacement of roofing systems on multiple buildings, remediation of water intrusion damage, replacement of mechanical and electrical systems, replacement of furnishings, fixtures, and equipment, and substantial repairs to the marina infrastructure. Similar, though varying in scope, repair work was required at the Harborview and Sunset Shores properties.

Based on my independent analysis of these factors and the documentary evidence in the record, I have concluded that the restoration periods for each property were reasonable:

• The Grand Key Resort's 178-day closure period (September 18, 2022, through March 15, 2023) was reasonable given the severity of wind and water damage to the 312-room luxury resort property and marina, the complexity of the required repairs, post-hurricane demand surge conditions in the Florida Keys, and Monroe County permitting delays.

• The Harborview's 135-day closure period (September 18, 2022, through January 31, 2023) was reasonable given the extent of damage to both the 224-room hotel and the 40,000 square-foot conference facility, demand surge conditions in the Lee County market, and Lee County permitting delays.

• Sunset Shores' 73-day period of full closure (September 18 through November 30, 2022) plus the approximately 90-day period of partial-capacity operations through February 28, 2023, was reasonable given the substantial but comparatively more limited scope of damage at that property and the phased approach to reopening, which allowed VHG to resume revenue-generating operations as quickly as reasonably practicable while completing remaining repairs.

15. Mitigation Efforts by VHG

In conducting my analysis, I carefully accounted for VHG's efforts to mitigate its business-interruption losses. Based on my review of the documentary evidence and deposition testimony, VHG undertook the following mitigation efforts, among others:

(a) VHG immediately engaged emergency restoration contractors in the days following Hurricane Callista to begin water extraction, debris removal, and emergency stabilization work at all three properties;

(b) VHG worked to temporarily relocate group bookings, conference events, and weddings that had been scheduled at the Harborview and Grand Key Resort to alternative venues, including other properties in VHG's portfolio and third-party venues, to the extent such relocation was feasible;

(c) VHG authorized and implemented accelerated construction schedules utilizing premium-cost overtime labor at all three properties to shorten the restoration periods;

(d) VHG launched active marketing and promotional campaigns in advance of and following each property's reopening to rebuild occupancy levels, recapture group bookings, and restore market awareness; and

(e) VHG's management team, including its risk management, construction, and operations personnel, actively managed and supervised the restoration process to ensure timely completion of repairs.

Based on my analysis, VHG's mitigation efforts were reasonable and consistent with industry standards for hospitality companies facing hurricane-related business interruptions. The saved-expense deductions incorporated in my loss calculations appropriately reflect the cost savings attributable to the closures and VHG's mitigation efforts. I have found no evidence that VHG unreasonably delayed the restoration of any property or failed to take reasonable steps to minimize its losses.

16. Conclusion and Opinion Summary

Based on the analysis set forth in the Vasquez Report, my rebuttal report, and this declaration, and for the reasons detailed therein and herein, it is my expert opinion, stated to a reasonable degree of professional certainty, that:

1. VHG's total business-interruption losses arising from Hurricane Callista are at least $60,000,000, comprising $31,400,000 at the Grand Key Resort, $18,700,000 at the Harborview Hotel & Conference Center, and $9,900,000 at Sunset Shores.

2. These losses exceed $60 million regardless of whether the $15 million named-windstorm sub-limit is determined to apply or not to apply under the Ironclad Indemnity Corporation primary policy (Policy No. IIC-PRP-2022-07541). The resolution of the windstorm sub-limit issue does not alter the quantum of VHG's actual economic losses.

3. The periods of restoration at all three properties were reasonable under the circumstances, considering the severity of Hurricane Callista, the scope of physical damage sustained, post-hurricane demand surge conditions, supply-chain disruptions, and local permitting delays.

4. VHG took reasonable steps to mitigate its business-interruption losses, and VHG did not unreasonably delay the restoration of any property.

5. VHG's losses exhaust the full $60 million insurance tower (above the $500,000 deductible) under any reasonable quantification methodology, including the most conservative reasonable assumptions and even under the alternative assumptions proposed by defendants' expert, Dr. Warren Birk.

17. Reservation of Rights to Supplement

I reserve the right to supplement, amend, or update the opinions expressed in this declaration and in the Vasquez Report if additional information, documents, data, or analyses become available, if new issues arise in this litigation, or if the Court requests further analysis on any matter within the scope of my engagement. I also reserve the right to respond to any additional expert opinions or reports that may be submitted by any party in this matter.

I declare under penalty of perjury under the laws of the State of Florida and the United States of America that the foregoing is true and correct.

Executed on November 1, 2023, at Atlanta, Georgia.

________________________________________

Dr. Helen Vasquez, CPA, CFF Managing Director Meridian Forensic Economics LLC 1201 Peachtree Street NE, Suite 1000 Atlanta, Georgia 30361

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on November 1, 2023, a true and correct copy of the foregoing Declaration of Dr. Helen Vasquez, CPA, CFF, in Support of Plaintiff's Motion for Partial Summary Judgment Re: Windstorm Sub-Limit, together with all exhibits referenced therein, was filed with the Clerk of the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida, and served by electronic mail and overnight courier upon the following counsel of record:

Gregory Stanton, Esq. Fendowell Rourke & Stanton LLP 280 Trumbull Street, Suite 2200 Hartford, Connecticut 06103 Counsel for Defendants Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc.

Patricia Kraus, Esq. Delvecchio & Kraus LLP 425 Park Avenue, 20th Floor New York, New York 10022 Counsel for Defendants Montclair Assurance Company and Sovereign Re Ltd.

________________________________________

Tiffany Rosenthal, Esq. Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Counsel for Plaintiff Verimark Hospitality Group Inc.

VERIMARK HOSPITALITY GROUP INC., a Delaware corporation,

Plaintiff,

IRONCLAD INDEMNITY CORPORATION; PINNACLE SURPLUS LINES INC.; MONTCLAIR ASSURANCE COMPANY; and SOVEREIGN RE LTD.,

Defendants.

Property	Business-Interruption Loss
Verimark Grand Key Resort	$31,400,000
Verimark Harborview Hotel & Conference Center	$18,700,000
Verimark Sunset Shores	$9,900,000
Total	$60,000,000
Layer	Insurer	Policy Number	Limit	Attachment Point
Primary	Ironclad Indemnity Corporation	IIC-PRP-2022-07541	$25,000,000 per occurrence	$500,000 deductible
First Excess	Pinnacle Surplus Lines Inc.	PSL-XS1-2022-3390	$15,000,000	Excess of $25,000,000
Second Excess	Montclair Assurance Company	MAC-XS2-2022-09817	$10,000,000	Excess of $40,000,000
Third Excess	Sovereign Re Ltd.	SRL-XS3-2022-5102	$10,000,000	Excess of $50,000,000
Total Tower	$60,000,000	Above $500,000 deductible

IN THE CIRCUIT COURT OF THE ELEVENTH JUDICIAL CIRCUIT IN AND FOR MIAMI-DADE COUNTY, FLORIDA
GENERAL JURISDICTION DIVISION
CASE NO.: 2022-CA-031547
DECLARATION OF DR. HELEN VASQUEZ, CPA, CFF, IN SUPPORT OF PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT RE: WINDSTORM SUB-LIMIT
Filed: November 1, 2023 Before: Hon. Catherine Embry, Circuit Court Judge
I, Dr. Helen Vasquez, declare under penalty of perjury pursuant to 28 U.S.C. § 1746 and Section 92.525, Florida Statutes, that the following is true and correct:
1. Personal Background and Qualifications
My name is Dr. Helen Vasquez. I am a Certified Public Accountant ("CPA") licensed in the States of Georgia and Florida, and I hold the Certified in Financial Forensics ("CFF") credential issued by the American Institute of Certified Public Accountants. I currently serve as Managing Director and Lead Forensic Economist at Meridian Forensic Economics LLC, a forensic-accounting and economic-consulting firm with its principal office located at 1201 Peachtree Street NE, Suite 1000, Atlanta, Georgia 30361. I founded Meridian Forensic Economics LLC in 2011, and I have led the firm's forensic-accounting and business-interruption loss-quantification practice since that time.
I have over twenty-two years of professional experience in forensic accounting, business-interruption loss quantification, and insurance damage assessment. I hold a Ph.D. in Economics from Duke University, a Master of Science in Accounting from the University of Virginia McIntire School of Commerce, and a Bachelor of Science in Finance from the University of Florida. I have specific and substantial expertise in hospitality-industry financial analysis, including hotel revenue modeling, occupancy-rate analysis, average-daily-rate trend analysis, revenue-per-available-room ("RevPAR") benchmarking, food-and-beverage revenue estimation, and period-of-restoration economics. Over the course of my career, I have been retained as a forensic-accounting expert in over one hundred and forty property-insurance and business-interruption matters in both state and federal courts across the United States, including matters in Florida, Georgia, Louisiana, Texas, New York, and California. I have been qualified as an expert witness and have provided trial and deposition testimony in over sixty of those matters. My curriculum vitae, which includes a complete listing of my publications, prior testimony, and professional engagements, is attached as Exhibit A to the Vasquez Report referenced below and has been produced in this litigation.
2. Retention and Engagement
I was retained by Calderwood & Harkness LLP, counsel for Plaintiff Verimark Hospitality Group Inc. ("VHG"), on or about April 20, 2023. A written engagement letter was executed between Calderwood & Harkness LLP and Meridian Forensic Economics LLC on that date, which set forth the scope of my retention and the terms of my compensation.
The scope of my retention is to quantify VHG's business-interruption losses arising from Hurricane Callista, which made landfall on September 18, 2022, at three resort properties owned and operated by VHG in the State of Florida. My engagement also includes, as necessary, the review and analysis of competing expert opinions and the provision of expert testimony in this matter.
My compensation for this engagement is at a rate of $625 per hour for my personal time. Supporting analysts at Meridian Forensic Economics LLC who have assisted in this engagement are compensated at a rate of $375 per hour. Neither my fees nor the fees of my supporting analysts are in any way contingent upon the outcome of this litigation, the content or substance of the opinions I express, or the amount of any recovery obtained by VHG. My compensation is based solely on the time expended and is payable regardless of the result in this case.
3. Materials Reviewed
In forming the opinions expressed in this declaration and in the Vasquez Report, I have reviewed and considered a substantial volume of documents, data, and information. The materials I reviewed and relied upon include, but are not limited to, the following:
(a) VHG's audited consolidated financial statements and internal management reports for fiscal years 2019, 2020, 2021, and 2022 (partial year through the date of Hurricane Callista and subsequent months);
(b) Property-level revenue and expense data for each of the three insured properties, including departmental profit-and-loss statements, general ledgers, and monthly operating reports;
(c) VHG's Annual Report on Form 10-K and quarterly reports on Form 10-Q filed with the U.S. Securities and Exchange Commission for the applicable periods (Nasdaq ticker: VMRK), reflecting, among other things, fiscal year 2021 total consolidated revenue of approximately $412 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $78 million;
(d) Historical average daily rate ("ADR"), occupancy percentage, and revenue per available room ("RevPAR") data for each of the three insured properties, drawn from VHG's internal property management systems and cross-referenced against independent industry sources;
(e) The Ironclad Indemnity Corporation primary property and business-interruption insurance policy, Policy No. IIC-PRP-2022-07541, including all endorsements, declarations pages, coverage forms, business-interruption coverage provisions, period-of-restoration definitions, named-windstorm sub-limit provisions, and all renewal correspondence related to the July 2022 policy renewal;
(f) The excess-layer insurance policies in the VHG insurance tower, specifically: Pinnacle Surplus Lines Inc. (Policy No. PSL-XS1-2022-3390), Montclair Assurance Company (Policy No. MAC-XS2-2022-09817), and Sovereign Re Ltd. (Policy No. SRL-XS3-2022-5102), including all declarations pages, follow-form provisions, and endorsements;
(g) VHG's sworn statement in proof of loss submitted to Ironclad Indemnity Corporation on November 15, 2022;
(h) Ironclad Indemnity Corporation's coverage denial letter dated February 3, 2023, authored by Victor Haddon, Senior Vice President of Claims;
(i) The independent adjustment reports prepared by Arbor Claims Services LLC, including the reports authored and signed by Denise Whitford, Lead Adjuster, and all supporting schedules, photographs, and site-inspection documentation;
(j) The forensic engineering report prepared by Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc., which documents the nature, scope, and extent of physical damage to each of the three VHG properties and provides engineering opinions regarding causation and restoration timelines;
(k) Property damage documentation, including repair invoices, contractor bids, construction contracts, contractor schedules, change orders, certificates of substantial completion, temporary and final certificates of occupancy, and closure and reopening records for each property;
(l) Deposition transcripts of the following individuals:
(i) Marcus Ellsworth, Chief Executive Officer of VHG, deposed August 7, 2023;
(ii) Diane Calder, Chief Financial Officer of VHG, deposed August 8, 2023;
(iii) Sandra Pellegrini, Vice President of Risk Management of VHG, deposed August 14, 2023;
(iv) Victor Haddon, Senior Vice President of Claims, Ironclad Indemnity Corporation, deposed July 10, 2023; and
(v) Denise Whitford, Lead Adjuster, Arbor Claims Services LLC, deposed July 24, 2023;
(m) Industry benchmarks and data obtained from STR, Inc. (formerly Penmark Enterprises), the recognized standard source for hotel-industry performance data, including competitive-set reports and market-level performance data for the Florida Keys and Gulf Coast markets for the periods relevant to this analysis;
(n) Monroe County Emergency Management evacuation orders issued September 16, 2022, and Lee County Emergency Management evacuation orders issued September 17, 2022, applicable to the zones in which VHG's properties are located;
(o) The expert report of Dr. Warren Birk of Graystone Consulting Group LLC, served on behalf of defendants on September 15, 2023, and Dr. Birk's rebuttal report served October 2, 2023; and
(p) Such other documents, data, and information as are specifically identified in Appendix B to the Vasquez Report.
4. Authentication of Expert Report
On September 15, 2023, I prepared and caused to be served on all parties my expert report in this matter (the "Vasquez Report"). A true and correct copy of the Vasquez Report, as served on that date, is attached hereto as Exhibit 1 and is incorporated by reference into this declaration. The Vasquez Report contains my opinions, the bases and reasons for each opinion, the data and information I considered in forming those opinions, all exhibits relied upon, and a summary of my qualifications, including a listing of all publications I have authored in the preceding ten years and all cases in which I have testified as an expert at trial or by deposition within the preceding four years. I also prepared and served a rebuttal report on October 2, 2023, a true and correct copy of which is attached hereto as Exhibit 2. I was deposed regarding the Vasquez Report and my rebuttal report on October 16, 2023, by counsel for defendants. I stand by all of the opinions expressed in the Vasquez Report, my rebuttal report, and my deposition testimony, and I reaffirm them in this declaration.
5. Summary of Hurricane Callista and VHG Property Impacts
Hurricane Callista made landfall on September 18, 2022, as a Category 4 hurricane on the Saffir-Veltason Hurricane Wind Scale, with maximum sustained winds of approximately 145 miles per hour. The storm made initial landfall near Big Pine Key in the Lower Florida Keys at approximately 2:10 p.m. Eastern Daylight Time on September 18, 2022, and subsequently tracked northward through the Gulf of Mexico, bringing destructive winds, torrential rainfall, and catastrophic storm surge to communities along Florida's southwestern Gulf Coast. Storm surge of eight to fourteen feet was recorded in Monroe County, and storm surge of six to ten feet was recorded in Lee County, according to data from the National Hurricane Center and the United States Geological Survey.
Three properties owned and operated by VHG sustained significant physical damage from Hurricane Callista and were forced to close to all guests and business operations as a direct result of that damage. Those three properties are as follows:
(1) Verimark Grand Key Resort, located at Mile Marker 48, Marathon, Florida 33050. The Grand Key Resort is a luxury resort and full-service marina comprising 312 guest rooms, multiple restaurants and bars, a full-service spa, retail outlets, and a 96-slip marina. It is VHG's flagship property and its highest revenue-generating asset within the company's portfolio of hospitality properties.
(2) Verimark Harborview Hotel & Conference Center, located at 1400 Estero Boulevard, Fort Myers Beach, Florida 33931. The Harborview is a 224-room full-service hotel with a 40,000 square-foot conference and event facility that generates significant revenue from corporate conferences, conventions, weddings, and other group events, in addition to transient room revenue, food-and-beverage operations, and ancillary revenue streams.
(3) Verimark Sunset Shores, located at 7200 Gulf Boulevard, St. Pete Beach, Florida 33706. Sunset Shores is a 186-room boutique resort property with restaurant and pool-bar operations, a small spa, and beachfront amenities.
All three properties sustained substantial wind and water damage as documented in the forensic engineering report of Jeffrey Caldwell, PE, including structural damage to buildings, destruction of roofing systems, water intrusion, damage to mechanical, electrical, and plumbing systems, damage to furnishings and fixtures, and, in the case of the Grand Key Resort, significant damage to the marina infrastructure. Each property was evacuated in advance of Hurricane Callista's landfall pursuant to local government mandatory evacuation orders and remained closed for extended periods during restoration, as described in greater detail below.
6. Methodology
In quantifying VHG's business-interruption losses at each of the three insured properties, I employed a standard forensic-accounting methodology for business-interruption loss quantification that is widely recognized and accepted in the forensic-accounting profession and in the insurance industry. This methodology is consistent with generally accepted forensic-accounting standards, including the standards and guidance published by the American Institute of Certified Public Accountants, and has been accepted by state and federal courts in numerous business-interruption insurance disputes throughout the United States, including cases in which I have provided expert testimony.
My methodology involves the following principal analytical steps:
(a) Establishing a "But-For" Baseline. The first step is to establish a "but-for" baseline of projected revenue and net income for each property — that is, the revenue and net income each property would have earned during the period of interruption if Hurricane Callista had not occurred. To establish this baseline, I analyzed each property's historical financial performance, with primary reliance on fiscal year 2021 as the most representative pre-loss year. I selected fiscal year 2021 because it represents the most recent full fiscal year prior to the hurricane loss in which the properties were operating at or near normal capacity, without significant disruption. While fiscal year 2020 data was also available, the COVID-19 pandemic caused widespread disruption to the hospitality industry during that year, rendering FY 2020 performance data less representative of the properties' normal earnings capacity. I also considered FY 2019 performance data and early FY 2022 (pre-hurricane) data to validate and cross-check the reasonableness of my projections. In addition to historical financial data, I considered seasonal booking trends at each property, forward-looking booking data and reservations on the books at the time of the hurricane, management forecasts and budgets, competitive-set data, and STR industry benchmark data for the relevant Florida markets.
(b) Calculating Actual Revenue During the Period of Interruption. The second step is to calculate the actual revenue earned by each property during the period of business interruption. In the case of all three properties, actual revenue during the period of full closure was zero. In the case of Sunset Shores, which experienced a partial reopening at reduced capacity on November 30, 2022, I calculated actual revenue earned during the reduced-capacity operating period based on VHG's financial records and property management system data.
(c) Determining the Loss of Net Income. The third step is to determine the loss of net income at each property by subtracting actual revenue from projected "but-for" revenue and then deducting expenses that were saved or discontinued as a result of the closure. Saved and discontinued expenses include variable costs that VHG did not incur during the closure period, such as variable labor costs (hourly wages for housekeeping, food-and-beverage service staff, front-desk personnel, and similar positions), food and beverage cost of goods sold, guest amenity costs, certain utility costs that were reduced during the closure, and other variable operating expenses. Fixed expenses that VHG was obligated to continue paying during the closure period — including management salaries, insurance premiums, property taxes, debt service, franchise fees, and contractual obligations — are not deducted and are included in the loss calculation as continuing expenses.
(d) Adding Continuing Fixed Expenses. Continuing fixed expenses that VHG was required to pay during the period of interruption, regardless of whether the properties were generating revenue, are added to the loss-of-net-income calculation. These expenses represent ongoing costs that VHG could not avoid or reduce during the closure and that contributed directly to VHG's economic loss.
(e) Adding Extra Expenses. Extra expenses reasonably incurred by VHG to expedite the resumption of operations are also included in the loss calculation to the extent they are covered under the applicable insurance policies. Such extra expenses include, among other things, costs of temporary facilities, expedited shipping charges for building materials, overtime and premium-rate labor costs for accelerated construction schedules, and other reasonable expenditures undertaken to minimize the duration of the business interruption.
This methodology is well established in the forensic-accounting profession, is consistent with the approach I have employed in prior engagements involving business-interruption loss quantification, and has been accepted by courts as a reliable methodology for calculating business-interruption insurance losses.
7. Business-Interruption Loss: Verimark Grand Key Resort
The Verimark Grand Key Resort is VHG's flagship property and its highest revenue-generating asset. The property comprises 312 luxury guest rooms, a full-service marina with 96 boat slips, multiple dining venues, a full-service spa, retail outlets, and extensive recreational amenities. Based on my analysis of the property's historical financial performance, the Grand Key Resort's pre-loss average daily rate ("ADR") was $389, and its pre-loss average occupancy rate was 82%. These figures are consistent with the property's positioning as a premier luxury resort in the Florida Keys and are supported by both VHG's internal records and independent STR competitive-set data.
The Grand Key Resort was closed from September 18, 2022, through March 15, 2023, a total period of 178 days. During this entire period, the property generated zero guest revenue.
I calculated the "but-for" projected room revenue for the Grand Key Resort based on 312 rooms multiplied by an ADR of $389, multiplied by an average occupancy rate of 82%, over the 178-day closure period, with appropriate adjustments for seasonal variation in rates and occupancy. The Florida Keys market experiences significant seasonal fluctuations, with peak-season rates and occupancy during the winter months (December through April) substantially exceeding the annual average. Because the Grand Key Resort's closure period encompassed a substantial portion of the peak winter season, the seasonal adjustment resulted in projected revenue during the closure period that was higher on a per-day basis than the annual average would suggest. In addition to room revenue, I calculated projected ancillary revenue from the marina, spa, food and beverage operations, and retail based on historical contribution ratios and seasonal patterns.
From the total projected "but-for" revenue, I deducted saved and discontinued variable expenses, including variable labor costs, food and beverage cost of goods sold, guest supply costs, certain reduced utility expenses, and other variable operating costs that VHG did not incur during the closure.
Based on this analysis, my total calculated business-interruption loss for the Verimark Grand Key Resort is $31,400,000. This figure accounts for the full 178-day closure period, which I have independently determined to be a reasonable period of restoration based on the severity of the physical damage sustained by the property, the availability of qualified contractors in the post-hurricane environment in the Florida Keys (where demand for construction and restoration services was extraordinarily high), documented supply-chain delays for building materials including specialized marine-grade construction materials required for the marina facilities, and permitting requirements imposed by Monroe County and applicable state and federal regulatory agencies. The reasonableness of this restoration period is further corroborated by the forensic engineering report of Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc., which documented the scope of damage and estimated restoration timelines consistent with VHG's actual experience.
8. Business-Interruption Loss: Verimark Harborview Hotel & Conference Center
The Verimark Harborview Hotel & Conference Center is a 224-room full-service hotel with a 40,000 square-foot conference and event facility located on Fort Myers Beach, Florida. The property generates revenue from both transient and group hotel room bookings and from its conference and event operations, which include corporate conferences, conventions, trade shows, weddings, and other special events. The conference facility is a significant revenue driver for the property and is a key differentiator in the competitive Fort Myers Beach and greater Lee County hospitality market.
Based on my analysis of the property's historical financial performance, the Harborview's pre-loss average daily rate was $295, and its pre-loss average occupancy rate was 74%. These figures reflect the property's competitive position in the Fort Myers Beach market and are supported by VHG's internal records, STR data, and historical booking patterns.
The Harborview was closed from September 18, 2022, through January 31, 2023, a total period of 135 days. During this entire period, the property generated zero revenue from either room operations or conference and event bookings.
I calculated the "but-for" projected revenue for the Harborview based on 224 rooms multiplied by an ADR of $295, multiplied by an average occupancy rate of 74%, over the 135-day closure period, with appropriate adjustments for seasonal variation. In addition to room revenue, I calculated projected conference and event facility revenue based on the property's historical booking data, forward-looking event bookings that were on the books at the time of Hurricane Callista and were subsequently cancelled or relocated, and seasonal patterns in event bookings. Ancillary revenue from food and beverage operations, parking, and other services was also included in the projection.
From the total projected "but-for" revenue, I deducted saved and discontinued variable expenses consistent with the methodology described in Paragraph 6 above.
Based on this analysis, my total calculated business-interruption loss for the Verimark Harborview Hotel & Conference Center is $18,700,000. This figure accounts for the full 135-day closure period, the loss of both room revenue and conference/event revenue, and appropriate deductions for saved variable expenses.
9. Business-Interruption Loss: Verimark Sunset Shores
The Verimark Sunset Shores is a 186-room boutique resort property located on St. Pete Beach, Florida. The property features beachfront guest rooms, restaurant and pool-bar dining venues, a small spa, and beach and pool amenities. Based on my analysis of the property's historical financial performance, the Sunset Shores' pre-loss average daily rate was $342, and its pre-loss average occupancy rate was 79%.
The Sunset Shores experienced a period of full closure from September 18, 2022, through November 30, 2022, a total of 73 days, during which the property generated zero revenue. On November 30, 2022, the property achieved a partial reopening at significantly reduced capacity, with only a portion of its guest rooms available for occupancy due to ongoing repairs to certain wings of the property, limited food-and-beverage operations, and reduced amenity availability. The property did not reach full operating capacity until approximately February 28, 2023, representing an additional period of approximately 90 days of reduced-capacity operations.
My loss calculation for Sunset Shores encompasses both the 73-day period of full closure and the approximately 90-day period of partial-closure and reduced-capacity operations. For the full-closure period, I calculated the "but-for" projected revenue based on 186 rooms multiplied by an ADR of $342, multiplied by an occupancy rate of 79%, over 73 days, with appropriate seasonal adjustments. For the partial-closure and reduced-capacity period, I calculated the difference between projected "but-for" revenue at full capacity and the actual revenue earned during reduced operations, based on VHG's financial records, property management system data, and the actual number of rooms available for sale during each phase of the partial reopening.
From the total projected "but-for" revenue for both the full-closure and partial-closure periods, I deducted saved and discontinued variable expenses, appropriately adjusted to reflect the fact that certain variable expenses were partially incurred during the reduced-capacity operating period.
Based on this analysis, my total calculated business-interruption loss for the Verimark Sunset Shores is $9,900,000.
10. Aggregate Business-Interruption Loss
My calculation of VHG's total aggregate business-interruption loss across all three insured properties resulting from Hurricane Callista is as follows:
This total of $60,000,000 represents my opinion of VHG's actual business-interruption losses resulting from Hurricane Callista, calculated in accordance with the methodology described in this declaration and set forth in detail in the Vasquez Report. I note that this figure is a conservative estimate of VHG's total economic losses. In preparing my analysis, I intentionally excluded certain categories of loss that are more difficult to quantify with precision but that VHG undoubtedly suffered, including extended reputational harm to the VHG brand and the individual property brands, the loss of future bookings and long-term customer relationships resulting from the prolonged closures, incremental marketing and promotional costs that VHG incurred and will continue to incur to rebuild brand awareness and recapture market share, and the loss of customer loyalty program value. The exclusion of these categories was a deliberate methodological choice to ensure that my loss calculation is conservative and well-supported by the available financial data.
11. VHG's Losses Exceed $60 Million Regardless of the Windstorm Sub-Limit
I understand that a central coverage dispute in this litigation concerns whether a $15,000,000 named-windstorm sub-limit applies to the business-interruption coverage under the Ironclad Indemnity Corporation primary policy (Policy No. IIC-PRP-2022-07541). Specifically, I understand that VHG contends the named-windstorm sub-limit was deleted from the policy at the July 2022 renewal, while defendants contend that the sub-limit remained in effect.
It is my expert opinion that VHG's total business-interruption losses exceed $60 million regardless of how the windstorm sub-limit coverage dispute is resolved by this Court. My analysis demonstrates the following:
(a) VHG's total business-interruption losses of at least $60,000,000 substantially exceed the $15,000,000 named-windstorm sub-limit that defendants contend applies. Even if the Court were to determine that the $15 million named-windstorm sub-limit was not deleted from the policy at the July 2022 renewal and that the sub-limit remains in effect, VHG's total business-interruption losses would still substantially exceed the total available coverage under the full insurance tower.
(b) The total insurance tower available to VHG, as described in greater detail in Paragraph 13 below, provides a maximum of $60,000,000 in aggregate coverage above the $500,000 deductible, comprising $25,000,000 under the Ironclad primary layer, $15,000,000 under the Pinnacle first excess layer, $10,000,000 under the Montclair second excess layer, and $10,000,000 under the Sovereign Re third excess layer. VHG's total business-interruption losses of at least $60,000,000 are sufficient to exhaust the entire tower regardless of the windstorm sub-limit issue.
(c) The windstorm sub-limit issue affects the allocation of losses among the policy layers and the total amount of coverage available to VHG under the insurance program, but it does not reduce the actual economic losses suffered by VHG, which I calculate at no less than $60 million.
(d) To the extent VHG's losses are measured under any reasonable alternative methodology, including any methodology that makes reasonable adjustments to the assumptions I have employed, the total loss figure exceeds $60 million. As noted in Paragraph 10 above, my methodology intentionally understates certain categories of loss in the interest of conservatism.
12. Response to Defense Expert's Competing Analysis
I have reviewed the expert report of Dr. Warren Birk of Graystone Consulting Group LLC, which was served on behalf of defendants on September 15, 2023, as well as Dr. Birk's rebuttal report, which was served on October 2, 2023.
Dr. Birk's analysis applies alternative assumptions in several key areas that differ from mine, including: (a) the period of restoration, where Dr. Birk argues for shorter restoration periods at each property based on what he characterizes as a theoretical minimum repair timeline that, in my opinion, fails to account for actual post-hurricane conditions; (b) projected occupancy rates, where Dr. Birk applies lower occupancy projections that are inconsistent with the properties' historical performance and forward-looking booking data; and (c) saved-expense calculations, where Dr. Birk applies larger deductions for purportedly saved expenses that, in my opinion, overstate the extent to which VHG was able to reduce its cost structure during the closure periods.
I believe Dr. Birk's alternative assumptions are inconsistent with the actual facts established in the record, with the properties' documented historical performance, with the conditions that existed in the Florida Keys and Gulf Coast markets in the aftermath of Hurricane Callista, and with generally accepted standards and practices in the forensic-accounting profession for business-interruption loss quantification. I provided detailed, point-by-point critiques of Dr. Birk's methodology, data sources, and assumptions in my rebuttal report, which was served on October 2, 2023, and in my deposition testimony on October 16, 2023.
Importantly, and critically for purposes of VHG's motion for partial summary judgment, even under Dr. Birk's most aggressive downward adjustments, VHG's business-interruption losses remain well in excess of the $15 million that would constitute the applicable limit if the named-windstorm sub-limit were enforced. Dr. Birk's own calculations, even with the assumptions most favorable to defendants, yield a total business-interruption loss figure that substantially exceeds the $15 million sub-limit. This fact further supports my opinion that VHG's losses exceed the available coverage regardless of how the windstorm sub-limit issue is resolved.
13. Insurance Tower Structure
Based on my review of the applicable insurance policies and the information provided to me in connection with this engagement, I understand the VHG insurance tower for the 2022-2023 policy period to be structured as follows:
The total aggregate annual premium for the tower was approximately $1,840,000.
VHG's business-interruption losses of at least $60,000,000 are sufficient to exhaust the entire insurance tower, including the primary layer and all three excess layers, above the $500,000 deductible. This conclusion holds true regardless of whether the $15 million named-windstorm sub-limit is determined to apply or not apply under the Ironclad primary policy.
14. Basis for Period-of-Restoration Opinions
My loss calculations for each of the three VHG properties are based on the actual period of business interruption experienced by VHG, which I have independently analyzed and determined to be reasonable under the circumstances. In evaluating the reasonableness of the restoration periods, I considered the following factors:
(a) Severity of Hurricane Damage. Hurricane Callista was a Category 4 hurricane with sustained winds of approximately 145 miles per hour and catastrophic storm surge of eight to fourteen feet in Monroe County and six to ten feet in Lee County. The severity of this storm resulted in extensive structural, mechanical, electrical, and cosmetic damage to all three VHG properties, as documented in the forensic engineering report of Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc.
(b) Post-Hurricane Demand Surge. In the aftermath of Hurricane Callista, there was an extraordinary demand surge for licensed contractors, skilled construction labor, and building materials throughout the Florida Keys and Gulf Coast region. This demand surge resulted in significant delays in the commencement and completion of restoration work at all affected properties in the region, including VHG's properties. These conditions are well-documented and are a predictable and recognized consequence of major hurricane events.
(c) Local Permitting Delays. Monroe County (applicable to the Grand Key Resort) and Lee County (applicable to the Harborview Hotel & Conference Center) both experienced significant permitting backlogs and processing delays in the months following Hurricane Callista due to the volume of repair and rebuilding applications and the strain on local government resources. These permitting delays directly contributed to the duration of the restoration periods at the Grand Key Resort and the Harborview property.
(d) Scope of Required Repairs. The scope of structural, mechanical, electrical, plumbing, and cosmetic repairs required at each property was extensive, as documented in the forensic engineering report of Jeffrey Caldwell, PE. At the Grand Key Resort, repairs included significant structural work, complete replacement of roofing systems on multiple buildings, remediation of water intrusion damage, replacement of mechanical and electrical systems, replacement of furnishings, fixtures, and equipment, and substantial repairs to the marina infrastructure. Similar, though varying in scope, repair work was required at the Harborview and Sunset Shores properties.
Based on my independent analysis of these factors and the documentary evidence in the record, I have concluded that the restoration periods for each property were reasonable:
• The Grand Key Resort's 178-day closure period (September 18, 2022, through March 15, 2023) was reasonable given the severity of wind and water damage to the 312-room luxury resort property and marina, the complexity of the required repairs, post-hurricane demand surge conditions in the Florida Keys, and Monroe County permitting delays.
• The Harborview's 135-day closure period (September 18, 2022, through January 31, 2023) was reasonable given the extent of damage to both the 224-room hotel and the 40,000 square-foot conference facility, demand surge conditions in the Lee County market, and Lee County permitting delays.
• Sunset Shores' 73-day period of full closure (September 18 through November 30, 2022) plus the approximately 90-day period of partial-capacity operations through February 28, 2023, was reasonable given the substantial but comparatively more limited scope of damage at that property and the phased approach to reopening, which allowed VHG to resume revenue-generating operations as quickly as reasonably practicable while completing remaining repairs.
15. Mitigation Efforts by VHG
In conducting my analysis, I carefully accounted for VHG's efforts to mitigate its business-interruption losses. Based on my review of the documentary evidence and deposition testimony, VHG undertook the following mitigation efforts, among others:
(a) VHG immediately engaged emergency restoration contractors in the days following Hurricane Callista to begin water extraction, debris removal, and emergency stabilization work at all three properties;
(b) VHG worked to temporarily relocate group bookings, conference events, and weddings that had been scheduled at the Harborview and Grand Key Resort to alternative venues, including other properties in VHG's portfolio and third-party venues, to the extent such relocation was feasible;
(c) VHG authorized and implemented accelerated construction schedules utilizing premium-cost overtime labor at all three properties to shorten the restoration periods;
(d) VHG launched active marketing and promotional campaigns in advance of and following each property's reopening to rebuild occupancy levels, recapture group bookings, and restore market awareness; and
(e) VHG's management team, including its risk management, construction, and operations personnel, actively managed and supervised the restoration process to ensure timely completion of repairs.
Based on my analysis, VHG's mitigation efforts were reasonable and consistent with industry standards for hospitality companies facing hurricane-related business interruptions. The saved-expense deductions incorporated in my loss calculations appropriately reflect the cost savings attributable to the closures and VHG's mitigation efforts. I have found no evidence that VHG unreasonably delayed the restoration of any property or failed to take reasonable steps to minimize its losses.
16. Conclusion and Opinion Summary
Based on the analysis set forth in the Vasquez Report, my rebuttal report, and this declaration, and for the reasons detailed therein and herein, it is my expert opinion, stated to a reasonable degree of professional certainty, that:
1. VHG's total business-interruption losses arising from Hurricane Callista are at least $60,000,000, comprising $31,400,000 at the Grand Key Resort, $18,700,000 at the Harborview Hotel & Conference Center, and $9,900,000 at Sunset Shores.
2. These losses exceed $60 million regardless of whether the $15 million named-windstorm sub-limit is determined to apply or not to apply under the Ironclad Indemnity Corporation primary policy (Policy No. IIC-PRP-2022-07541). The resolution of the windstorm sub-limit issue does not alter the quantum of VHG's actual economic losses.
3. The periods of restoration at all three properties were reasonable under the circumstances, considering the severity of Hurricane Callista, the scope of physical damage sustained, post-hurricane demand surge conditions, supply-chain disruptions, and local permitting delays.
4. VHG took reasonable steps to mitigate its business-interruption losses, and VHG did not unreasonably delay the restoration of any property.
5. VHG's losses exhaust the full $60 million insurance tower (above the $500,000 deductible) under any reasonable quantification methodology, including the most conservative reasonable assumptions and even under the alternative assumptions proposed by defendants' expert, Dr. Warren Birk.
17. Reservation of Rights to Supplement
I reserve the right to supplement, amend, or update the opinions expressed in this declaration and in the Vasquez Report if additional information, documents, data, or analyses become available, if new issues arise in this litigation, or if the Court requests further analysis on any matter within the scope of my engagement. I also reserve the right to respond to any additional expert opinions or reports that may be submitted by any party in this matter.
I declare under penalty of perjury under the laws of the State of Florida and the United States of America that the foregoing is true and correct.
Executed on November 1, 2023, at Atlanta, Georgia.
________________________________________
Dr. Helen Vasquez, CPA, CFF Managing Director Meridian Forensic Economics LLC 1201 Peachtree Street NE, Suite 1000 Atlanta, Georgia 30361
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on November 1, 2023, a true and correct copy of the foregoing Declaration of Dr. Helen Vasquez, CPA, CFF, in Support of Plaintiff's Motion for Partial Summary Judgment Re: Windstorm Sub-Limit, together with all exhibits referenced therein, was filed with the Clerk of the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida, and served by electronic mail and overnight courier upon the following counsel of record:
Gregory Stanton, Esq. Fendowell Rourke & Stanton LLP 280 Trumbull Street, Suite 2200 Hartford, Connecticut 06103 Counsel for Defendants Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc.
Patricia Kraus, Esq. Delvecchio & Kraus LLP 425 Park Avenue, 20th Floor New York, New York 10022 Counsel for Defendants Montclair Assurance Company and Sovereign Re Ltd.
________________________________________
Tiffany Rosenthal, Esq. Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Counsel for Plaintiff Verimark Hospitality Group Inc.
VERIMARK HOSPITALITY GROUP INC., a Delaware corporation,
Plaintiff,
v.
IRONCLAD INDEMNITY CORPORATION; PINNACLE SURPLUS LINES INC.; MONTCLAIR ASSURANCE COMPANY; and SOVEREIGN RE LTD.,
Defendants.
Property | Business-Interruption Loss
Verimark Grand Key Resort | $31,400,000
Verimark Harborview Hotel & Conference Center | $18,700,000
Verimark Sunset Shores | $9,900,000
Total | $60,000,000
Layer | Insurer | Policy Number | Limit | Attachment Point
Primary | Ironclad Indemnity Corporation | IIC-PRP-2022-07541 | $25,000,000 per occurrence | $500,000 deductible
First Excess | Pinnacle Surplus Lines Inc. | PSL-XS1-2022-3390 | $15,000,000 | Excess of $25,000,000
Second Excess | Montclair Assurance Company | MAC-XS2-2022-09817 | $10,000,000 | Excess of $40,000,000
Third Excess | Sovereign Re Ltd. | SRL-XS3-2022-5102 | $10,000,000 | Excess of $50,000,000
Total Tower | $60,000,000 | Above $500,000 deductible

IN THE CIRCUIT COURT OF THE ELEVENTH JUDICIAL CIRCUIT IN AND FOR MIAMI-DADE COUNTY, FLORIDA

GENERAL JURISDICTION DIVISION

CASE NO.: 2022-CA-031547

CERTIFICATE OF SERVICE

Record

Parties

Dates

Amounts