1021-00003 · Verimark Hospitality Group · Pleadings & Court Filings

exhibit-c-ironclad-denial-letter.docx DOCUMENT Antitrust

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EXHIBIT C

Filed in connection with Complaint, Case No. 2022-CA-031547 Eleventh Judicial Circuit of Florida, Miami-Dade County

IRONCLAD INDEMNITY CORPORATION 55 Constitution Boulevard Hartford, CT 06103 NAIC Number: 20537

February 3, 2023

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND ELECTRONIC MAIL

Sandra Pellegrini Vice President of Risk Management Verimark Hospitality Group Inc. 1900 Brickell Avenue, Suite 3200 Miami, FL 33129

cc: (see distribution list below)

Nathaniel Driscoll, General Counsel Verimark Hospitality Group Inc. 1900 Brickell Avenue, Suite 3200 Miami, FL 33129

Elaine Forsythe, Esq. Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, FL 33131

Franklin Orde, Account Executive Tidewater Risk Advisors LLC 2600 S. Bayshore Drive, Suite 800 Miami, FL 33133

Re: Formal Coverage Determination — Denial of Business-Interruption Claim

Insured: Verimark Hospitality Group Inc. Policy Number: IIC-PRP-2022-07541 Policy Period: July 1, 2022 – July 1, 2023 Date of Loss: September 18, 2022 Claim Reference: Hurricane Callista — Business Interruption Ironclad Claim File No.: CLM-2022-19874

Dear Ms. Pellegrini:

I. Introduction and Purpose

This letter constitutes Ironclad Indemnity Corporation's ("Ironclad") formal coverage determination regarding the above-referenced claim submitted by Verimark Hospitality Group Inc. ("VHG" or the "Insured") for business-interruption losses arising out of Hurricane Callista, which made landfall in the State of Florida on September 18, 2022. This determination is rendered under All-Risk Property and Business Interruption Insurance Policy No. IIC-PRP-2022-07541 (the "Policy"), issued by Ironclad to VHG for the policy period of July 1, 2022 through July 1, 2023.

As you are aware, Ironclad previously issued a reservation of rights letter dated October 12, 2022 (the "ROR Letter"), in which Ironclad identified several coverage issues that required further investigation before a final coverage determination could be rendered. This letter supersedes the ROR Letter and constitutes Ironclad's final coverage determination as of the date hereof.

Ironclad acknowledges receipt of VHG's sworn statement in proof of loss, submitted on November 15, 2022, in which VHG claims business-interruption losses totaling approximately Sixty Million Dollars ($60,000,000) in the aggregate across three insured resort properties: (1) Verimark Grand Key Resort, located at Mile Marker 48, Marathon, Florida 33050; (2) Verimark Harborview Hotel & Conference Center, located at 1400 Estero Boulevard, Fort Myers Beach, Florida 33931; and (3) Verimark Sunset Shores, located at 7200 Gulf Boulevard, St. Pete Beach, Florida 33706.

Ironclad has completed a thorough and comprehensive investigation of the claim, including the independent adjustment conducted by Arbor Claims Services LLC ("Arbor"), under the direction of Lead Adjuster Denise Whitford. Ms. Whitford conducted an initial inspection of each of the three insured properties on October 5, 2022, and subsequent follow-up inspections and adjustments were performed through the investigation period. Ironclad has also reviewed all documentation submitted by VHG and its representatives, including financial records, property records, contractor estimates, prior-year revenue data, and related correspondence.

For the reasons set forth in detail below, Ironclad Indemnity Corporation hereby denies VHG's claim for business-interruption coverage under the Policy in its entirety. This denial is based on four independent grounds, each of which independently supports the denial of the claim as presented.

II. Background and Factual Summary

A. The Policy

The Policy at issue is the All-Risk Property and Business Interruption Insurance Policy No. IIC-PRP-2022-07541, issued by Ironclad to VHG for the policy period commencing at 12:01 a.m. Eastern Daylight Time on July 1, 2022, and ending at 12:01 a.m. Eastern Daylight Time on July 1, 2023. The Policy provides coverage on an "all risks" basis for direct physical loss of or damage to covered property, and for resulting business interruption and extra expense, in each case subject to the terms, conditions, exclusions, sub-limits, and deductibles set forth in the Policy.

The primary layer limit of liability for business-interruption coverage under the Policy is Twenty-Five Million Dollars ($25,000,000) per occurrence. The Policy provides for a deductible of Five Hundred Thousand Dollars ($500,000) per occurrence, applicable to all covered business-interruption losses.

The Policy was placed through Tidewater Risk Advisors LLC ("Tidewater"), VHG's broker of record, during the July 2022 renewal period. The Policy was bound, issued, and delivered to VHG through Tidewater in the ordinary course.

B. Hurricane Callista and the Claimed Loss

Hurricane Callista was designated as a named tropical storm by the National Hurricane Center ("NHC") on September 12, 2022. The storm rapidly intensified as it moved through the warm waters of the Caribbean Sea and the Straits of Florida, and on September 18, 2022, at approximately 1:30 p.m. Eastern Daylight Time, Hurricane Callista made landfall in the Lower Florida Keys in the vicinity of Big Pine Key, Monroe County, Florida, as a Category 4 hurricane on the Saffir-Veltason Hurricane Wind Scale, with maximum sustained winds of approximately 145 miles per hour.

Hurricane Callista produced catastrophic storm surge in excess of 8 to 14 feet in Monroe County and 6 to 10 feet in Lee County, as well as extensive wind damage throughout the southwestern and western coastal regions of the State of Florida. Monroe County issued a mandatory evacuation order on September 16, 2022, and Lee County issued a mandatory evacuation order on September 17, 2022, each covering the areas in which VHG's insured properties are located.

VHG submitted its initial notice of loss to Ironclad on September 22, 2022, reporting significant wind and storm surge damage to the three insured resort properties and advising that all three properties had been closed to guests effective September 18, 2022.

On November 15, 2022, VHG submitted its sworn statement in proof of loss, claiming aggregate business-interruption losses totaling Sixty Million Dollars ($60,000,000), broken down by property as follows:

(1) Verimark Grand Key Resort (Marathon, FL — Monroe County): VHG claims business-interruption losses of Thirty-One Million Four Hundred Thousand Dollars ($31,400,000), based on a claimed closure period of 178 days, from September 18, 2022 through March 15, 2023.

(2) Verimark Harborview Hotel & Conference Center (Fort Myers Beach, FL — Lee County): VHG claims business-interruption losses of Eighteen Million Seven Hundred Thousand Dollars ($18,700,000), based on a claimed closure period of 135 days, from September 18, 2022 through January 31, 2023.

(3) Verimark Sunset Shores (St. Pete Beach, FL — Pinellas County): VHG claims business-interruption losses of Nine Million Nine Hundred Thousand Dollars ($9,900,000), based on a claimed full closure period of 73 days (September 18, 2022 through November 30, 2022), followed by a period of reduced capacity operations extending through February 2023, with VHG asserting that full capacity was not achieved until February 28, 2023.

C. Ironclad's Investigation

Upon receipt of VHG's initial notice of loss on September 22, 2022, Ironclad promptly opened Claim File No. CLM-2022-19874 and retained Arbor Claims Services LLC as independent adjuster. Lead Adjuster Denise Whitford conducted initial property inspections at all three insured locations on October 5, 2022, which was the earliest date on which safe access to the properties could be obtained following Hurricane Callista. Ms. Whitford and her team conducted subsequent follow-up inspections and adjustments over the course of the investigation period, including detailed documentation of the physical damage at each property, analysis of the causes of loss, and review of VHG's financial records, booking data, revenue projections, restoration timelines, and contractor engagement records.

On October 12, 2022, Ironclad issued its Reservation of Rights Letter, identifying several coverage issues requiring further investigation, including, without limitation, the applicability of the Named Windstorm Sub-Limit Endorsement, the Flood Exclusion and Anti-Concurrent Causation Clause, the definition and duration of the Period of Restoration, and VHG's compliance with its duty to mitigate losses. That letter expressly reserved all of Ironclad's rights, defenses, and remedies under the Policy and applicable law.

In the course of its investigation, Ironclad has reviewed all documentation submitted by VHG and its representatives, including the sworn statement in proof of loss, supporting financial schedules, pre-loss and post-loss revenue data, contractor bids and invoices, project management records, guest booking and cancellation data, property inspection photographs, engineering reports, and correspondence between VHG, Tidewater, and Ironclad. Ironclad has also reviewed the independent adjustment report prepared by Arbor Claims Services LLC, the Policy itself including all endorsements and schedules, and the underwriting file associated with the July 2022 renewal.

III. Bases for Denial

Based upon Ironclad's thorough investigation and careful review of the Policy, Ironclad hereby denies VHG's claim for business-interruption coverage in its entirety for the following four independent grounds. Each ground stated below is sufficient, standing alone, to support the denial of the claim as presented. The statement of any one ground does not limit or qualify the applicability of any other ground.

A. Named Windstorm Sub-Limit

The Policy contains a Named Windstorm Sub-Limit Endorsement (Endorsement No. IIC-NWS-2022-004, attached to and forming part of the Policy), which provides, in pertinent part, as follows:

"Notwithstanding any other provision of this Policy, the Company's maximum liability for all business-interruption losses, including but not limited to loss of business income, extra expense, contingent business interruption, and any other time-element coverage, arising out of, caused by, or resulting from a Named Windstorm, shall not exceed Fifteen Million Dollars ($15,000,000) per occurrence."

The endorsement defines "Named Windstorm" as:

"Any storm, weather disturbance, or atmospheric condition that has been declared to be, identified as, or designated by the National Hurricane Center (or any successor organization) as a tropical depression, tropical storm, hurricane, or any other named weather event, including all related wind, rain, hail, tornadoes, and other weather conditions generated by, associated with, or resulting from such storm, regardless of whether such storm has been downgraded or reclassified at the time of the loss."

Hurricane Callista was designated by the National Hurricane Center as a named tropical storm on September 12, 2022, and subsequently classified as a hurricane. There is no dispute—and indeed no basis for dispute—that Hurricane Callista constitutes a "Named Windstorm" within the meaning of the Policy.

Accordingly, even assuming arguendo that all Sixty Million Dollars ($60,000,000) of VHG's claimed business-interruption losses were otherwise covered under the Policy—which Ironclad does not concede and expressly disputes—the maximum business-interruption recovery available to VHG under the primary layer for this occurrence would be capped at Fifteen Million Dollars ($15,000,000), less the applicable per-occurrence deductible of Five Hundred Thousand Dollars ($500,000), for a maximum net recovery of Fourteen Million Five Hundred Thousand Dollars ($14,500,000). This amount is substantially less than the Sixty Million Dollars ($60,000,000) claimed by VHG.

Ironclad is aware that VHG may contend that the Named Windstorm Sub-Limit Endorsement was purportedly deleted or removed during the July 2022 renewal of the Policy, and that VHG's broker, Tidewater Risk Advisors LLC, allegedly communicated to VHG that the sub-limit would not be included in the renewed Policy. Ironclad addresses this anticipated argument as follows:

First, Ironclad's underwriting records reflect that the Named Windstorm Sub-Limit Endorsement (Endorsement No. IIC-NWS-2022-004) was included in the Policy as bound and issued by Ironclad. The endorsement was part of the Policy as delivered to VHG through Tidewater.

Second, no executed endorsement, binder amendment, or other written instrument deleting, modifying, or superseding the Named Windstorm Sub-Limit Endorsement appears in the Policy as issued and delivered. The Policy contains no rider, addendum, or amendment reflecting the removal of the sub-limit.

Third, the Policy, as issued and delivered, constitutes the complete and integrated agreement between Ironclad and VHG with respect to the subject matter thereof. Section XII.F of the Policy (the "Merger and Integration Clause") provides, in pertinent part, that "[t]his Policy, including all endorsements, schedules, and forms attached hereto or incorporated herein by reference, constitutes the entire agreement between the Insured and the Company and supersedes all prior negotiations, representations, warranties, commitments, offers, and agreements, whether written or oral, relating to the subject matter hereof."

Fourth, any alleged oral representations, broker communications, emails, or other extrinsic materials purporting to reflect the deletion or modification of the Named Windstorm Sub-Limit Endorsement are inadmissible to vary, contradict, or supplement the terms of the written Policy under the parol evidence rule as applied under Florida law. See, e.g., Rigel v. Pinnacle Life Insurance, 76 So. 3d 285 (Fla. 4th DCA 2011); Brightmoor Indemnity Co. v. Pridgen, 498 So. 2d 1245 (Fla. 1986). Furthermore, the Policy's Merger and Integration Clause expressly forecloses reliance on extrinsic evidence of prior or contemporaneous agreements to modify the Policy's terms.

Therefore, the Named Windstorm Sub-Limit of Fifteen Million Dollars ($15,000,000) per occurrence applies to the claimed business-interruption losses and caps VHG's maximum recovery for this occurrence.

B. Period of Restoration Disputes

Independent of and in addition to the Named Windstorm Sub-Limit, Ironclad's investigation has determined that VHG's claimed periods of closure at each of the three insured properties substantially exceed the "Period of Restoration" as defined under the Policy.

Section V.B.2 of the Policy defines the "Period of Restoration" as follows:

"The period of time that: (a) begins at the time of direct physical loss of or damage to Covered Property caused by or resulting from a Covered Cause of Loss at the described premises; and (b) ends on the earlier of: (i) the date when the property at the described premises should be repaired, rebuilt, or replaced with reasonable speed and similar quality, using due diligence and dispatch; or (ii) the date when business is actually resumed at the described premises." (Emphasis added.)

This definition is critical, because it provides that the Period of Restoration terminates not on the date when operations actually resumed, but rather on the date when operations reasonably should have resumed had the Insured exercised due diligence and dispatch in repairing, rebuilding, or replacing the damaged property and resuming business operations. The measure is objective, not subjective, and delays attributable to the Insured's own inaction, poor planning, or elective choices are not compensable under the Policy.

Ironclad's investigation, including the independent adjustment conducted by Arbor Claims Services LLC, reveals that VHG's claimed periods of closure at each of the three insured properties significantly exceed the time that would have been required to restore operations with the exercise of due diligence and dispatch. The specific findings are as follows:

(1) Verimark Grand Key Resort (Marathon, FL): VHG claims a closure period of 178 days, from September 18, 2022 through March 15, 2023. However, Ironclad's investigation indicates that, with the exercise of due diligence and dispatch, the Grand Key Resort could have been restored and reopened within approximately 90 to 100 days following the date of loss. Specifically, the investigation reveals that VHG delayed the commencement of certain structural and interior repairs for approximately three to four weeks following the initial clearance of the property for repair work. VHG failed to promptly engage qualified restoration contractors, despite the availability of multiple licensed contractors in the region during the relevant time period. Furthermore, VHG elected to undertake substantial upgrades, renovations, and aesthetic improvements to guest rooms, common areas, and dining facilities that went well beyond what was necessary to restore the property to its pre-loss condition. These elective improvements extended the closure period by approximately 60 to 80 days beyond the reasonable restoration period.

(2) Verimark Harborview Hotel & Conference Center (Fort Myers Beach, FL): VHG claims a closure period of 135 days, from September 18, 2022 through January 31, 2023. Ironclad's investigation indicates that, with the exercise of due diligence and dispatch, the Harborview property could have been restored to operational condition within approximately 75 to 85 days. The investigation reveals similar delays in contractor engagement and the undertaking of elective improvements at this property, which prolonged the closure period by approximately 50 to 60 days.

(3) Verimark Sunset Shores (St. Pete Beach, FL): VHG claims a full closure period of 73 days (September 18 through November 30, 2022), followed by a period of reduced capacity operations extending through February 2023, with VHG asserting that full capacity was not achieved until February 28, 2023—a total affected period of approximately 163 days. Ironclad's investigation indicates that, with the exercise of due diligence and dispatch, full operations at the Sunset Shores property could have resumed within approximately 45 to 50 days following the date of loss. The Sunset Shores property sustained the least extensive damage of the three insured properties, and the extended closure and reduced capacity periods are not justified by the scope of the damage.

VHG's claimed business-interruption losses are materially inflated by the Insured's own delays and elective decisions, and must be adjusted to reflect the reasonable Period of Restoration as defined under the Policy. Even if coverage otherwise existed—which Ironclad does not concede—the claimed amounts far exceed the losses properly attributable to the Policy's defined Period of Restoration.

C. Concurrent Causation and Flood Exclusion

Independent of and in addition to the foregoing bases for denial, Ironclad denies the claim based upon the Policy's Flood Exclusion and Anti-Concurrent Causation Clause.

Section IV.C.7 of the Policy (the "Flood Exclusion") provides, in pertinent part:

"This Policy does not cover loss or damage caused by or resulting from flood, including but not limited to storm surge, tidal water, tidal wave, overflow of streams or other bodies of water, or release of water held by any natural or man-made dam, levee, or similar barrier, regardless of any other cause or event that contributes concurrently or in any sequence to the loss, and whether or not such flood is driven by wind."

Section IV.A of the Policy (the "Anti-Concurrent Causation Clause") further provides:

"The exclusions set forth in this Section IV apply regardless of any other cause or event, whether or not insured, that contributes concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or whether other causes of loss acted concurrently or in any sequence with an excluded cause of loss to produce the loss."

The combined effect of the Flood Exclusion and the Anti-Concurrent Causation Clause is to exclude from coverage all losses caused by, resulting from, or contributed to by flood or storm surge, even where wind damage concurrently or sequentially contributes to the same loss.

With specific reference to the Verimark Grand Key Resort in Marathon, Florida (Monroe County): the Grand Key Resort property experienced storm surge of 8 to 14 feet during Hurricane Callista. The independent adjustment by Arbor Claims Services LLC, including the site inspection conducted by Ms. Whitford and her team, reveals that substantial portions of the damage to the Grand Key Resort were caused directly by storm surge flooding. Flood damage was documented to ground-floor structures, mechanical and electrical systems (including HVAC equipment, electrical panels, and elevator machinery), the main lobby and registration area, dining and common areas, guest rooms on the ground floor, the spa and fitness center, swimming pool equipment, and the marina facilities. The flooding caused by storm surge penetrated throughout the ground level of the property and caused extensive damage to building systems, furnishings, fixtures, and equipment.

Under the Policy's Anti-Concurrent Causation Clause, where flood damage concurs with, contributes to, or acts in any sequence with wind damage to produce a loss, the entire loss—or, at a minimum, the indivisible portions of the loss attributable to the concurrent operation of insured and excluded perils—is excluded from coverage. VHG has not demonstrated, and Ironclad's investigation does not support a finding, that the wind damage and storm surge damage at the Grand Key Resort are separable, independently quantifiable, or divisible in a manner that would permit recovery for wind-only losses while excluding flood-related losses. To the contrary, the evidence indicates that the storm surge flooding and the wind damage acted concurrently and in sequence to produce a single, indivisible loss at the Grand Key Resort.

Similarly, portions of the Verimark Harborview Hotel & Conference Center in Fort Myers Beach, Florida (Lee County), sustained storm surge flooding of 6 to 10 feet during Hurricane Callista. The same Flood Exclusion and Anti-Concurrent Causation issues apply to the Harborview property. The independent adjustment reveals extensive flood damage to the Harborview's ground-floor conference facilities, ballrooms, kitchen and food service areas, and mechanical systems, in addition to wind damage to the upper floors and roof structure. As with the Grand Key Resort, VHG has not demonstrated that the wind damage and flood damage at the Harborview are separable or independently quantifiable.

The Flood Exclusion and the Anti-Concurrent Causation Clause bar VHG's recovery for business-interruption losses attributable to the flood-damaged portions of the insured properties. Because VHG has not demonstrated the separability of the wind and flood losses, the entirety of the claimed business-interruption loss at the Grand Key Resort and substantial portions of the claimed loss at the Harborview Hotel & Conference Center are excluded from coverage under the Policy.

D. Failure to Mitigate

Independent of and in addition to each of the foregoing bases for denial, Ironclad denies the claim based upon VHG's failure to comply with its duty to mitigate losses under the Policy.

Section VIII.D of the Policy provides, in pertinent part:

"In the event of loss or damage to Covered Property, the Insured shall take all reasonable steps to: (a) protect the Covered Property from further loss or damage; (b) minimize and mitigate any business-interruption loss, including but not limited to the use of other available property, temporary or alternative facilities, and expedited restoration efforts; and (c) resume full or partial business operations as promptly as reasonably practicable."

This duty is consistent with the well-established principle under Florida law that an insured has an affirmative obligation to take reasonable steps to mitigate its losses, and that an insured may not recover for losses that could have been reasonably avoided through the exercise of due diligence. See, e.g., Fla. Stat. § 627.701; Robert Padilla, 674 So. 2d 106 (Fla. 1996).

Ironclad's investigation reveals that VHG failed to take reasonable steps to mitigate its business-interruption losses at each of the three insured properties, in the following specific respects:

(1) VHG failed to promptly engage qualified restoration contractors at the Grand Key Resort and the Harborview Hotel & Conference Center following Hurricane Callista. Despite the availability of licensed and experienced restoration contractors in the region, VHG did not execute restoration contracts for the Grand Key Resort until approximately four weeks after the storm, and for the Harborview until approximately three weeks after the storm. These delays are not attributable to lack of contractor availability, but rather to VHG's internal decision-making processes and its desire to solicit bids for combined restoration-and-improvement projects rather than pursuing expedited restoration alone.

(2) VHG failed to utilize available temporary or modular facilities to resume partial operations at any of the three insured properties during the restoration period. Ironclad's investigation has identified that temporary modular guest room facilities and temporary food service and conference facilities were commercially available in the relevant markets during the post-hurricane period and could have enabled VHG to resume partial operations at each property significantly earlier than VHG actually did so.

(3) VHG failed to redirect guest bookings, conference business, and group reservations to undamaged VHG properties or to third-party hotel and conference facilities. VHG operates a portfolio of hospitality properties, including properties outside the areas affected by Hurricane Callista. VHG made no meaningful effort to transfer or redirect existing bookings to these alternative properties, nor did VHG enter into arrangements with third-party facilities to accommodate displaced guests and conference clients, despite the availability of such arrangements.

(4) VHG elected to undertake discretionary improvements, upgrades, and renovations during the restoration period at the Grand Key Resort and the Harborview Hotel & Conference Center, including upgraded guest room finishes, enhanced lobby and common area design, new restaurant and bar concepts, and expanded spa and fitness facilities. These elective improvements were not necessitated by Hurricane Callista damage and were not required to restore the properties to their pre-loss condition. By combining elective improvements with necessary restoration work, VHG prolonged the closure periods at these properties and inflated the claimed business-interruption losses.

The Policy does not cover business-interruption losses that the Insured could have reasonably avoided or reduced through the exercise of due diligence. VHG's failure to mitigate its losses further reduces or eliminates the recoverable business-interruption loss under the Policy.

IV. Reservation of Additional Defenses

Ironclad expressly reserves all rights, remedies, and defenses available to it under the Policy and applicable law, including but not limited to any rights, remedies, or defenses not specifically set forth in this letter. The denial of coverage set forth herein is without prejudice to Ironclad's right to assert additional grounds for denial, reduction, or limitation of the claim should additional facts or information come to light during the course of any subsequent proceedings or otherwise.

Nothing in this letter shall be construed as, or deemed to constitute, a waiver of any provision, term, condition, exclusion, sub-limit, or deductible of the Policy, or of any right or defense available to Ironclad under the Policy or applicable law. Ironclad's decision to address specific coverage issues in this letter does not constitute an admission that coverage exists under the Policy with respect to any issue not specifically addressed, nor does it limit Ironclad's right to raise any additional defense at any time.

V. Impact on Excess Layers

For completeness, Ironclad notes that VHG's insurance program for the 2022–2023 policy year includes excess layers of coverage above Ironclad's primary layer, specifically:

• First Excess Layer: Pinnacle Surplus Lines Inc., Policy No. PSL-XS1-2022-3390, providing $15,000,000 excess of $25,000,000 (attaching at $25,000,000);

• Second Excess Layer: Montclair Assurance Company, Policy No. MAC-XS2-2022-09817, providing $10,000,000 excess of $40,000,000 (attaching at $40,000,000);

• Third Excess Layer: Sovereign Re Ltd., Policy No. SRL-XS3-2022-5102, providing $10,000,000 excess of $50,000,000 (attaching at $50,000,000).

Ironclad's denial of coverage under the primary layer means that the attachment points for each of the excess layers are not reached. Furthermore, even under the Named Windstorm Sub-Limit of $15,000,000—which is below Ironclad's $25,000,000 primary layer limit—the excess layers would not be triggered, as the sub-limited amount does not exhaust the primary layer. Ironclad is communicating its denial separately to each excess carrier for their records and information.

VI. VHG's Right to Dispute

Ironclad acknowledges and advises VHG that it has the right to dispute this coverage determination. In this regard, Ironclad draws VHG's attention to the following:

(1) Appraisal Provision. Section XI.B of the Policy contains an appraisal provision that permits either party to demand an appraisal of the amount of loss in the event of a dispute regarding the value of the loss. VHG should note that the appraisal provision relates solely to the amount of loss and does not extend to disputes regarding coverage or the application of policy terms, conditions, or exclusions.

(2) Suit Against Company Provision. Section XI.D of the Policy provides that no action shall be brought against Ironclad unless, as a condition precedent thereto, the Insured has fully complied with all of the terms and conditions of the Policy, and further provides that any such action must be commenced within two (2) years after the date on which the direct physical loss or damage occurred, or within such longer period as may be required by applicable law.

(3) Florida Statutory Provisions. VHG should be aware of the applicable statutes of limitation and other statutory provisions under Florida law governing actions arising out of insurance policies, including but not limited to Section 95.11(2)(b), Florida Statutes (five-year statute of limitations for actions on written contracts), and any other applicable statutory or regulatory provisions.

Ironclad invites VHG to provide any additional documentation, information, or analysis that it believes supports its claim for business-interruption coverage. If VHG provides such additional information, Ironclad will review it in good faith and, if warranted, will reconsider or supplement its coverage determination. Any such additional information should be directed to the undersigned at the address set forth below.

VII. Conclusion

For the foregoing reasons, Ironclad Indemnity Corporation respectfully denies VHG's claim for business-interruption coverage under Policy No. IIC-PRP-2022-07541 in connection with Hurricane Callista in its entirety. The denial is based upon four independent grounds: (A) the Named Windstorm Sub-Limit caps VHG's maximum potential recovery at $15,000,000, well below the claimed $60,000,000; (B) VHG's claimed periods of restoration significantly exceed the reasonable Periods of Restoration as defined under the Policy; (C) the Flood Exclusion and Anti-Concurrent Causation Clause exclude coverage for losses caused by or contributed to by storm surge flooding; and (D) VHG's failure to mitigate its losses further reduces or eliminates recoverable business-interruption losses.

This letter supersedes the Reservation of Rights Letter dated October 12, 2022, and constitutes Ironclad's final coverage determination as of the date hereof.

Ironclad remains willing to discuss this matter further with VHG and its representatives at VHG's convenience. Please do not hesitate to contact the undersigned with any questions or to arrange a meeting or call to discuss this determination.

Very truly yours,

IRONCLAD INDEMNITY CORPORATION

By: ________

Victor Haddon Senior Vice President, Claims 55 Constitution Boulevard Hartford, CT 06103 Telephone: (860) 555-4100

Email: v.haddon@ironcladindemnity.com

cc:

Nathaniel Driscoll, General Counsel, Verimark Hospitality Group Inc., 1900 Brickell Avenue, Suite 3200, Miami, FL 33129

Elaine Forsythe, Esq., Calderwood & Harkness LLP, 333 SE 2nd Avenue, Suite 4400, Miami, FL 33131

Franklin Orde, Account Executive, Tidewater Risk Advisors LLC, 2600 S. Bayshore Drive, Suite 800, Miami, FL 33133

Gregory Stanton, Esq., Fendowell Rourke & Stanton LLP (Ironclad Outside Counsel)

Pinnacle Surplus Lines Inc. — Attention: Claims Department

Montclair Assurance Company — Attention: Claims Department

Sovereign Re Ltd. — Attention: Claims Department

Denise Whitford, Lead Adjuster, Arbor Claims Services LLC

Enclosures:

1. Copy of Policy No. IIC-PRP-2022-07541, Named Windstorm Sub-Limit Endorsement (Endorsement No. IIC-NWS-2022-004)

2. Copy of Policy No. IIC-PRP-2022-07541, Flood Exclusion and Anti-Concurrent Causation Clause (Sections IV.A and IV.C.7)

3. Ironclad Indemnity Corporation Reservation of Rights Letter dated October 12, 2022

EXHIBIT C
Filed in connection with Complaint, Case No. 2022-CA-031547 Eleventh Judicial Circuit of Florida, Miami-Dade County
IRONCLAD INDEMNITY CORPORATION 55 Constitution Boulevard Hartford, CT 06103 NAIC Number: 20537
February 3, 2023
VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND ELECTRONIC MAIL
Sandra Pellegrini Vice President of Risk Management Verimark Hospitality Group Inc. 1900 Brickell Avenue, Suite 3200 Miami, FL 33129
cc: (see distribution list below)
Nathaniel Driscoll, General Counsel Verimark Hospitality Group Inc. 1900 Brickell Avenue, Suite 3200 Miami, FL 33129
Elaine Forsythe, Esq. Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, FL 33131
Franklin Orde, Account Executive Tidewater Risk Advisors LLC 2600 S. Bayshore Drive, Suite 800 Miami, FL 33133
Re: Formal Coverage Determination — Denial of Business-Interruption Claim
Insured: Verimark Hospitality Group Inc. Policy Number: IIC-PRP-2022-07541 Policy Period: July 1, 2022 – July 1, 2023 Date of Loss: September 18, 2022 Claim Reference: Hurricane Callista — Business Interruption Ironclad Claim File No.: CLM-2022-19874
Dear Ms. Pellegrini:
I. Introduction and Purpose
This letter constitutes Ironclad Indemnity Corporation's ("Ironclad") formal coverage determination regarding the above-referenced claim submitted by Verimark Hospitality Group Inc. ("VHG" or the "Insured") for business-interruption losses arising out of Hurricane Callista, which made landfall in the State of Florida on September 18, 2022. This determination is rendered under All-Risk Property and Business Interruption Insurance Policy No. IIC-PRP-2022-07541 (the "Policy"), issued by Ironclad to VHG for the policy period of July 1, 2022 through July 1, 2023.
As you are aware, Ironclad previously issued a reservation of rights letter dated October 12, 2022 (the "ROR Letter"), in which Ironclad identified several coverage issues that required further investigation before a final coverage determination could be rendered. This letter supersedes the ROR Letter and constitutes Ironclad's final coverage determination as of the date hereof.
Ironclad acknowledges receipt of VHG's sworn statement in proof of loss, submitted on November 15, 2022, in which VHG claims business-interruption losses totaling approximately Sixty Million Dollars ($60,000,000) in the aggregate across three insured resort properties: (1) Verimark Grand Key Resort, located at Mile Marker 48, Marathon, Florida 33050; (2) Verimark Harborview Hotel & Conference Center, located at 1400 Estero Boulevard, Fort Myers Beach, Florida 33931; and (3) Verimark Sunset Shores, located at 7200 Gulf Boulevard, St. Pete Beach, Florida 33706.
Ironclad has completed a thorough and comprehensive investigation of the claim, including the independent adjustment conducted by Arbor Claims Services LLC ("Arbor"), under the direction of Lead Adjuster Denise Whitford. Ms. Whitford conducted an initial inspection of each of the three insured properties on October 5, 2022, and subsequent follow-up inspections and adjustments were performed through the investigation period. Ironclad has also reviewed all documentation submitted by VHG and its representatives, including financial records, property records, contractor estimates, prior-year revenue data, and related correspondence.
For the reasons set forth in detail below, Ironclad Indemnity Corporation hereby denies VHG's claim for business-interruption coverage under the Policy in its entirety. This denial is based on four independent grounds, each of which independently supports the denial of the claim as presented.
II. Background and Factual Summary
A. The Policy
The Policy at issue is the All-Risk Property and Business Interruption Insurance Policy No. IIC-PRP-2022-07541, issued by Ironclad to VHG for the policy period commencing at 12:01 a.m. Eastern Daylight Time on July 1, 2022, and ending at 12:01 a.m. Eastern Daylight Time on July 1, 2023. The Policy provides coverage on an "all risks" basis for direct physical loss of or damage to covered property, and for resulting business interruption and extra expense, in each case subject to the terms, conditions, exclusions, sub-limits, and deductibles set forth in the Policy.
The primary layer limit of liability for business-interruption coverage under the Policy is Twenty-Five Million Dollars ($25,000,000) per occurrence. The Policy provides for a deductible of Five Hundred Thousand Dollars ($500,000) per occurrence, applicable to all covered business-interruption losses.
The Policy was placed through Tidewater Risk Advisors LLC ("Tidewater"), VHG's broker of record, during the July 2022 renewal period. The Policy was bound, issued, and delivered to VHG through Tidewater in the ordinary course.
B. Hurricane Callista and the Claimed Loss
Hurricane Callista was designated as a named tropical storm by the National Hurricane Center ("NHC") on September 12, 2022. The storm rapidly intensified as it moved through the warm waters of the Caribbean Sea and the Straits of Florida, and on September 18, 2022, at approximately 1:30 p.m. Eastern Daylight Time, Hurricane Callista made landfall in the Lower Florida Keys in the vicinity of Big Pine Key, Monroe County, Florida, as a Category 4 hurricane on the Saffir-Veltason Hurricane Wind Scale, with maximum sustained winds of approximately 145 miles per hour.
Hurricane Callista produced catastrophic storm surge in excess of 8 to 14 feet in Monroe County and 6 to 10 feet in Lee County, as well as extensive wind damage throughout the southwestern and western coastal regions of the State of Florida. Monroe County issued a mandatory evacuation order on September 16, 2022, and Lee County issued a mandatory evacuation order on September 17, 2022, each covering the areas in which VHG's insured properties are located.
VHG submitted its initial notice of loss to Ironclad on September 22, 2022, reporting significant wind and storm surge damage to the three insured resort properties and advising that all three properties had been closed to guests effective September 18, 2022.
On November 15, 2022, VHG submitted its sworn statement in proof of loss, claiming aggregate business-interruption losses totaling Sixty Million Dollars ($60,000,000), broken down by property as follows:
(1) Verimark Grand Key Resort (Marathon, FL — Monroe County): VHG claims business-interruption losses of Thirty-One Million Four Hundred Thousand Dollars ($31,400,000), based on a claimed closure period of 178 days, from September 18, 2022 through March 15, 2023.
(2) Verimark Harborview Hotel & Conference Center (Fort Myers Beach, FL — Lee County): VHG claims business-interruption losses of Eighteen Million Seven Hundred Thousand Dollars ($18,700,000), based on a claimed closure period of 135 days, from September 18, 2022 through January 31, 2023.
(3) Verimark Sunset Shores (St. Pete Beach, FL — Pinellas County): VHG claims business-interruption losses of Nine Million Nine Hundred Thousand Dollars ($9,900,000), based on a claimed full closure period of 73 days (September 18, 2022 through November 30, 2022), followed by a period of reduced capacity operations extending through February 2023, with VHG asserting that full capacity was not achieved until February 28, 2023.
C. Ironclad's Investigation
Upon receipt of VHG's initial notice of loss on September 22, 2022, Ironclad promptly opened Claim File No. CLM-2022-19874 and retained Arbor Claims Services LLC as independent adjuster. Lead Adjuster Denise Whitford conducted initial property inspections at all three insured locations on October 5, 2022, which was the earliest date on which safe access to the properties could be obtained following Hurricane Callista. Ms. Whitford and her team conducted subsequent follow-up inspections and adjustments over the course of the investigation period, including detailed documentation of the physical damage at each property, analysis of the causes of loss, and review of VHG's financial records, booking data, revenue projections, restoration timelines, and contractor engagement records.
On October 12, 2022, Ironclad issued its Reservation of Rights Letter, identifying several coverage issues requiring further investigation, including, without limitation, the applicability of the Named Windstorm Sub-Limit Endorsement, the Flood Exclusion and Anti-Concurrent Causation Clause, the definition and duration of the Period of Restoration, and VHG's compliance with its duty to mitigate losses. That letter expressly reserved all of Ironclad's rights, defenses, and remedies under the Policy and applicable law.
In the course of its investigation, Ironclad has reviewed all documentation submitted by VHG and its representatives, including the sworn statement in proof of loss, supporting financial schedules, pre-loss and post-loss revenue data, contractor bids and invoices, project management records, guest booking and cancellation data, property inspection photographs, engineering reports, and correspondence between VHG, Tidewater, and Ironclad. Ironclad has also reviewed the independent adjustment report prepared by Arbor Claims Services LLC, the Policy itself including all endorsements and schedules, and the underwriting file associated with the July 2022 renewal.
III. Bases for Denial
Based upon Ironclad's thorough investigation and careful review of the Policy, Ironclad hereby denies VHG's claim for business-interruption coverage in its entirety for the following four independent grounds. Each ground stated below is sufficient, standing alone, to support the denial of the claim as presented. The statement of any one ground does not limit or qualify the applicability of any other ground.
A. Named Windstorm Sub-Limit
The Policy contains a Named Windstorm Sub-Limit Endorsement (Endorsement No. IIC-NWS-2022-004, attached to and forming part of the Policy), which provides, in pertinent part, as follows:
"Notwithstanding any other provision of this Policy, the Company's maximum liability for all business-interruption losses, including but not limited to loss of business income, extra expense, contingent business interruption, and any other time-element coverage, arising out of, caused by, or resulting from a Named Windstorm, shall not exceed Fifteen Million Dollars ($15,000,000) per occurrence."
The endorsement defines "Named Windstorm" as:
"Any storm, weather disturbance, or atmospheric condition that has been declared to be, identified as, or designated by the National Hurricane Center (or any successor organization) as a tropical depression, tropical storm, hurricane, or any other named weather event, including all related wind, rain, hail, tornadoes, and other weather conditions generated by, associated with, or resulting from such storm, regardless of whether such storm has been downgraded or reclassified at the time of the loss."
Hurricane Callista was designated by the National Hurricane Center as a named tropical storm on September 12, 2022, and subsequently classified as a hurricane. There is no dispute—and indeed no basis for dispute—that Hurricane Callista constitutes a "Named Windstorm" within the meaning of the Policy.
Accordingly, even assuming arguendo that all Sixty Million Dollars ($60,000,000) of VHG's claimed business-interruption losses were otherwise covered under the Policy—which Ironclad does not concede and expressly disputes—the maximum business-interruption recovery available to VHG under the primary layer for this occurrence would be capped at Fifteen Million Dollars ($15,000,000), less the applicable per-occurrence deductible of Five Hundred Thousand Dollars ($500,000), for a maximum net recovery of Fourteen Million Five Hundred Thousand Dollars ($14,500,000). This amount is substantially less than the Sixty Million Dollars ($60,000,000) claimed by VHG.
Ironclad is aware that VHG may contend that the Named Windstorm Sub-Limit Endorsement was purportedly deleted or removed during the July 2022 renewal of the Policy, and that VHG's broker, Tidewater Risk Advisors LLC, allegedly communicated to VHG that the sub-limit would not be included in the renewed Policy. Ironclad addresses this anticipated argument as follows:
First, Ironclad's underwriting records reflect that the Named Windstorm Sub-Limit Endorsement (Endorsement No. IIC-NWS-2022-004) was included in the Policy as bound and issued by Ironclad. The endorsement was part of the Policy as delivered to VHG through Tidewater.
Second, no executed endorsement, binder amendment, or other written instrument deleting, modifying, or superseding the Named Windstorm Sub-Limit Endorsement appears in the Policy as issued and delivered. The Policy contains no rider, addendum, or amendment reflecting the removal of the sub-limit.
Third, the Policy, as issued and delivered, constitutes the complete and integrated agreement between Ironclad and VHG with respect to the subject matter thereof. Section XII.F of the Policy (the "Merger and Integration Clause") provides, in pertinent part, that "[t]his Policy, including all endorsements, schedules, and forms attached hereto or incorporated herein by reference, constitutes the entire agreement between the Insured and the Company and supersedes all prior negotiations, representations, warranties, commitments, offers, and agreements, whether written or oral, relating to the subject matter hereof."
Fourth, any alleged oral representations, broker communications, emails, or other extrinsic materials purporting to reflect the deletion or modification of the Named Windstorm Sub-Limit Endorsement are inadmissible to vary, contradict, or supplement the terms of the written Policy under the parol evidence rule as applied under Florida law. See, e.g., Rigel v. Pinnacle Life Insurance, 76 So. 3d 285 (Fla. 4th DCA 2011); Brightmoor Indemnity Co. v. Pridgen, 498 So. 2d 1245 (Fla. 1986). Furthermore, the Policy's Merger and Integration Clause expressly forecloses reliance on extrinsic evidence of prior or contemporaneous agreements to modify the Policy's terms.
Therefore, the Named Windstorm Sub-Limit of Fifteen Million Dollars ($15,000,000) per occurrence applies to the claimed business-interruption losses and caps VHG's maximum recovery for this occurrence.
B. Period of Restoration Disputes
Independent of and in addition to the Named Windstorm Sub-Limit, Ironclad's investigation has determined that VHG's claimed periods of closure at each of the three insured properties substantially exceed the "Period of Restoration" as defined under the Policy.
Section V.B.2 of the Policy defines the "Period of Restoration" as follows:
"The period of time that: (a) begins at the time of direct physical loss of or damage to Covered Property caused by or resulting from a Covered Cause of Loss at the described premises; and (b) ends on the earlier of: (i) the date when the property at the described premises should be repaired, rebuilt, or replaced with reasonable speed and similar quality, using due diligence and dispatch; or (ii) the date when business is actually resumed at the described premises." (Emphasis added.)
This definition is critical, because it provides that the Period of Restoration terminates not on the date when operations actually resumed, but rather on the date when operations reasonably should have resumed had the Insured exercised due diligence and dispatch in repairing, rebuilding, or replacing the damaged property and resuming business operations. The measure is objective, not subjective, and delays attributable to the Insured's own inaction, poor planning, or elective choices are not compensable under the Policy.
Ironclad's investigation, including the independent adjustment conducted by Arbor Claims Services LLC, reveals that VHG's claimed periods of closure at each of the three insured properties significantly exceed the time that would have been required to restore operations with the exercise of due diligence and dispatch. The specific findings are as follows:
(1) Verimark Grand Key Resort (Marathon, FL): VHG claims a closure period of 178 days, from September 18, 2022 through March 15, 2023. However, Ironclad's investigation indicates that, with the exercise of due diligence and dispatch, the Grand Key Resort could have been restored and reopened within approximately 90 to 100 days following the date of loss. Specifically, the investigation reveals that VHG delayed the commencement of certain structural and interior repairs for approximately three to four weeks following the initial clearance of the property for repair work. VHG failed to promptly engage qualified restoration contractors, despite the availability of multiple licensed contractors in the region during the relevant time period. Furthermore, VHG elected to undertake substantial upgrades, renovations, and aesthetic improvements to guest rooms, common areas, and dining facilities that went well beyond what was necessary to restore the property to its pre-loss condition. These elective improvements extended the closure period by approximately 60 to 80 days beyond the reasonable restoration period.
(2) Verimark Harborview Hotel & Conference Center (Fort Myers Beach, FL): VHG claims a closure period of 135 days, from September 18, 2022 through January 31, 2023. Ironclad's investigation indicates that, with the exercise of due diligence and dispatch, the Harborview property could have been restored to operational condition within approximately 75 to 85 days. The investigation reveals similar delays in contractor engagement and the undertaking of elective improvements at this property, which prolonged the closure period by approximately 50 to 60 days.
(3) Verimark Sunset Shores (St. Pete Beach, FL): VHG claims a full closure period of 73 days (September 18 through November 30, 2022), followed by a period of reduced capacity operations extending through February 2023, with VHG asserting that full capacity was not achieved until February 28, 2023—a total affected period of approximately 163 days. Ironclad's investigation indicates that, with the exercise of due diligence and dispatch, full operations at the Sunset Shores property could have resumed within approximately 45 to 50 days following the date of loss. The Sunset Shores property sustained the least extensive damage of the three insured properties, and the extended closure and reduced capacity periods are not justified by the scope of the damage.
VHG's claimed business-interruption losses are materially inflated by the Insured's own delays and elective decisions, and must be adjusted to reflect the reasonable Period of Restoration as defined under the Policy. Even if coverage otherwise existed—which Ironclad does not concede—the claimed amounts far exceed the losses properly attributable to the Policy's defined Period of Restoration.
C. Concurrent Causation and Flood Exclusion
Independent of and in addition to the foregoing bases for denial, Ironclad denies the claim based upon the Policy's Flood Exclusion and Anti-Concurrent Causation Clause.
Section IV.C.7 of the Policy (the "Flood Exclusion") provides, in pertinent part:
"This Policy does not cover loss or damage caused by or resulting from flood, including but not limited to storm surge, tidal water, tidal wave, overflow of streams or other bodies of water, or release of water held by any natural or man-made dam, levee, or similar barrier, regardless of any other cause or event that contributes concurrently or in any sequence to the loss, and whether or not such flood is driven by wind."
Section IV.A of the Policy (the "Anti-Concurrent Causation Clause") further provides:
"The exclusions set forth in this Section IV apply regardless of any other cause or event, whether or not insured, that contributes concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or whether other causes of loss acted concurrently or in any sequence with an excluded cause of loss to produce the loss."
The combined effect of the Flood Exclusion and the Anti-Concurrent Causation Clause is to exclude from coverage all losses caused by, resulting from, or contributed to by flood or storm surge, even where wind damage concurrently or sequentially contributes to the same loss.
With specific reference to the Verimark Grand Key Resort in Marathon, Florida (Monroe County): the Grand Key Resort property experienced storm surge of 8 to 14 feet during Hurricane Callista. The independent adjustment by Arbor Claims Services LLC, including the site inspection conducted by Ms. Whitford and her team, reveals that substantial portions of the damage to the Grand Key Resort were caused directly by storm surge flooding. Flood damage was documented to ground-floor structures, mechanical and electrical systems (including HVAC equipment, electrical panels, and elevator machinery), the main lobby and registration area, dining and common areas, guest rooms on the ground floor, the spa and fitness center, swimming pool equipment, and the marina facilities. The flooding caused by storm surge penetrated throughout the ground level of the property and caused extensive damage to building systems, furnishings, fixtures, and equipment.
Under the Policy's Anti-Concurrent Causation Clause, where flood damage concurs with, contributes to, or acts in any sequence with wind damage to produce a loss, the entire loss—or, at a minimum, the indivisible portions of the loss attributable to the concurrent operation of insured and excluded perils—is excluded from coverage. VHG has not demonstrated, and Ironclad's investigation does not support a finding, that the wind damage and storm surge damage at the Grand Key Resort are separable, independently quantifiable, or divisible in a manner that would permit recovery for wind-only losses while excluding flood-related losses. To the contrary, the evidence indicates that the storm surge flooding and the wind damage acted concurrently and in sequence to produce a single, indivisible loss at the Grand Key Resort.
Similarly, portions of the Verimark Harborview Hotel & Conference Center in Fort Myers Beach, Florida (Lee County), sustained storm surge flooding of 6 to 10 feet during Hurricane Callista. The same Flood Exclusion and Anti-Concurrent Causation issues apply to the Harborview property. The independent adjustment reveals extensive flood damage to the Harborview's ground-floor conference facilities, ballrooms, kitchen and food service areas, and mechanical systems, in addition to wind damage to the upper floors and roof structure. As with the Grand Key Resort, VHG has not demonstrated that the wind damage and flood damage at the Harborview are separable or independently quantifiable.
The Flood Exclusion and the Anti-Concurrent Causation Clause bar VHG's recovery for business-interruption losses attributable to the flood-damaged portions of the insured properties. Because VHG has not demonstrated the separability of the wind and flood losses, the entirety of the claimed business-interruption loss at the Grand Key Resort and substantial portions of the claimed loss at the Harborview Hotel & Conference Center are excluded from coverage under the Policy.
D. Failure to Mitigate
Independent of and in addition to each of the foregoing bases for denial, Ironclad denies the claim based upon VHG's failure to comply with its duty to mitigate losses under the Policy.
Section VIII.D of the Policy provides, in pertinent part:
"In the event of loss or damage to Covered Property, the Insured shall take all reasonable steps to: (a) protect the Covered Property from further loss or damage; (b) minimize and mitigate any business-interruption loss, including but not limited to the use of other available property, temporary or alternative facilities, and expedited restoration efforts; and (c) resume full or partial business operations as promptly as reasonably practicable."
This duty is consistent with the well-established principle under Florida law that an insured has an affirmative obligation to take reasonable steps to mitigate its losses, and that an insured may not recover for losses that could have been reasonably avoided through the exercise of due diligence. See, e.g., Fla. Stat. § 627.701; Robert Padilla, 674 So. 2d 106 (Fla. 1996).
Ironclad's investigation reveals that VHG failed to take reasonable steps to mitigate its business-interruption losses at each of the three insured properties, in the following specific respects:
(1) VHG failed to promptly engage qualified restoration contractors at the Grand Key Resort and the Harborview Hotel & Conference Center following Hurricane Callista. Despite the availability of licensed and experienced restoration contractors in the region, VHG did not execute restoration contracts for the Grand Key Resort until approximately four weeks after the storm, and for the Harborview until approximately three weeks after the storm. These delays are not attributable to lack of contractor availability, but rather to VHG's internal decision-making processes and its desire to solicit bids for combined restoration-and-improvement projects rather than pursuing expedited restoration alone.
(2) VHG failed to utilize available temporary or modular facilities to resume partial operations at any of the three insured properties during the restoration period. Ironclad's investigation has identified that temporary modular guest room facilities and temporary food service and conference facilities were commercially available in the relevant markets during the post-hurricane period and could have enabled VHG to resume partial operations at each property significantly earlier than VHG actually did so.
(3) VHG failed to redirect guest bookings, conference business, and group reservations to undamaged VHG properties or to third-party hotel and conference facilities. VHG operates a portfolio of hospitality properties, including properties outside the areas affected by Hurricane Callista. VHG made no meaningful effort to transfer or redirect existing bookings to these alternative properties, nor did VHG enter into arrangements with third-party facilities to accommodate displaced guests and conference clients, despite the availability of such arrangements.
(4) VHG elected to undertake discretionary improvements, upgrades, and renovations during the restoration period at the Grand Key Resort and the Harborview Hotel & Conference Center, including upgraded guest room finishes, enhanced lobby and common area design, new restaurant and bar concepts, and expanded spa and fitness facilities. These elective improvements were not necessitated by Hurricane Callista damage and were not required to restore the properties to their pre-loss condition. By combining elective improvements with necessary restoration work, VHG prolonged the closure periods at these properties and inflated the claimed business-interruption losses.
The Policy does not cover business-interruption losses that the Insured could have reasonably avoided or reduced through the exercise of due diligence. VHG's failure to mitigate its losses further reduces or eliminates the recoverable business-interruption loss under the Policy.
IV. Reservation of Additional Defenses
Ironclad expressly reserves all rights, remedies, and defenses available to it under the Policy and applicable law, including but not limited to any rights, remedies, or defenses not specifically set forth in this letter. The denial of coverage set forth herein is without prejudice to Ironclad's right to assert additional grounds for denial, reduction, or limitation of the claim should additional facts or information come to light during the course of any subsequent proceedings or otherwise.
Nothing in this letter shall be construed as, or deemed to constitute, a waiver of any provision, term, condition, exclusion, sub-limit, or deductible of the Policy, or of any right or defense available to Ironclad under the Policy or applicable law. Ironclad's decision to address specific coverage issues in this letter does not constitute an admission that coverage exists under the Policy with respect to any issue not specifically addressed, nor does it limit Ironclad's right to raise any additional defense at any time.
V. Impact on Excess Layers
For completeness, Ironclad notes that VHG's insurance program for the 2022–2023 policy year includes excess layers of coverage above Ironclad's primary layer, specifically:
• First Excess Layer: Pinnacle Surplus Lines Inc., Policy No. PSL-XS1-2022-3390, providing $15,000,000 excess of $25,000,000 (attaching at $25,000,000);
• Second Excess Layer: Montclair Assurance Company, Policy No. MAC-XS2-2022-09817, providing $10,000,000 excess of $40,000,000 (attaching at $40,000,000);
• Third Excess Layer: Sovereign Re Ltd., Policy No. SRL-XS3-2022-5102, providing $10,000,000 excess of $50,000,000 (attaching at $50,000,000).
Ironclad's denial of coverage under the primary layer means that the attachment points for each of the excess layers are not reached. Furthermore, even under the Named Windstorm Sub-Limit of $15,000,000—which is below Ironclad's $25,000,000 primary layer limit—the excess layers would not be triggered, as the sub-limited amount does not exhaust the primary layer. Ironclad is communicating its denial separately to each excess carrier for their records and information.
VI. VHG's Right to Dispute
Ironclad acknowledges and advises VHG that it has the right to dispute this coverage determination. In this regard, Ironclad draws VHG's attention to the following:
(1) Appraisal Provision. Section XI.B of the Policy contains an appraisal provision that permits either party to demand an appraisal of the amount of loss in the event of a dispute regarding the value of the loss. VHG should note that the appraisal provision relates solely to the amount of loss and does not extend to disputes regarding coverage or the application of policy terms, conditions, or exclusions.
(2) Suit Against Company Provision. Section XI.D of the Policy provides that no action shall be brought against Ironclad unless, as a condition precedent thereto, the Insured has fully complied with all of the terms and conditions of the Policy, and further provides that any such action must be commenced within two (2) years after the date on which the direct physical loss or damage occurred, or within such longer period as may be required by applicable law.
(3) Florida Statutory Provisions. VHG should be aware of the applicable statutes of limitation and other statutory provisions under Florida law governing actions arising out of insurance policies, including but not limited to Section 95.11(2)(b), Florida Statutes (five-year statute of limitations for actions on written contracts), and any other applicable statutory or regulatory provisions.
Ironclad invites VHG to provide any additional documentation, information, or analysis that it believes supports its claim for business-interruption coverage. If VHG provides such additional information, Ironclad will review it in good faith and, if warranted, will reconsider or supplement its coverage determination. Any such additional information should be directed to the undersigned at the address set forth below.
VII. Conclusion
For the foregoing reasons, Ironclad Indemnity Corporation respectfully denies VHG's claim for business-interruption coverage under Policy No. IIC-PRP-2022-07541 in connection with Hurricane Callista in its entirety. The denial is based upon four independent grounds: (A) the Named Windstorm Sub-Limit caps VHG's maximum potential recovery at $15,000,000, well below the claimed $60,000,000; (B) VHG's claimed periods of restoration significantly exceed the reasonable Periods of Restoration as defined under the Policy; (C) the Flood Exclusion and Anti-Concurrent Causation Clause exclude coverage for losses caused by or contributed to by storm surge flooding; and (D) VHG's failure to mitigate its losses further reduces or eliminates recoverable business-interruption losses.
This letter supersedes the Reservation of Rights Letter dated October 12, 2022, and constitutes Ironclad's final coverage determination as of the date hereof.
Ironclad remains willing to discuss this matter further with VHG and its representatives at VHG's convenience. Please do not hesitate to contact the undersigned with any questions or to arrange a meeting or call to discuss this determination.
Very truly yours,
IRONCLAD INDEMNITY CORPORATION
By: ________
Victor Haddon Senior Vice President, Claims 55 Constitution Boulevard Hartford, CT 06103 Telephone: (860) 555-4100
Email: v.haddon@ironcladindemnity.com
cc:
Nathaniel Driscoll, General Counsel, Verimark Hospitality Group Inc., 1900 Brickell Avenue, Suite 3200, Miami, FL 33129
Elaine Forsythe, Esq., Calderwood & Harkness LLP, 333 SE 2nd Avenue, Suite 4400, Miami, FL 33131
Franklin Orde, Account Executive, Tidewater Risk Advisors LLC, 2600 S. Bayshore Drive, Suite 800, Miami, FL 33133
Gregory Stanton, Esq., Fendowell Rourke & Stanton LLP (Ironclad Outside Counsel)
Pinnacle Surplus Lines Inc. — Attention: Claims Department
Montclair Assurance Company — Attention: Claims Department
Sovereign Re Ltd. — Attention: Claims Department
Denise Whitford, Lead Adjuster, Arbor Claims Services LLC
Enclosures:
1. Copy of Policy No. IIC-PRP-2022-07541, Named Windstorm Sub-Limit Endorsement (Endorsement No. IIC-NWS-2022-004)
2. Copy of Policy No. IIC-PRP-2022-07541, Flood Exclusion and Anti-Concurrent Causation Clause (Sections IV.A and IV.C.7)
3. Ironclad Indemnity Corporation Reservation of Rights Letter dated October 12, 2022

EXHIBIT C

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