IN THE CIRCUIT COURT OF THE ELEVENTH JUDICIAL CIRCUIT IN AND FOR MIAMI-DADE COUNTY, FLORIDA
GENERAL JURISDICTION DIVISION
CASE NO.: 2022-CA-031547
VERIMARK HOSPITALITY GROUP INC., a Delaware corporation,
Plaintiff,
v.
IRONCLAD INDEMNITY CORPORATION, a Connecticut corporation; PINNACLE SURPLUS LINES INC., a Texas corporation; MONTCLAIR ASSURANCE COMPANY, a New York corporation; and SOVEREIGN RE LTD., a Bermuda-domiciled company,
Defendants.
PLAINTIFF'S CASE MANAGEMENT STATEMENT
Filed: April 28, 2023
Plaintiff Verimark Hospitality Group Inc. ("VHG" or "Plaintiff"), by and through its undersigned counsel, Calderwood & Harkness LLP, respectfully submits this Case Management Statement in advance of the Case Management Conference scheduled for May 1, 2023, before the Honorable Catherine Embry, Circuit Court Judge, and states as follows:
I. INTRODUCTION
Plaintiff Verimark Hospitality Group Inc. ("VHG" or "Plaintiff") is a Delaware corporation, publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK, with its principal executive offices located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. VHG respectfully submits this Case Management Statement pursuant to this Court's scheduling order dated March 27, 2023, and in accordance with Rule 1.200 of the Florida Rules of Civil Procedure.
VHG is represented in this action by Calderwood & Harkness LLP, 333 SE 2nd Avenue, Suite 4400, Miami, Florida 33131. Elaine Forsythe (Florida Bar No. 0847291) serves as Responsible Partner and lead trial counsel for VHG in this matter. Tiffany Rosenthal (Florida Bar No. 1023764) serves as Lead Associate and is responsible for the day-to-day management and coordination of all litigation activities. Andrew Fitzpatrick (Florida Bar No. 1135820) serves as Working Associate and assists in all aspects of discovery, motion practice, and trial preparation.
This action arises from the Defendants' wrongful denial of approximately Sixty Million Dollars ($60,000,000) in business-interruption insurance coverage owed to VHG following Hurricane Callista, a devastating Category 4 hurricane that made landfall in the Lower Florida Keys on September 18, 2022. Hurricane Callista caused catastrophic physical damage to three VHG-owned resort properties located in the Florida Keys, Fort Myers Beach, and St. Pete Beach, forcing prolonged closures and resulting in tens of millions of dollars in lost business income, ancillary revenue, and extra expenses. Despite VHG's timely notice of loss, submission of comprehensive proofs of loss, and full compliance with all policy conditions, the Defendants have refused to honor their contractual obligations to pay business-interruption benefits under VHG's all-risk property insurance tower. This Case Management Statement is submitted to assist the Court in the efficient management of this case and to propose a discovery and trial schedule that will bring this dispute to a timely resolution.
II. NATURE OF THE ACTION
This is a first-party insurance coverage dispute. VHG seeks declaratory judgment, breach of contract damages, and bad-faith damages arising from the Defendants' denial and/or failure to pay business-interruption coverage under an all-risk property insurance program. The dispute centers on the scope and application of VHG's layered property insurance tower, the enforceability of an allegedly deleted named-windstorm sub-limit, the applicability of a flood exclusion and anti-concurrent causation clause, and the reasonableness of VHG's period of restoration at its three damaged resort properties.
A. The Insured Properties
VHG owns and operates three resort properties in the State of Florida that sustained catastrophic damage from Hurricane Callista. Each property is described below, along with a summary of its closure period and estimated business-interruption loss:
1. Verimark Grand Key Resort — Located at Mile Marker 48, Marathon, Florida 33050, the Grand Key Resort is a 312-room luxury resort and marina facility situated on approximately 28 acres of waterfront property in the heart of the Florida Keys. The Grand Key Resort is VHG's flagship property in the Florida Keys and a premier destination for leisure and corporate group travel. The resort features four on-site restaurants, a full-service spa, a 120-slip marina, retail outlets, and extensive meeting and event space. Hurricane Callista inflicted severe structural damage to the resort's main building, guest room wings, marina infrastructure, and common areas, including damage from sustained Category 4 winds exceeding 130 miles per hour and, to a lesser extent, storm surge. The Grand Key Resort was forced to close on September 18, 2022, and did not reopen until March 15, 2023 — a total closure period of 178 days. VHG's estimated business-interruption loss for the Grand Key Resort is $31,400,000.
2. Verimark Harborview Hotel & Conference Center — Located at 1400 Estero Boulevard, Fort Myers Beach, Florida 33931, the Harborview Hotel & Conference Center is a 224-room full-service hotel featuring a 40,000-square-foot conference and event facility, two restaurants, a pool and beach complex, and ancillary amenities. The Harborview is a significant venue for regional and national corporate conferences and conventions, generating substantial revenue from group bookings and event hosting. Hurricane Callista caused extensive wind damage to the hotel's roof systems, exterior envelope, and conference center, as well as water intrusion damage to guest rooms and meeting spaces. The property was closed from September 18, 2022 through January 31, 2023 — a total closure period of 135 days. VHG's estimated business-interruption loss for the Harborview Hotel & Conference Center is $18,700,000.
3. Verimark Sunset Shores — Located at 7200 Gulf Boulevard, St. Pete Beach, Florida 33706, Sunset Shores is a 186-room boutique resort on the Gulf Coast of Florida, featuring an award-winning restaurant, a beachfront pool complex, and a rooftop lounge. While located farther north of Hurricane Callista's direct path, the resort sustained significant wind and rain damage requiring a full closure from September 18 through November 30, 2022 — a total full-closure period of 73 days — followed by an extended period of reduced capacity through February 2023 during which only a portion of guest rooms and amenities were operational. VHG's estimated business-interruption loss for Sunset Shores is $9,900,000.
B. Total Claimed Business-Interruption Loss
The total claimed business-interruption loss across all three properties is $60,000,000, calculated as the sum of the individual property losses: $31,400,000 (Grand Key Resort) + $18,700,000 (Harborview Hotel & Conference Center) + $9,900,000 (Sunset Shores).
C. The Insurance Program
VHG's property insurance program is structured as a four-layer insurance tower with a total aggregate limit of $60,000,000, above a $500,000 per-occurrence deductible. The program was placed through VHG's insurance broker, Tidewater Risk Advisors LLC, and renewed effective July 1, 2022. The four layers of the insurance tower are as follows:
All four policies share a common policy period of July 1, 2022 through July 1, 2023. The excess layers are written on a follow-form basis, following the terms and conditions of the Ironclad primary policy unless otherwise specified in the respective excess policy forms.
D. Procedural History
VHG filed its Complaint in this action on March 1, 2023. Defendants Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc. filed their respective Answers and Affirmative Defenses on April 15, 2023. Defendants Montclair Assurance Company and Sovereign Re Ltd. also filed their Answers and Affirmative Defenses on April 15, 2023. All Defendants have appeared in this action through counsel.
III. IDENTIFICATION OF THE PARTIES AND COUNSEL
A. Plaintiff. Verimark Hospitality Group Inc. is a Delaware corporation, publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK, with its principal executive offices and headquarters located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. VHG is a hospitality and resort management company that owns, operates, and manages luxury resort properties throughout the southeastern United States and the Caribbean.
The following individuals serve in key executive and management roles at VHG and are relevant to this litigation:
• Marcus Ellsworth — Chief Executive Officer
• Diane Calder — Chief Financial Officer
• Nathaniel Driscoll — General Counsel
• Sandra Pellegrini — Vice President, Risk Management
For the fiscal year ending December 31, 2021, VHG reported total revenues of approximately $412 million and EBITDA of approximately $78 million, reflecting the company's position as a significant operator of resort and hospitality properties in the Florida market.
Counsel for Plaintiff:
Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 555-7200 Facsimile: (305) 555-7201
Elaine Forsythe, Esq. (Florida Bar No. 0847291) — Responsible Partner E-mail: eforsythe@calderwoodharkness.com
Tiffany Rosenthal, Esq. (Florida Bar No. 1023764) — Lead Associate E-mail: trosenthal@calderwoodharkness.com
Andrew Fitzpatrick, Esq. (Florida Bar No. 1135820) — Working Associate E-mail: afitzpatrick@calderwoodharkness.com
B. Defendant Ironclad Indemnity Corporation
Ironclad Indemnity Corporation is a Connecticut-domiciled stock insurance company, NAIC No. 20537, with its principal offices located at 55 Constitution Boulevard, Hartford, Connecticut 06103. Ironclad is the lead carrier on the primary layer of VHG's property insurance tower, having issued Policy No. IIC-PRP-2022-07541 providing $25,000,000 in all-risk property coverage, including business-interruption coverage, for the policy period July 1, 2022 through July 1, 2023.
Claims arising under the Ironclad policy are handled by Victor Haddon, Senior Vice President of Claims, who issued the reservation of rights letter on behalf of Ironclad and subsequently issued the formal denial of coverage dated February 3, 2023. Ironclad retained Arbor Claims Services LLC as its independent adjuster for the Hurricane Callista claim. The lead adjuster assigned by Arbor Claims Services is Denise Whitford, whose offices are located at 3300 W. Cypress Street, Suite 400, Tampa, Florida 33607.
Counsel for Ironclad Indemnity Corporation:
Fendowell Rourke & Stanton LLP 280 Trumbull Street, Suite 2200 Hartford, Connecticut 06103
and
101 E. Kennedy Boulevard, Suite 3900 Tampa, Florida 33602
Gregory Stanton, Esq. — Lead Partner Meredith Liang, Esq. — Senior Associate Colin Ashford, Esq. — Junior Associate
C. Defendant Pinnacle Surplus Lines Inc.
Pinnacle Surplus Lines Inc. is a Texas-domiciled surplus-lines insurer, NAIC No. 38214, with its principal offices located at 200 Congress Avenue, Suite 1400, Austin, Texas 78701. Pinnacle issued Policy No. PSL-XS1-2022-3390, providing $15,000,000 in first excess coverage above the $25,000,000 Ironclad primary layer, on a follow-form basis. Following Ironclad's formal denial of coverage on February 3, 2023, Pinnacle issued its own denial letter on February 10, 2023, adopting Ironclad's stated grounds for denial on a follow-form basis.
Counsel for Pinnacle Surplus Lines Inc.:
Fendowell Rourke & Stanton LLP (joint defense with Ironclad Indemnity Corporation) Same counsel team as listed above for Ironclad.
D. Defendant Montclair Assurance Company
Montclair Assurance Company is a New York-domiciled admitted insurance carrier, NAIC No. 15692, with its principal offices located at 1 Liberty Plaza, 38th Floor, New York, New York 10006. Montclair issued Policy No. MAC-XS2-2022-09817, providing $10,000,000 in second excess coverage above the combined $40,000,000 in underlying limits. Montclair has reserved its rights with respect to VHG's claim but has not issued a formal denial of coverage. Instead, Montclair has asserted that its layer is not reached if the named-windstorm sub-limit advanced by Ironclad applies, effectively limiting total available coverage to $15,000,000 — an amount within the primary layer.
Counsel for Montclair Assurance Company:
Delvecchio & Kraus LLP 425 Park Avenue, 20th Floor New York, New York 10022
Patricia Kraus, Esq. — Lead Partner Raymond Cho, Esq. — Senior Associate
E. Defendant Sovereign Re Ltd.
Sovereign Re Ltd. is a Bermuda-domiciled reinsurer and excess carrier, with its principal offices located at 14 Front Street, Hamilton HM 11, Bermuda. Sovereign Re issued Policy No. SRL-XS3-2022-5102, providing $10,000,000 in third excess coverage above the combined $50,000,000 in underlying limits. Like Montclair, Sovereign Re has reserved its rights and has taken the position that its layer is not reached if the named-windstorm sub-limit applies. Sovereign Re has filed an Answer and submitted to the jurisdiction of this Court.
Counsel for Sovereign Re Ltd.:
Delvecchio & Kraus LLP (joint representation with Montclair Assurance Company) Same counsel team as listed above for Montclair.
IV. SUMMARY OF KEY CLAIMS AND DEFENSES
A. Plaintiff's Claims (As Alleged in the Complaint)
VHG's Complaint, filed March 1, 2023, asserts the following claims against the Defendants:
1. Count I — Breach of Contract (All Defendants). VHG alleges that all four Defendants breached their respective contractual obligations under the all-risk property insurance policies by failing and refusing to pay business-interruption benefits totaling $60,000,000 to which VHG is entitled as a result of the covered loss caused by Hurricane Callista. VHG alleges that it suffered a direct physical loss to its three insured properties caused by a covered peril (windstorm/hurricane), that VHG timely notified all insurers of the loss, that VHG submitted detailed proofs of loss, and that VHG satisfied all conditions precedent to coverage. VHG contends that each Defendant is liable for its proportionate share of the total business-interruption loss up to the limits of its respective policy layer.
2. Count II — Declaratory Judgment (All Defendants). VHG seeks a declaration from this Court that:
(a) The all-risk policies issued by the Defendants provide coverage for VHG's business-interruption losses arising from Hurricane Callista;
(b) The $15,000,000 named-windstorm sub-limit that appeared in the prior policy period was deleted effective at the July 1, 2022 renewal, and the current policies do not contain any sub-limit on business-interruption coverage for named-windstorm events;
(c) The flood exclusion contained in the Ironclad primary policy does not bar coverage for VHG's wind-caused business-interruption losses, and the anti-concurrent causation clause, to the extent it purports to exclude coverage for wind damage that was concurrent with storm-surge/flood damage, is unenforceable under Florida law or, alternatively, does not apply to the facts of this case; and
(d) Each Defendant is obligated to pay its respective share of VHG's covered business-interruption losses up to the applicable policy limits.
3. Count III — Bad Faith (Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc.). VHG asserts a claim for statutory bad faith under Section 624.155 of the Florida Statutes against Ironclad and Pinnacle. VHG alleges that Ironclad's denial of coverage, issued on February 3, 2023, was made without a reasonable basis and in bad faith, in that Ironclad knew or should have known that the named-windstorm sub-limit had been deleted at the July 2022 renewal, yet Ironclad relied on the purported sub-limit as the primary basis for denying the full amount of VHG's claim. VHG further alleges that Pinnacle's follow-form denial on February 10, 2023, was likewise made in bad faith, as Pinnacle adopted Ironclad's baseless coverage position without conducting any independent analysis. VHG has complied with the prerequisites to filing a bad-faith action under Florida law, including the filing of a Civil Remedy Notice with the Florida Department of Financial Services.
B. Defendants' Affirmative Defenses (As Asserted in Answers Filed April 15, 2023)
The Defendants have asserted the following principal affirmative defenses:
1. Named-Windstorm Sub-Limit. Ironclad contends that the primary policy, Policy No. IIC-PRP-2022-07541, contains a $15,000,000 sub-limit on business-interruption coverage for losses caused by named windstorms, including hurricanes. Ironclad asserts that this sub-limit caps VHG's total recoverable business-interruption loss at $15,000,000 for Hurricane Callista, regardless of the actual amount of the loss. This defense is at the heart of the coverage dispute. VHG contends that the named-windstorm sub-limit was expressly deleted from the policy at the July 2022 renewal. Specifically, VHG contends that during the renewal negotiations in June and July 2022, VHG's insurance broker, Tidewater Risk Advisors LLC (through its Account Executive, Franklin Orde), negotiated with Ironclad's underwriting department to remove the named-windstorm sub-limit in exchange for a premium increase of approximately $1.2 million. VHG contends that the deletion was confirmed in writing by the broker and reflected in the policy binder, but that Ironclad failed to issue a formal endorsement reflecting the deletion.
2. Period of Restoration. Ironclad argues that business-interruption coverage under the policy terminates when repairs to the insured property "could have been completed with reasonable speed and similar quality," and that VHG unreasonably delayed the restoration of all three properties. Ironclad asserts that VHG's actual closure periods exceeded what was reasonably necessary and that VHG is entitled to business-interruption benefits only for the period during which repairs should have been completed, not the period during which they were actually completed.
3. Concurrent Causation / Flood Exclusion. Ironclad asserts that a substantial portion of the damage at the Grand Key Resort in Marathon resulted from storm surge, which constitutes "flood" under the policy's flood exclusion. Ironclad invokes the policy's anti-concurrent causation clause, which purports to exclude coverage for any loss caused directly or indirectly by flood, regardless of whether other covered causes (such as wind) contributed to the loss. VHG contends that the overwhelming majority of damage at the Grand Key Resort was caused by sustained Category 4 winds, that storm-surge damage was a secondary and separable cause of a limited portion of the overall damage, and that the anti-concurrent causation clause is unenforceable under Florida law as applied to wind-caused damage in a hurricane context.
4. Failure to Mitigate. Ironclad alleges that VHG failed to take reasonable steps to reduce the period of business interruption, including by failing to engage contractors promptly, failing to pursue expedited permitting, and failing to implement temporary operating measures to resume partial operations at the earliest possible date.
5. Pinnacle Surplus Lines Inc. Pinnacle has adopted and incorporated by reference all of the affirmative defenses asserted by Ironclad on a follow-form basis, consistent with the follow-form structure of its excess policy.
6. Montclair Assurance Company and Sovereign Re Ltd. Montclair and Sovereign Re assert that their respective policy layers are not reached if the named-windstorm sub-limit applies, as the sub-limit would cap total recoverable BI losses at $15,000,000 — an amount entirely within the Ironclad primary layer. Montclair and Sovereign Re have reserved all other defenses, including all affirmative defenses available under the Ironclad primary policy on a follow-form basis.
V. KEY LEGAL AND FACTUAL ISSUES FOR RESOLUTION
A. Dispositive Legal Issues
The following legal issues are likely to be dispositive or substantially affect the scope of coverage and the amount of damages recoverable in this action:
1. Deletion of the Named-Windstorm Sub-Limit. The central coverage issue in this case is whether the $15,000,000 named-windstorm sub-limit was deleted from the Ironclad primary policy effective July 1, 2022. Resolution of this issue will require the Court to interpret the policy binder issued for the 2022–2023 policy period, any endorsements or amendments to the policy form, and the broker correspondence exchanged between Tidewater Risk Advisors LLC (Franklin Orde, Account Executive) and Ironclad's underwriting department during the June–July 2022 renewal period. If the sub-limit was deleted, VHG's total available business-interruption coverage is $60,000,000 (the full tower limit); if the sub-limit remains in effect, Ironclad contends that VHG's recovery is capped at $15,000,000. This issue may be amenable to resolution on summary judgment after completion of fact discovery.
2. Enforceability of the Anti-Concurrent Causation Clause. The second major legal issue is whether the anti-concurrent causation clause in the Ironclad primary policy is enforceable under Florida law to exclude coverage for wind damage that was concurrent with storm-surge/flood damage at the Grand Key Resort. Florida courts have addressed the enforceability of anti-concurrent causation clauses in the hurricane context, and the parties are expected to dispute the applicability of existing precedent to the facts of this case. This issue has significant implications for the quantum of VHG's recoverable loss at the Grand Key Resort.
3. Period of Restoration Standard. The parties dispute the proper legal standard for measuring the "period of restoration" under Florida law. VHG contends that the period of restoration is the actual time reasonably required to repair and restore the insured properties to their pre-loss condition, taking into account real-world conditions such as post-hurricane supply-chain constraints, contractor availability, and governmental permitting delays. Ironclad contends that the period of restoration is limited to a hypothetical period during which repairs "could have been completed with reasonable speed," regardless of actual conditions. The applicable standard will affect the number of days for which VHG is entitled to business-interruption coverage and, consequently, the total amount of damages.
B. Key Factual Disputes
The following factual disputes are anticipated to be significant in the resolution of this case:
1. Renewal Negotiations and the Windstorm Sub-Limit. The parties are expected to present conflicting evidence regarding the content and outcome of renewal negotiations between Tidewater Risk Advisors LLC (Franklin Orde) and Ironclad's underwriting department during the June–July 2022 renewal period. The critical factual question is whether the parties agreed to delete the named-windstorm sub-limit in exchange for an increased premium, and whether that agreement was reflected in the policy binder and/or communicated in writing. The testimony of Franklin Orde, the Tidewater account executive, and the production of underwriting and broker files will be central to resolving this dispute.
2. Wind vs. Storm Surge Causation at Grand Key Resort. The parties are expected to present competing expert testimony regarding the extent to which damage at the Grand Key Resort was attributable to wind versus storm surge/flood. VHG contends that the vast majority of damage was caused by sustained Category 4 winds, while Ironclad contends that significant portions of the damage, particularly to ground-level structures and the marina, resulted from storm surge. Forensic engineering analysis, meteorological data, and property-level damage assessments will be critical to resolving this dispute.
3. Reasonableness of Restoration Timelines. The parties dispute whether VHG's actual restoration timelines — 178 days at Grand Key Resort, 135 days at Harborview Hotel & Conference Center, and 73 days (full closure) at Sunset Shores — were reasonable given post-hurricane conditions in the affected regions of Florida. VHG will present evidence of the extraordinary challenges faced in restoring the properties, including severe supply-chain constraints for construction materials, limited availability of qualified contractors in the post-Callista environment, delays in obtaining governmental permits and inspections, and the complexity of the repairs required. Ironclad contends that VHG failed to pursue restoration with reasonable diligence and that the closure periods could have been substantially shorter.
4. Quantum of Business-Interruption Losses. The parties are expected to dispute the proper calculation of VHG's business-interruption losses, including the appropriate pre-loss revenue benchmarks (average daily rate ("ADR"), occupancy rates, revenue per available room ("RevPAR")), the treatment of ancillary revenue streams (restaurants, marina, spa, conference/event revenue), the calculation of saved expenses, and the treatment of extra expenses incurred to accelerate restoration. Expert forensic accounting testimony will be required to resolve these quantification disputes.
VI. PLAINTIFF'S PROPOSED DISCOVERY PLAN
A. Fact discovery
1. Proposed Fact discovery Period. Plaintiff proposes a fact discovery period of five months, commencing on June 1, 2023 and closing on September 30, 2023. This period is sufficient to allow the parties to complete written discovery, obtain and review document productions, and conduct all necessary fact depositions. Given the complexity of the coverage issues and the number of parties involved, Plaintiff believes that a five-month fact discovery period appropriately balances the need for thorough discovery against the goal of bringing this case to trial within approximately twelve months of the filing of the Complaint.
2. Written discovery. Interrogatories. Plaintiff intends to propound interrogatories to each Defendant pursuant to Rule 1.340 of the Florida Rules of Civil Procedure. Initial sets of interrogatories are anticipated to be served in early June 2023. Plaintiff's interrogatories will address the following key topics, among others: the factual and legal basis for each Defendant's denial or reservation of rights; the identity of all persons involved in claims handling and coverage decision-making; the identity of all persons with knowledge of the underwriting and renewal of the policies, including decisions regarding the named-windstorm sub-limit; the identity of all communications among the Defendants regarding VHG's claim; and the factual basis for each affirmative defense asserted.
Requests for Production. Plaintiff intends to serve requests for production of documents on all Defendants pursuant to Rule 1.350 of the Florida Rules of Civil Procedure. Plaintiff's initial document requests will seek production of the following categories of documents, among others:
(a) Complete claim files maintained by each Defendant relating to VHG's Hurricane Callista claim, including all correspondence, memoranda, reports, evaluations, and notes;
(b) Complete underwriting files for the 2022–2023 policy period, including all submissions, applications, quotes, binders, endorsements, and correspondence with VHG's broker, Tidewater Risk Advisors LLC, regarding the placement and terms of the policies;
(c) All documents relating to the named-windstorm sub-limit, including any correspondence, memoranda, or internal communications regarding the decision to include, modify, or delete the sub-limit at the July 2022 renewal;
(d) All communications between Ironclad and Arbor Claims Services LLC (including Denise Whitford) regarding the adjustment of VHG's claim;
(e) All communications among the Defendants (including among co-defendants Ironclad, Pinnacle, Montclair, and Sovereign Re) regarding VHG's claim, coverage positions, and litigation strategy, to the extent not protected by privilege;
(f) All internal claims evaluations, coverage opinions, reserve analyses, and damage assessments relating to VHG's Hurricane Callista claim; and
(g) All reserve information, including initial reserves, reserve adjustments, and the basis for each reserve determination.
Plaintiff anticipates that a targeted second set of document requests may be necessary to address specific issues identified during the initial document review, particularly relating to underwriting files and renewal correspondence.
Requests for Admission. Plaintiff intends to serve requests for admission on Ironclad Indemnity Corporation pursuant to Rule 1.370 of the Florida Rules of Civil Procedure. Plaintiff's requests for admission will address foundational facts, including but not limited to: the issuance of Policy No. IIC-PRP-2022-07541; the classification of Hurricane Callista as a named windstorm; the occurrence of direct physical loss or damage to the three insured VHG properties; VHG's timely submission of proofs of loss; and Ironclad's issuance of the denial letter dated February 3, 2023.
Third-Party discovery. Plaintiff anticipates issuing a subpoena duces tecum to Tidewater Risk Advisors LLC, VHG's insurance broker, located at 2600 S. Bayshore Drive, Suite 800, Miami, Florida 33133, attention: Franklin Orde, Account Executive. The subpoena will seek production of all documents in Tidewater's possession, custody, or control relating to the placement and renewal of VHG's property and business-interruption insurance program, including but not limited to: all correspondence with Ironclad Indemnity Corporation and its underwriters regarding the July 2022 renewal; all documents relating to the named-windstorm sub-limit, including any negotiations, agreements, or confirmations regarding the deletion of the sub-limit; all binders, quotes, and placement slips; and all communications with VHG regarding the scope and terms of coverage. The testimony and documents of Tidewater Risk Advisors, and in particular Franklin Orde, are central to the resolution of the named-windstorm sub-limit issue and are therefore critical to this litigation.
3. Depositions. Plaintiff anticipates conducting the following depositions during the fact discovery period:
(a) Victor Haddon — Senior Vice President of Claims, Ironclad Indemnity Corporation. Mr. Haddon is the senior claims officer who oversaw Ironclad's handling of VHG's Hurricane Callista claim, issued the reservation of rights letter, and authorized the formal denial of coverage dated February 3, 2023. His deposition will address the basis for the reservation of rights and denial, the claims handling process, and Ironclad's evaluation of the claim.
(b) Denise Whitford — Lead Independent Adjuster, Arbor Claims Services LLC. Ms. Whitford was retained by Ironclad to conduct property inspections, damage assessments, and period-of-restoration analyses at each of the three VHG properties. Her deposition will address her findings, the methodology of her inspections, her damage and restoration assessments, and her communications with Ironclad regarding the claim.
(c) Franklin Orde — Account Executive, Tidewater Risk Advisors LLC. Mr. Orde served as the lead broker on VHG's property insurance account and was directly involved in the June–July 2022 renewal negotiations with Ironclad's underwriting department. His deposition will address the renewal negotiations, the discussions regarding deletion of the named-windstorm sub-limit, the agreed-upon terms of the renewed policies, and all communications with Ironclad's underwriters regarding the sub-limit.
(d) Ironclad Indemnity Corporation Corporate Representative(s) — Plaintiff intends to notice one or more corporate representative depositions pursuant to Rule 1.310(b)(6) of the Florida Rules of Civil Procedure. Topics will include underwriting decisions relating to the July 2022 renewal, the handling and evaluation of VHG's Hurricane Callista claim, claims handling procedures and guidelines, and communications with other Defendants regarding VHG's claim.
(e) Pinnacle Surplus Lines Inc. Corporate Representative — If Pinnacle has substantive positions or information separate from those of Ironclad, Plaintiff may notice a Rule 1.310(b)(6) deposition of a Pinnacle corporate representative to address Pinnacle's independent evaluation of VHG's claim, its decision to issue a follow-form denial, and any communications with Ironclad regarding the claim.
(f) Montclair Assurance Company and/or Sovereign Re Ltd. Corporate Representative(s) — Plaintiff may notice Rule 1.310(b)(6) depositions of one or both of these Defendants to address the basis for their respective reservations of rights, their analysis of whether their policy layers are reached, and any independent coverage evaluations they may have conducted.
Plaintiff anticipates that Defendants will seek to depose the following VHG representatives:
(a) Marcus Ellsworth — Chief Executive Officer, VHG. Mr. Ellsworth is expected to be deposed regarding VHG's business operations, the impact of Hurricane Callista on VHG's properties, the decisions made regarding property restoration, and VHG's overall business strategy during the restoration period.
(b) Diane Calder — Chief Financial Officer, VHG. Ms. Calder is expected to be deposed regarding the financial data underlying VHG's business-interruption claim, including historical revenue figures, occupancy rates, ADR, revenue projections, saved expenses, and extra expenses.
(c) Sandra Pellegrini — Vice President, Risk Management, VHG. Ms. Pellegrini is expected to be deposed regarding the design and placement of VHG's insurance program, communications with Tidewater Risk Advisors and the insurers regarding the Hurricane Callista claim, notice of loss, proof of loss submissions, and mitigation efforts undertaken by VHG.
In total, Plaintiff estimates that approximately ten to fourteen (10–14) fact depositions will be taken in this case, including depositions noticed by both Plaintiff and Defendants.
B. Expert discovery
1. Proposed Expert discovery Schedule. Plaintiff proposes the following schedule for expert discovery:
• Expert Report Disclosures: September 15, 2023, which is approximately two weeks before the close of fact discovery, allowing initial expert reports to be prepared while the final depositions and document productions are being completed.
• Rebuttal Expert Reports: October 2, 2023, which is seventeen (17) days after the deadline for initial expert report disclosures.
• Expert Depositions: October 2–31, 2023.
2. Anticipated Expert Witnesses. Plaintiff's Expert Witnesses:
Plaintiff anticipates retaining the following expert witnesses:
(a) Dr. Helen Vasquez, CPA, CFF — Meridian Forensic Economics LLC, 1201 Peachtree Street NE, Suite 1000, Atlanta, Georgia 30361. Dr. Vasquez is a forensic economist and certified public accountant who will be retained to quantify VHG's $60,000,000 in claimed business-interruption losses. Dr. Vasquez's analysis will utilize property-level financial data, including historical and projected average daily rates (ADR), occupancy rates, revenue per available room (RevPAR), ancillary revenue streams (restaurant, marina, spa, conference, and event revenue), saved expenses, and extra expenses incurred during the restoration period. Dr. Vasquez will prepare a comprehensive damages report quantifying VHG's business-interruption losses at each of the three properties for the applicable periods of restoration.
(b) Jeffrey Caldwell, PE — Caldwell Engineering Associates Inc., 7900 NW 25th Street, Suite 210, Doral, Florida 33122. Mr. Caldwell is a licensed professional engineer and forensic engineering consultant who will be retained to opine on the cause of loss at each of VHG's three properties. Mr. Caldwell's analysis will differentiate wind damage from storm-surge/flood damage at each property, with particular focus on the Grand Key Resort, where the allocation between wind and storm surge is a contested issue. Mr. Caldwell will conduct a detailed engineering analysis based on site inspections, meteorological data, structural damage patterns, and hydrological modeling.
Defendants' Anticipated Expert Witnesses:
Plaintiff understands that Defendants may retain their own forensic accounting and engineering experts to rebut VHG's loss quantification and causation opinions. Based on information available as of the date of this filing, Plaintiff has been informed that Defendants may retain Dr. Warren Birk of Graystone Consulting Group LLC, 150 N. Michigan Avenue, Suite 2600, Chicago, Illinois 60601, as a forensic accounting expert. Plaintiff anticipates that Defendants may also retain one or more forensic engineering experts to dispute the wind-versus-flood causation analysis, although Defendants have not yet disclosed the identity of any engineering expert.
C. E-discovery. VHG issued a comprehensive litigation hold on September 19, 2022, the day after Hurricane Callista made landfall, covering all documents, communications, and electronically stored information ("ESI") relating to Hurricane Callista, insurance claims, property repairs and restoration, business-interruption losses, and communications with all insurers, Tidewater Risk Advisors LLC, Arbor Claims Services LLC, contractors, and other parties involved in the claim and restoration process.
Plaintiff proposes that the parties negotiate and agree upon an ESI protocol governing the following matters:
(a) Identification of custodians whose ESI will be collected and searched;
(b) Agreed-upon search terms and search methodology;
(c) Production format — Plaintiff proposes that spreadsheets, financial data, and other structured data be produced in native or near-native format, and that textual documents (e-mails, correspondence, memoranda) be produced in TIFF format with associated load files and extracted text;
(d) De-duplication, date-range limitations, and other protocols to reduce the volume of ESI requiring review; and
(e) Clawback and quick-peek provisions for the inadvertent production of privileged materials.
Plaintiff proposes that the parties complete search-term negotiation and custodian identification within thirty (30) days of the Case Management Conference.
VII. PLAINTIFF'S PROPOSED TRIAL DATE AND SCHEDULE
A. Proposed Trial Date
Plaintiff proposes that this case be set for trial in the first quarter of 2024 (January through March 2024), which would be approximately twelve (12) months after the filing of the Complaint. This timeline is consistent with the complexity of the case and the proposed discovery schedule, which contemplates the completion of all fact and expert discovery by October 31, 2023, dispositive motions by mid-November 2023, and a pre-trial conference in January 2024.
In the alternative, Plaintiff would consent to a trial date no later than April 2024, should the Court's calendar require an adjustment.
B. Estimated Trial Length
Given the complexity of the coverage issues, the number of insured properties, and the anticipated need for expert testimony on both damages quantification and engineering/causation, Plaintiff estimates that the trial will require eight to ten (8–10) business days. This estimate accounts for opening statements, the presentation of fact and expert testimony by both sides, cross-examination, and closing arguments.
C. Proposed Pre-Trial Schedule
Plaintiff proposes the following pre-trial schedule for the Court's consideration:
Plaintiff respectfully requests that the Court enter a scheduling order incorporating these dates, or such other dates as the Court deems appropriate following the Case Management Conference.
VIII. MEDIATION / ALTERNATIVE DISPUTE RESOLUTION
Plaintiff is amenable to mediation or other alternative dispute resolution and recognizes the potential benefits of such processes in resolving complex insurance coverage disputes. However, Plaintiff respectfully submits that mediation will be most productive after the completion of fact and expert discovery, when all parties have a full understanding of the evidentiary record, including the broker and underwriting files relating to the named-windstorm sub-limit, the forensic engineering analysis of wind versus storm-surge causation, and the forensic accounting analysis of VHG's business-interruption losses.
Accordingly, Plaintiff proposes that mediation be scheduled in November or December 2023, after fact and expert discovery have been completed and dispositive motions have been briefed. At that point, the parties will be in a position to evaluate the strengths and weaknesses of their respective positions in light of the full evidentiary record, facilitating more productive settlement discussions.
Plaintiff is willing to participate in a court-annexed mediation program or, alternatively, a private mediation conducted by a mutually agreed-upon retired judge or experienced mediator with expertise in insurance coverage disputes. Plaintiff is open to discussing the selection of a mediator with Defendants and counsel and, if the parties are unable to agree, respectfully requests that the Court appoint a mediator.
IX. RELATED CASES AND CONSOLIDATION
Plaintiff is not aware of any related pending cases in this Court or in any other court that involve the same or substantially similar parties, claims, or issues as those presented in this action. No consolidation issues are anticipated at this time. Should any related cases come to Plaintiff's attention, VHG will promptly advise the Court and opposing counsel.
X. POTENTIAL DISPOSITIVE OR SIGNIFICANT MOTIONS
Plaintiff anticipates filing the following motions during the course of this litigation:
1. Motion for Partial Summary Judgment on the Named-Windstorm Sub-Limit. Plaintiff anticipates filing a motion for partial summary judgment on the issue of whether the $15,000,000 named-windstorm sub-limit was deleted from the Ironclad primary policy effective July 1, 2022. This is the central coverage issue in the case, and Plaintiff believes it may be amenable to resolution on summary judgment after the completion of fact discovery, including the depositions of Franklin Orde (Tidewater Risk Advisors), Victor Haddon (Ironclad Claims), and the Ironclad corporate representative, and the production of underwriting files, broker files, and renewal correspondence. If the Court determines that the sub-limit was deleted, the full $60,000,000 tower limit will be available for VHG's business-interruption claim, and the dispute will narrow to the quantum of the loss and the applicability of other coverage defenses.
2. Motion for Partial Summary Judgment on the Flood Exclusion / Anti-Concurrent Causation Clause. Depending on the state of the evidence developed during fact and expert discovery, Plaintiff may file a motion for partial summary judgment seeking a ruling that the anti-concurrent causation clause in the Ironclad primary policy is unenforceable under Florida law as applied to the facts of this case, or that the flood exclusion does not bar coverage for VHG's wind-caused business-interruption losses.
3. Defendants' Anticipated Motions. Plaintiff anticipates that Defendants may file their own dispositive motions on the windstorm sub-limit issue, the flood exclusion / anti-concurrent causation clause, and/or other coverage defenses. Plaintiff will be prepared to respond to any such motions within the time periods prescribed by the applicable rules and any scheduling order entered by the Court.
XI. JURISDICTIONAL AND PROCEDURAL ISSUES
Subject-Matter Jurisdiction. This Court has subject-matter jurisdiction over this action pursuant to Article V, Section 5 of the Florida Constitution and Section 26.012 of the Florida Statutes. The amount in controversy exceeds $30,000, exclusive of interest, costs, and attorneys' fees.
Personal Jurisdiction. This Court has personal jurisdiction over all Defendants. Ironclad Indemnity Corporation issued the primary all-risk property insurance policy covering VHG's Florida-located resort properties, transacted insurance business in the State of Florida, and has sufficient minimum contacts with Florida to support the exercise of personal jurisdiction. Pinnacle Surplus Lines Inc. is a surplus-lines insurer authorized to conduct business in Florida and issued a policy covering Florida-located properties. Montclair Assurance Company issued a policy covering Florida-located insured properties and has sufficient minimum contacts with the State of Florida. Sovereign Re Ltd., although domiciled in Bermuda, issued a policy covering Florida-located insured properties and has submitted to the jurisdiction of this Court by filing an Answer and Affirmative Defenses on April 15, 2023, without asserting any jurisdictional defense.
Pending Motions. Defendants previously filed a Motion to Dismiss or Stay this action, which VHG opposed in its memorandum filed on April 1, 2023. That motion remains pending before the Court as of the date of this filing. Plaintiff respectfully requests that the Court address the pending motion at or before the Case Management Conference and proceed with entry of a scheduling order governing the remainder of the case.
Governing Law. The parties agree that the substantive law of the State of Florida governs the interpretation and enforcement of the insurance policies at issue and all claims asserted in this action.
Bermuda-Specific Jurisdictional Issues. No Bermuda-specific jurisdictional issues are anticipated in this case. Although Sovereign Re Ltd. is domiciled in Bermuda, Sovereign Re issued a policy covering Florida-located properties, submitted to the jurisdiction of this Court by filing an Answer, and has not raised any jurisdictional objection or sought enforcement of any Bermuda forum-selection or arbitration clause. Accordingly, the full prosecution of all claims against all Defendants, including Sovereign Re, may proceed in this Court.
XII. DAMAGES
VHG's total claimed business-interruption losses are $60,000,000, allocated among the three insured properties as follows:
1. Verimark Grand Key Resort — $31,400,000. This figure is based on the Grand Key Resort's 312 rooms, a pre-loss average daily rate (ADR) of $389, a pre-loss occupancy rate of 82%, and a full closure period of 178 days (September 18, 2022 through March 15, 2023). The loss calculation includes lost room revenue, lost ancillary revenue from the resort's restaurants, marina, spa, and retail operations, and extra expenses incurred to accelerate restoration, adjusted for saved expenses (such as variable operating costs that were not incurred during the closure period).
2. Verimark Harborview Hotel & Conference Center — $18,700,000. This figure is based on the Harborview's 224 rooms, a pre-loss ADR of $295, a pre-loss occupancy rate of 74%, and a full closure period of 135 days (September 18, 2022 through January 31, 2023). The loss calculation includes lost room revenue, lost conference and event revenue from the 40,000-square-foot conference facility, lost food and beverage revenue, and extra expenses, adjusted for saved expenses.
3. Verimark Sunset Shores — $9,900,000. This figure is based on the Sunset Shores' 186 rooms, a pre-loss ADR of $342, a pre-loss occupancy rate of 79%, a full closure period of 73 days (September 18 through November 30, 2022), and an extended partial-closure period through February 2023 during which the resort operated at reduced capacity. The loss calculation includes lost room revenue, lost food and beverage revenue, and lost ancillary revenue, adjusted for saved expenses and revenues earned during the partial-closure period.
In addition to the $60,000,000 in business-interruption losses, VHG claims statutory bad-faith damages, attorneys' fees, and costs against Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc. under Section 624.155 of the Florida Statutes.
The $500,000 per-occurrence deductible under the Ironclad primary policy has been satisfied in full, and VHG's claim is therefore for the full amount of the tower limit of $60,000,000, plus bad-faith damages, fees, and costs.
XIII. DOCUMENT PRESERVATION AND LITIGATION HOLDS
VHG issued a comprehensive litigation hold on September 19, 2022, the day following Hurricane Callista's landfall. The litigation hold was directed to all key custodians within VHG whose files, documents, communications, and electronically stored information could be relevant to VHG's insurance claims and any potential litigation. The custodians identified in the litigation hold include, but are not limited to:
• Marcus Ellsworth, Chief Executive Officer
• Diane Calder, Chief Financial Officer
• Nathaniel Driscoll, General Counsel
• Sandra Pellegrini, Vice President, Risk Management
• Property-level general managers and directors of finance at each of the three affected resort properties
• Other relevant operational, accounting, and risk management personnel
VHG has preserved all documents, ESI, and physical evidence related to Hurricane Callista damage, property inspections and assessments, property repairs and restoration, insurance claims submissions, proofs of loss, and all communications with insurers, the broker (Tidewater Risk Advisors LLC), independent adjusters (Arbor Claims Services LLC), contractors, and other parties involved in the claim and restoration process.
Plaintiff expects that each Defendant will confirm its own document preservation obligations and the existence of litigation holds at the Case Management Conference. Plaintiff further requests that the Court remind all parties of their continuing obligation to preserve relevant documents and ESI throughout the pendency of this litigation.
XIV. STIPULATIONS
Plaintiff is willing to enter into the following stipulations with the Defendants in order to facilitate the efficient management of discovery and pretrial proceedings:
1. ESI Protocols. Plaintiff is prepared to negotiate and agree upon an ESI protocol governing custodians, search terms, production format, de-duplication, and related matters, as described in Section VI.C above.
2. Deposition Scheduling. Plaintiff is willing to work cooperatively with Defendants' counsel to schedule depositions in a manner that minimizes disruption and travel costs, including conducting certain depositions by videoconference where appropriate and mutually agreeable.
3. Confidentiality / Protective Order. Plaintiff proposes that the parties negotiate and submit to the Court a jointly agreed protective order to govern the treatment of confidential business information, insurance and claims information, financial data, and other sensitive materials exchanged during discovery. Plaintiff has prepared a draft proposed protective order and is prepared to circulate it to Defendants' counsel for review and comment.
XV. OTHER MATTERS FOR THE COURT'S ATTENTION
Plaintiff respectfully brings the following additional matters to the Court's attention:
1. Public-Company Reporting Obligations. VHG is a publicly traded company listed on the Nasdaq Stock Market under the ticker symbol VMRK. As a public reporting company, VHG has disclosure obligations under the Securities Exchange Act of 1934 and the regulations of the U.S. Securities and Exchange Commission regarding the pendency and potential outcome of material litigation. VHG respectfully requests that any protective order entered in this case include provisions that accommodate VHG's public-company reporting requirements, including provisions permitting VHG to disclose the existence, nature, and status of this litigation in its periodic reports (Forms 10-K, 10-Q, and 8-K) and other public filings to the extent required by applicable securities laws and regulations.
2. Third-Party Witness — Tidewater Risk Advisors LLC. The insurance broker, Tidewater Risk Advisors LLC, is a non-party to this action but is a critical fact witness. Tidewater's Account Executive, Franklin Orde, was directly involved in the June–July 2022 renewal negotiations with Ironclad's underwriting department and is expected to have firsthand knowledge of the discussions and agreements regarding the deletion of the named-windstorm sub-limit. Plaintiff anticipates issuing third-party discovery to Tidewater, including a subpoena duces tecum and a deposition notice for Mr. Orde. Plaintiff respectfully requests the Court's assistance in the event that any disputes arise regarding the scope or timing of Tidewater's production, as this discovery is central to the resolution of the key coverage issue in this case.
3. Multiple Defense Counsel Teams. Plaintiff notes that there are two separate defense counsel teams in this action: Fendowell Rourke & Stanton LLP represents Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc. jointly, while Delvecchio & Kraus LLP represents Montclair Assurance Company and Sovereign Re Ltd. jointly. The involvement of multiple defense counsel teams may require coordination of discovery schedules, deposition notices, and briefing deadlines. Plaintiff respectfully requests that the Court address any coordination issues at the Case Management Conference and, if necessary, establish procedures for the coordination of discovery and pretrial activities among the multiple defense counsel teams.
XVI. CONCLUSION AND PRAYER
For the foregoing reasons, Plaintiff Verimark Hospitality Group Inc. respectfully requests that the Court:
1. Adopt the proposed discovery schedule set forth in this Case Management Statement, including a fact discovery period of June 1, 2023 through September 30, 2023, expert report disclosures by September 15, 2023, rebuttal reports by October 2, 2023, and expert depositions completed by October 31, 2023;
2. Set the case for trial in the first quarter of 2024 (January through March 2024), or alternatively no later than April 2024;
3. Enter a scheduling and case management order incorporating the proposed pretrial schedule set forth herein;
4. Schedule mediation for November or December 2023, following the completion of discovery;
5. Address any additional case management requirements the Court deems necessary and appropriate at the May 1, 2023 Case Management Conference; and
6. Grant such other and further relief as the Court deems just and proper.