client-post-mortem-letter.docx

1021-00003 · Verimark Hospitality Group · Post-Settlement & Closing

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CALDERWOOD & HARKNESS LLP Attorneys at Law 333 SE 2nd Avenue, Suite 4400 Miami, FL 33131 Telephone: (305) 714-8200 Facsimile: (305) 714-8201 www.calderwoodharkness.com

January 12, 2024

VIA ELECTRONIC MAIL AND HAND DELIVERY

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

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

Re: Post-Matter Assessment and Policy Renewal Recommendations — Hurricane Callista Business-Interruption Claim Matter No.: 1021-00003 Court Reference: Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al., Case No. 2022-CA-031547, Eleventh Judicial Circuit of Florida, Miami-Dade County

Dear Nathaniel and Sandra:

I. Introduction and Purpose of This Letter

With the filing of the Stipulation of Dismissal with Prejudice on January 5, 2024, and the formal administrative closure of Matter No. 1021-00003 on today's date, January 12, 2024, Calderwood & Harkness LLP ("Calderwood & Harkness" or the "Firm") is writing to memorialize the lessons learned from the Hurricane Callista business-interruption coverage litigation and to provide actionable, specific recommendations for Verimark Hospitality Group Inc.'s ("VHG") upcoming property and business-interruption insurance program renewal, which we understand is scheduled for a July 1, 2024 inception date.

The purpose of this letter is twofold. First, we wish to preserve an institutional record of the coverage defenses, litigation dynamics, and settlement considerations that shaped the outcome of the Ironclad Indemnity matter, so that VHG's legal and risk management teams can draw upon this experience in future claim situations. Second, and more importantly, we intend this letter to serve as a practical roadmap for policy-language improvements and procurement-process reforms that, if implemented at the next renewal, should help VHG avoid a recurrence of the coverage disputes that required seventeen months of adversarial litigation to resolve.

By way of summary, VHG achieved an aggregate recovery of $47,300,000, representing approximately 78.83% of the $60,000,000 total claim across the three affected resort properties. This recovery was achieved through a mediated settlement conducted on December 5, 2023, before the Honorable Richard Mendelson (Ret.) at Keystone Dispute Resolution Inc. in Miami, Florida, with the formal Settlement Agreement and Mutual Release executed by all parties on December 19, 2023. The settlement was structured across all four layers of VHG's insurance tower, with each carrier contributing to the aggregate recovery as detailed in Section III below.

While we view this result as favorable — particularly given the significant litigation risk that attended several of the coverage defenses — it is important that VHG recognize that approximately $12.7 million was left on the table. This gap between the full claim value and the ultimate recovery is not attributable to any weakness in VHG's underlying proof of loss or the merits of VHG's business-interruption claim. Rather, the discount was driven almost entirely by ambiguities and disputed provisions in the policy language — ambiguities that were, in our assessment, avoidable at the time of policy procurement and renewal. Each dollar of that $12.7 million gap represents a cost that VHG can and should seek to eliminate prospectively through more rigorous policy negotiation, endorsement confirmation, and broker oversight.

This letter addresses each of the principal coverage disputes that arose during the litigation, identifies the specific policy provisions and procurement failures that gave rise to those disputes, and sets forth eight concrete recommendations for VHG's next renewal cycle. We encourage VHG to share this letter with its broker, Tidewater Risk Advisors, to the extent VHG deems appropriate, and to engage Calderwood & Harkness in the renewal process if VHG determines that independent coverage counsel review would be beneficial.

II. Summary of the Matter and Key Coverage Disputes

The Hurricane Callista business-interruption claim involved three VHG-owned resort properties in the Florida Keys and Gulf Coast region, each of which sustained significant wind and storm-surge damage when Hurricane Callista made landfall on September 18, 2022, as a Category 4 hurricane with sustained winds of approximately 145 miles per hour near Big Pine Key, Florida. The storm generated storm surge of approximately eight to fourteen feet across Monroe County, causing extensive flooding in coastal areas.

VHG submitted a comprehensive proof of loss totaling $60,000,000 in business-interruption and related property damage claims across the three properties: Verimark Grand Key Resort ($31.4 million), Harborview Hotel & Conference Center ($18.7 million), and Sunset Shores ($9.9 million). The claim was submitted to Ironclad Indemnity Corporation ("Ironclad"), VHG's primary property and business-interruption insurer under Policy No. IIC-PRP-2022-07541, and notice was simultaneously provided to the three excess-layer carriers — Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd.

Ironclad acknowledged coverage in part but raised four principal coverage defenses, each of which created material litigation risk and collectively drove the settlement discount. We summarize each below.

A. Named-Windstorm Sub-Limit Dispute

The most consequential coverage issue in the litigation was the dispute over the existence and applicability of a $15,000,000 named-windstorm business-interruption sub-limit in the Ironclad primary policy. Ironclad asserted throughout the litigation that Policy No. IIC-PRP-2022-07541 contained such a sub-limit, which would have capped VHG's total business-interruption recovery for named-windstorm losses at $15 million across the entire tower — well below the $60 million claim and far short of the $60 million aggregate limit available under the four-layer program.

VHG's position, which was supported by the sworn deposition testimony of Franklin Orde (the Tidewater Risk Advisors account executive who handled the VHG account) and Sandra Pellegrini, was that this sub-limit had been expressly deleted during the July 2022 renewal negotiations. Specifically, during the renewal process in late June and early July 2022, VHG negotiated with Ironclad through Tidewater for the removal of the named-windstorm sub-limit in exchange for an increased annual premium. The binder issued by Ironclad on June 28, 2022, reflected the deletion of the sub-limit, and Mr. Orde's contemporaneous email correspondence with VHG confirmed that the deletion had been agreed to by Ironclad's underwriting team.

The dispute arose because the deletion was not memorialized through an unambiguous endorsement on the final issued policy. When the formal policy was issued by Ironclad in August 2022 — approximately six weeks after inception — the policy form itself contained language that was, at best, ambiguous as to whether the $15 million sub-limit remained in effect. Specifically, the sub-limit appeared in the Declarations Page schedule of sub-limits, but a general endorsement (Endorsement No. 7) contained a broadly worded modification clause that Ironclad contended was a general updating provision and VHG contended was the instrument through which the sub-limit deletion was effected. Neither the Declarations Page nor Endorsement No. 7 contained a clear, express statement that "the Named-Windstorm Business-Interruption Sub-Limit of $15,000,000 is hereby deleted."

This ambiguity was the single most consequential coverage issue in the litigation. Had the $15 million sub-limit been found to apply, VHG's aggregate recovery across the entire tower would have been capped at approximately $15 million — a reduction of more than $45 million from the claimed amount. While VHG had strong arguments under Florida's contra proferentem doctrine and the parol evidence rules applicable to insurance binder disputes, the risk of an adverse ruling on this point was not negligible, particularly given that the policy language itself arguably supported Ironclad's reading.

VHG filed a Motion for Partial Summary Judgment on the sub-limit issue on November 1, 2023, supported by the binder, Mr. Orde's deposition testimony, Ms. Pellegrini's testimony, and the renewal correspondence. Ironclad and the excess-layer defendants filed a Cross-Motion for Summary Judgment on November 15, 2023, arguing that the issued policy was the integrated and final expression of the parties' agreement and that extrinsic evidence of the binder negotiations was inadmissible. The Court entered an Order on November 20, 2023, directing the parties to mediation before ruling on either motion, and the case settled at mediation before the Court resolved these cross-motions. As a result, the sub-limit issue was never judicially determined, and it remains an open question how the Court would have ruled.

B. Concurrent Causation / Flood Exclusion

The second major coverage defense concerned the application of the flood exclusion and the anti-concurrent causation clause to the Verimark Grand Key Resort claim. The Grand Key Resort, located at Mile Marker 48 in Marathon, Florida 33050, sustained the most severe damage of any VHG property, with a claimed business-interruption loss of $31.4 million.

Ironclad argued that the storm-surge inundation at the Grand Key Resort constituted "flood" within the meaning of the policy's flood exclusion, and that the anti-concurrent causation ("ACC") clause in the Ironclad policy operated to exclude all losses arising from the combination of wind and flood, regardless of the relative contribution of each peril. Under Ironclad's reading, once any portion of the Grand Key loss was attributable to storm surge (which Ironclad characterized as "flood"), the ACC clause barred recovery for the entire Grand Key claim — including the substantial portion of the damage that was caused by wind, a covered peril.

VHG retained Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc., as its forensic engineering expert. Mr. Caldwell conducted a detailed physical inspection of the Grand Key Resort in October 2022 and prepared a comprehensive forensic engineering report opining that the predominant cause of structural damage at the Grand Key Resort was wind — specifically, the failure of the roof system and the resulting cascading structural damage caused by sustained winds in excess of 140 miles per hour — rather than storm surge. Mr. Caldwell acknowledged that storm-surge inundation caused damage to the ground-floor areas and mechanical systems, but opined that this damage was secondary to and substantially less severe than the wind damage to the upper floors and structural envelope.

Ironclad's engineering expert disputed Mr. Caldwell's allocation, and the concurrent causation issue created the greatest risk for the Grand Key Resort claim, which at $31.4 million was the largest single-property claim in the case. Had the flood exclusion and ACC clause been applied as Ironclad urged, VHG could have lost the entire Grand Key claim or, at minimum, been required to prove a segregated allocation of wind versus flood damage — a factual determination that would have been difficult to resolve on summary judgment and would have required a full trial.

C. Period of Restoration Disputes

The third significant coverage defense involved disputes over the appropriate period of restoration for each of the three VHG properties. Under the Ironclad policy, business-interruption coverage applies during the "period of restoration," which the policy defined as the period beginning with the date of the covered loss and ending when the property "could have been repaired or restored with reasonable speed and similar quality."

Ironclad argued that VHG unreasonably delayed restoration at all three properties, contending that VHG's claimed periods of restoration exceeded the time that would have been required to complete repairs with "reasonable speed." The actual closure and restoration periods were as follows:

• Verimark Grand Key Resort: Full closure from September 18, 2022 through March 15, 2023 — a period of 178 days.

• Harborview Hotel & Conference Center: Full closure from September 18, 2022 through January 31, 2023 — a period of 135 days.

• Sunset Shores: Full closure from September 18, 2022 through November 30, 2022 — a period of 73 days — followed by operations at reduced capacity through February 28, 2023, when the property returned to full operational capacity.

Ironclad's retained expert, Dr. Warren Birk of Graystone Consulting Group LLC, opined that each of these periods was excessive. Dr. Birk prepared a construction-timeline analysis purporting to show that, with diligent contracting and project management, the Grand Key Resort could have been reopened within 120 days (rather than 178 days), the Harborview could have been reopened within 90 days (rather than 135 days), and the Sunset Shores could have achieved full capacity within 50 days (rather than the 73 days of full closure and 163 days to full capacity). According to Dr. Birk, the aggregate overclaim attributable to delayed restoration was approximately $14.8 million.

VHG's expert, Dr. Helen Vasquez of Meridian Forensic Economics LLC, prepared a detailed rebuttal report documenting the post-hurricane conditions that affected restoration timelines throughout the Florida Keys following Hurricane Callista. Dr. Vasquez's report demonstrated that contractor availability in Monroe County was severely constrained in the months following the hurricane, that building-material supply chains were disrupted throughout South Florida, and that permitting backlogs at the Monroe County Building Department added an average of three to five weeks to every commercial renovation project in the affected area. Dr. Vasquez opined that VHG's claimed restoration periods were reasonable and consistent with, or even shorter than, the restoration timelines experienced by comparable hospitality properties in the same geographic area.

While we believe VHG's position on the period-of-restoration issue was well-supported and would have prevailed at trial, the existence of Dr. Birk's competing expert opinion created sufficient uncertainty to contribute to the settlement discount, particularly at the excess layers.

D. Failure to Mitigate

The fourth and final coverage defense was Ironclad's allegation that VHG failed to take reasonable steps to reduce the period of business interruption — essentially, a duty-to-mitigate defense. Ironclad contended that VHG should have engaged emergency contractors sooner, should have pursued temporary-operations alternatives to maintain partial revenue during the restoration period, and should have accelerated the permitting process through expedited-review applications.

This defense had relatively weak evidentiary support based on the depositions. VHG was able to demonstrate that it engaged emergency restoration contractors within 48 hours of the storm's passage, that it pursued temporary-operations alternatives where feasible (including the temporary relocation of the Harborview's conference and events business to an undamaged partner facility), and that it applied for expedited permit review where available. However, VHG's contemporaneous documentation of these mitigation efforts was inconsistent across the three properties, which allowed Ironclad to advance this defense with at least some factual basis. While the failure-to-mitigate defense was unlikely to succeed at trial, it contributed modestly to the settlement discount, particularly with respect to the excess-layer carriers.

III. Analysis of Settlement Allocation and What It Reveals

A. Settlement by Layer

The mediated settlement achieved a total recovery of $47,300,000, allocated across the four layers of VHG's insurance tower as follows:

Several observations are warranted.

Ironclad Indemnity Corporation (Primary Layer). Ironclad paid $24,500,000 of its $25,000,000 policy limit — effectively the full primary layer minus the $500,000 deductible. This near-full-limit payment demonstrates that Ironclad's own coverage defenses had limited traction at the primary level. Ironclad's willingness to pay substantially all of its limit suggests that its counsel assessed significant risk of an adverse ruling on the sub-limit issue and that the concurrent-causation defense, while viable, was not strong enough to warrant holding back a substantial portion of the primary limit.

Pinnacle Surplus Lines Inc. (1st Excess Layer). Pinnacle paid $12,200,000 of its $15,000,000 layer, or 81.33%. Pinnacle's follow-form policy tracked the Ironclad primary policy terms, and its exposure was most directly affected by the windstorm sub-limit issue. Had the $15 million sub-limit applied, Pinnacle's layer would not have been reached at all, which explains the approximately 19% discount from full-layer payment.

Montclair Assurance Company (2nd Excess Layer). Montclair paid $6,800,000 of its $10,000,000 layer, or 68.0%. The deeper discount at this level reflects the compounding effect of coverage uncertainty at higher attachment points. Montclair's exposure was contingent on both the resolution of the sub-limit issue and the period-of-restoration dispute; even a partial reduction in the claimed loss could have eroded or eliminated Montclair's exposure entirely.

Sovereign Re Ltd. (3rd Excess Layer). Sovereign Re paid $3,800,000 of its $10,000,000 layer, representing only 38.0% of its available limit. This was the steepest discount in the tower and reflects the mathematical reality that the highest excess layer bears the greatest risk from any downward adjustment to the total claim. Sovereign Re's layer attached at $50 million and was therefore the most vulnerable to the combined effect of the windstorm sub-limit defense, the period-of-restoration defense, and the concurrent-causation exclusion argument. Any one of these defenses, if successful, could have reduced VHG's total recoverable loss below Sovereign Re's $50 million attachment point.

B. Key Takeaway

The settlement allocation reveals a clear and instructive pattern: the discounts increased progressively up the tower, from 2% at the primary level to 62% at the highest excess layer. This pattern is directly attributable to the ambiguity in the windstorm sub-limit endorsement and, to a lesser extent, the concurrent-causation and period-of-restoration issues. Clear, unambiguous policy language would have eliminated or substantially reduced the leverage that the excess carriers exercised during settlement negotiations. Had the windstorm sub-limit deletion been memorialized in an express, standalone endorsement — leaving no room for dispute — VHG would have been in a substantially stronger negotiating position with respect to the excess layers, and we believe the aggregate recovery would have been significantly closer to the full $60 million claim.

IV. Lessons Learned

Drawing on the experience of the Hurricane Callista litigation, we have identified four principal areas in which VHG's policy procurement, policy language, and claims-management practices can and should be improved. We address each in turn.

A. Policy Procurement Process Deficiencies

The central and most consequential problem in this matter was a failure in the policy procurement process. As described in Section II.A above, VHG's broker, Tidewater Risk Advisors — specifically, account executive Franklin Orde — successfully negotiated the deletion of the named-windstorm business-interruption sub-limit during the July 2022 renewal. This was a significant and valuable coverage enhancement for which VHG paid additional premium. However, the final issued policy from Ironclad did not contain a clear, standalone endorsement reflecting that deletion. Instead, the deletion was arguably — but ambiguously — captured in a general endorsement whose language was susceptible to multiple interpretations.

The root cause of this problem was twofold. First, Tidewater Risk Advisors did not ensure that the issued policy contained an express endorsement memorializing the sub-limit deletion in clear and specific terms. Second, VHG's risk management team, under Sandra Pellegrini's direction, relied on the broker's representations and the binder confirmation and did not independently verify the issued policy language before the policy period began on July 1, 2022. When the formal policy was received from Ironclad in August 2022, VHG did not conduct a line-by-line comparison of the issued policy against the binder and renewal correspondence to confirm that all negotiated terms were accurately reflected.

This disconnect between the binder, the broker's confirmation, and the issued policy was the root cause of the most significant coverage dispute in the entire litigation. It is a correctable process failure, and we address our specific recommendations for remediation in Section V below.

B. Flood Exclusion and Anti-Concurrent Causation Language

The flood exclusion in the Ironclad policy, combined with the anti-concurrent causation ("ACC") clause, created a mechanism through which Ironclad was able to argue for the broad exclusion of losses at the Grand Key Resort even though the predominant cause of damage was wind — a covered peril. The ACC clause, as drafted, provided that when a loss involves the concurrence of a covered cause and an excluded cause, the exclusion applies to the entire loss, regardless of the relative contribution of each cause.

This is an aggressive but increasingly common clause in commercial property policies, and it places an enormous burden on the insured to demonstrate that its loss is solely and exclusively attributable to a covered peril — a burden that is nearly impossible to meet in a hurricane scenario where wind and storm surge inevitably operate in combination.

VHG's policies should have contained one or more of the following protective provisions: (i) an express exception carving storm surge arising from named windstorms out of the definition of "flood" for purposes of the flood exclusion; (ii) a modification of the ACC clause to apply an "efficient proximate cause" or "predominant cause" standard, under which the exclusion would apply only if the excluded peril was the predominant or efficient proximate cause of the loss; or (iii) ideally, a complete deletion of the ACC clause. While Florida law provided VHG with some protection through the efficient proximate cause doctrine — which, as articulated by the Florida Supreme Court in Wallach v. Rosenberg, has been applied to override ACC clauses in certain circumstances — litigation on this point was costly, uncertain, and heavily dependent on expert testimony. Negotiating favorable policy language at the outset would have been far preferable to litigating the issue after a loss.

C. Period of Restoration Definition

The "reasonable speed" standard in the period-of-restoration clause was exploited by Ironclad and its expert to argue that VHG delayed reopening its properties and thereby inflated its business-interruption claim. The standard as written — requiring that the period of restoration end when repairs "could have been completed with reasonable speed and similar quality" — is facially neutral but invites hindsight second-guessing of the insured's restoration efforts.

Critically, the period-of-restoration clause in the Ironclad policy did not expressly account for the post-catastrophe conditions that are entirely foreseeable following a major hurricane. Contractor shortages, permitting backlogs, building-material supply-chain disruptions, and government-imposed access restrictions are predictable consequences of a major hurricane in the Florida Keys, yet the policy's "reasonable speed" standard gave Ironclad's expert a basis to argue that VHG should have restored its properties on a timeline that assumed normal, non-catastrophe conditions.

A more favorable clause would define the period of restoration to expressly include delays caused by circumstances beyond the insured's reasonable control, including but not limited to regulatory delays, labor shortages, material supply disruptions, government-imposed access restrictions, and utility-restoration timelines. Such a clause would have substantially neutralized Ironclad's period-of-restoration defense.

D. Duty to Mitigate / Documentation

Although VHG ultimately prevailed on the duty-to-mitigate issue — and this defense was, by the time of mediation, the weakest of Ironclad's four coverage defenses — VHG's contemporaneous documentation of its mitigation efforts was uneven across the three properties. The Grand Key Resort and the Harborview Hotel & Conference Center had reasonably complete records of contractor engagements, emergency-response actions, and communications with VHG management. The Sunset Shores documentation, however, was incomplete in several respects: emergency-contractor invoices were not matched to specific mitigation activities, the timeline for temporary-operations evaluation was not documented, and communications with the insurer regarding mitigation steps were conducted by telephone rather than in writing.

Better real-time documentation practices would have strengthened VHG's position on the mitigation issue and potentially avoided this defense entirely. In our experience, insurers are far less likely to raise a mitigation defense when the insured can produce a comprehensive, contemporaneous record demonstrating the specific steps taken to reduce the period and extent of the interruption.

V. Specific Recommendations for the Next Policy Renewal

Based on the lessons identified above, Calderwood & Harkness recommends that VHG implement the following eight measures in connection with its upcoming July 1, 2024 policy renewal and, more broadly, as part of its ongoing risk management program.

Recommendation 1: Express Deletion of Named-Windstorm Sub-Limit

VHG should insist on a standalone, clearly drafted endorsement expressly deleting any named-windstorm business-interruption sub-limit from the primary Ironclad policy (or any successor primary policy). The endorsement should state, in unambiguous terms, that "the Named-Windstorm Business-Interruption Sub-Limit is hereby deleted in its entirety and the full policy limit shall apply to business-interruption losses arising from named windstorms." The endorsement should be cross-referenced in the Declarations Page and should be separately numbered and identified as a standalone endorsement, rather than folded into a general or omnibus endorsement.

Equally important, VHG must confirm that all excess and surplus-lines policies in the tower — currently placed with Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd. — follow form on this specific endorsement. If any excess carrier's follow-form language is ambiguous as to whether it incorporates the sub-limit deletion, VHG should obtain a separate confirming endorsement from that carrier.

Finally, VHG risk management should obtain and review the actual issued policy within thirty (30) days of the policy inception date and conduct a side-by-side comparison against the binder to confirm that all negotiated terms, including the sub-limit deletion, are accurately reflected in the issued policy. This review should not be delegated solely to the broker.

Recommendation 2: Unambiguous Endorsements on All Negotiated Terms

The sub-limit issue is illustrative of a broader principle: every term negotiated during the renewal process — whether it involves a sub-limit deletion, a coverage expansion, an exclusion modification, a deductible adjustment, or any other material change from the expiring policy — must be memorialized in a signed, standalone endorsement that is clearly cross-referenced in the Declarations Page. Oral representations, binder notations, and broker correspondence are valuable evidence but are not substitutes for clear policy language.

VHG should request that Tidewater Risk Advisors prepare and deliver a "policy issuance checklist" in connection with each renewal. This checklist should itemize every negotiated change from the expiring policy, reference the specific endorsement in the issued policy that memorializes each change, and be signed by the Tidewater account executive responsible for the VHG account. Any discrepancy between the checklist and the issued policy should be flagged immediately to Ironclad (or any successor primary carrier) for correction by endorsement.

Recommendation 3: Review and Negotiate Flood Exclusion Language

Given the concurrent-causation issues that arose in the Hurricane Callista litigation, VHG should prioritize negotiation of the flood exclusion and the anti-concurrent causation clause at the next renewal. Specifically, VHG should pursue the following, in order of preference:

(a) Narrowest Flood Exclusion. VHG should negotiate for a flood exclusion that is limited to inland flooding (i.e., flooding caused by the overflow of inland bodies of water, rising groundwater, or surface-water accumulation) and that expressly excludes storm surge associated with named windstorms from the definition of "flood." Under this formulation, storm-surge damage caused by a named windstorm would be treated as wind damage — a covered peril — rather than flood damage subject to exclusion.

(b) Affirmative Storm-Surge Endorsement. If a narrowed flood exclusion cannot be obtained, VHG should seek a separate endorsement providing affirmative coverage for storm-surge losses arising from named windstorms, with a dedicated sub-limit if necessary.

(c) Modification of Anti-Concurrent Causation Clause. The ACC clause should be modified to apply an "efficient proximate cause" or "predominant cause" standard, under which the flood exclusion would apply only if flood (as distinguished from wind) is determined to be the predominant or efficient proximate cause of the loss. Ideally, the ACC clause should be deleted entirely, but if the carrier insists on retaining it, the predominant-cause modification provides meaningful protection.

Recommendation 4: Enhanced Period-of-Restoration Clause

VHG should negotiate a period-of-restoration definition that includes an express extension for post-catastrophe conditions. The revised clause should provide that the period of restoration includes any delays caused by circumstances beyond the insured's reasonable control, including but not limited to:

(a) Government-imposed access restrictions, curfews, or evacuation orders affecting the insured premises or the surrounding area;

(b) Contractor and skilled-labor shortages arising from the widespread nature of the catastrophic event;

(d) Permitting and regulatory-approval backlogs at local, county, or state building departments; and

(e) Delays in the restoration of public utilities (power, water, telecommunications) necessary for the operation of the insured premises.

In addition, the clause should specify that the insurer bears the burden of proving, by a preponderance of the evidence, that the insured unreasonably delayed restoration, rather than leaving this as an undefined and ambiguous "reasonable speed" standard that invites post-loss second-guessing.

Recommendation 5: Follow-Form Coordination Across the Tower

VHG should ensure that all excess layers — currently placed with Pinnacle Surplus Lines Inc. (1st excess), Montclair Assurance Company (2nd excess), and Sovereign Re Ltd. (3rd excess) — follow form to the negotiated primary policy on all material coverage terms. This includes, without limitation, the windstorm sub-limit deletion, flood exclusion modifications, ACC clause revisions, and period-of-restoration enhancements recommended above.

Any deviations from follow-form in excess policies should be identified and documented during the placement process. Tidewater Risk Advisors should be required to provide a written comparison of each excess policy against the primary policy, highlighting any terms on which the excess policy does not follow form and explaining whether and how those deviations may affect VHG's coverage. Where deviations are identified, VHG should evaluate whether the deviation is acceptable or whether the excess carrier should be asked to conform its policy to the primary terms.

Recommendation 6: Closer Coordination with Tidewater Risk Advisors

VHG should establish a formal protocol with Tidewater Risk Advisors governing the renewal process and policy-issuance verification. At a minimum, this protocol should include the following elements:

(a) Pre-Renewal Strategy Meeting. Tidewater should convene a pre-renewal strategy meeting with VHG's risk management team (Sandra Pellegrini and her designees) and, at VHG's option, outside coverage counsel, no later than ninety (90) days before the expiration of the current policy period. This meeting should address the renewal strategy, identify coverage enhancements to be pursued, and establish priorities for the negotiation process.

(b) Written Confirmation of Negotiated Terms. At the binder stage, Tidewater should provide a written summary of all negotiated terms, including a specific identification of every change from the expiring policy. This summary should be countersigned by VHG's risk management representative to confirm mutual understanding.

(c) Policy-Audit Meeting. Within thirty (30) days of policy issuance, Tidewater should convene a formal policy-audit meeting with VHG's risk management team to compare the issued policies — including the primary policy and all excess policies — against the binders and the negotiation correspondence. Any discrepancy should be documented and immediately escalated to the carrier for correction.

In addition, Franklin Orde (or his successor as the Tidewater account executive for the VHG account) should be required to provide a signed "compliance certificate" confirming that the issued policy language matches the bound terms in all material respects. While this certificate would not substitute for VHG's own review of the policy, it would establish a clear record of the broker's representations and create accountability for any future discrepancies.

Recommendation 7: Improved Internal Documentation and Incident-Response Protocols

VHG should develop and maintain a formal catastrophe-response and documentation protocol. This protocol should be designed to ensure that, in the event of a future catastrophic event affecting any VHG property, the company maintains a comprehensive, contemporaneous record of all actions taken to mitigate the loss and restore operations. At a minimum, the protocol should address the following:

(a) Contemporaneous recording of all mitigation efforts, including emergency-response actions, temporary-protection measures, and decisions regarding the scope and timing of restoration;

(b) Written documentation of all communications with insurers, brokers, adjusters, and any third-party administrators, including summaries of telephone conversations;

(c) Property inspection results, including dated photographs, video recordings, and written narratives prepared by qualified personnel;

(d) Contractor and vendor engagements, including the timeline of solicitation, selection, contracting, and commencement of work;

(e) Reopening timelines, including daily or weekly status reports tracking the progress of restoration and identifying the specific factors causing any delay; and

(f) Revenue and operational data during the period of interruption and the ramp-up to full capacity.

This protocol should be maintained by Sandra Pellegrini's risk management team and should be activated immediately upon the occurrence of any event that may give rise to a property or business-interruption claim. In the event of a future claim, the protocol file should be shared with outside counsel promptly to facilitate early assessment and to support VHG's position in any coverage dispute. All communications with Ironclad or any carrier should be documented in writing — not merely by telephone — to create a clear evidentiary record.

Recommendation 8: Consideration of Dedicated Windstorm / Catastrophe Coverage

Given VHG's significant Florida coastal exposure — three resort properties in the Florida Keys and Gulf Coast region, all located in high-risk windstorm and storm-surge zones — VHG should evaluate whether a dedicated named-windstorm policy or parametric catastrophe coverage product would provide more certain and comprehensive protection than the current all-risk tower with carved-out windstorm provisions.

A dedicated windstorm policy would provide coverage specifically designed for named-windstorm losses, with policy language drafted for that peril and without the flood-exclusion and concurrent-causation issues that plagued the Hurricane Callista claim. Parametric catastrophe coverage, which pays a predetermined amount upon the occurrence of a triggering event (such as a hurricane of specified intensity making landfall within a defined geographic radius of VHG's properties), would provide an additional layer of certainty by eliminating the need to prove causation, period of restoration, or any other coverage condition.

Calderwood & Harkness can provide introductions to specialty brokers and underwriters who focus on windstorm and catastrophe coverage for hospitality-sector clients in hurricane-exposed regions if VHG wishes to explore this option.

VI. Broker Engagement Considerations

While we wish to be clear that Tidewater Risk Advisors performed its core brokerage functions competently in many respects — including the successful negotiation of the sub-limit deletion, the timely placement of the insurance tower, and the effective coordination of the claim submission process — the windstorm sub-limit documentation failure was a serious lapse that had material financial consequences for VHG. The $12.7 million gap between VHG's claim and its recovery is attributable in significant part to this documentation failure, and it is reasonable for VHG to evaluate whether additional oversight of the broker's work product is warranted going forward.

VHG may wish to consider whether to engage separate coverage counsel to review policy manuscripts at each renewal, independent of the broker's review. The role of coverage counsel in this context would be to examine the issued policy against the binder and negotiation correspondence, identify any discrepancies or ambiguities, and recommend corrective endorsements before a loss occurs. This is a fundamentally different function from the broker's role and provides an independent layer of quality assurance that can prevent the type of documentation failure that occurred in the Hurricane Callista matter.

Calderwood & Harkness is available to serve in this capacity on an annual retainer basis if VHG determines that independent coverage counsel review would be beneficial. We are familiar with VHG's insurance program, the coverage issues specific to VHG's Florida coastal hospitality portfolio, and the lessons of the Hurricane Callista litigation, and we believe we are well-positioned to provide value in this role. We would be pleased to discuss the scope and terms of such an engagement at your convenience.

VII. Financial Summary Reference

For ease of reference, we set forth below a summary of the key financial figures associated with the Hurricane Callista claim and the resulting litigation.

Total Claimed Loss:

Total Recovery: $47,300,000 (78.83% of total claimed loss)

Calderwood & Harkness Fees and Expenses:

Net Recovery to VHG After Fees and Expenses: Approximately $43,338,300

Annual Premium for Insurance Program: $1,840,000. We note that this annual premium — a fraction of the losses at stake — underscores the critical importance of ensuring that the coverage purchased is accurately reflected in the issued policy. The premium increase associated with the windstorm sub-limit deletion was itself modest relative to the substantial coverage benefit it was intended to provide, which makes the documentation failure all the more regrettable.

VIII. Availability for Further Discussion

Calderwood & Harkness remains available to discuss these recommendations in detail at your convenience. We recognize that implementing these recommendations will require coordination among VHG's legal, risk management, and finance teams, as well as engagement with Tidewater Risk Advisors and the carrier markets.

We would welcome the opportunity to participate in VHG's next renewal strategy session with Tidewater Risk Advisors and Sandra Pellegrini's risk management team. Our familiarity with the specific coverage issues that arose in the Hurricane Callista litigation positions us to provide targeted, practical input during the renewal negotiations, particularly with respect to the flood exclusion, ACC clause, and period-of-restoration language.

We suggest scheduling a call during the first quarter of 2024 — ideally no later than the end of March — to begin the process of implementing these recommendations well in advance of the July 1, 2024 renewal date. Early engagement will allow sufficient time to develop negotiation positions, prepare draft endorsement language, and coordinate with Tidewater on the placement strategy.

IX. Closing

In closing, we wish to express our sincere appreciation for VHG's confidence in Calderwood & Harkness throughout this engagement. The Hurricane Callista matter was a complex, high-stakes coverage dispute that demanded sustained effort and close collaboration between VHG and outside counsel over a period of seventeen months. We are gratified that the result achieved reflects a meaningful recovery for VHG and its stakeholders.

We also wish to acknowledge the invaluable contributions of Marcus Ellsworth and Diane Calder, whose strategic guidance and executive support were instrumental throughout the litigation. Nathaniel, your management of the legal function and your coordination between VHG's business teams and outside counsel were exemplary, and Sandra, your deep knowledge of VHG's insurance program and your willingness to testify in deposition on the sub-limit issue were essential to the favorable outcome.

Please know that the Firm's entire engagement team — including Howard Bellamy, Tiffany Rosenthal, and Andrew Fitzpatrick — remains available for any follow-up, whether in connection with these policy renewal recommendations, any future coverage questions, or any other matter in which we can be of service.

We look forward to continuing our relationship with VHG and to helping ensure that the lessons of the Hurricane Callista experience are translated into stronger, more protective coverage for the future.

Sincerely,

CALDERWOOD & HARKNESS LLP

By: ________

Elaine Forsythe Partner 333 SE 2nd Avenue, Suite 4400 Miami, FL 33131 Telephone: (305) 714-8200 eforsythe@calderwoodharkness.com

cc: Marcus Ellsworth, Chief Executive Officer, Verimark Hospitality Group Inc. Diane Calder, Chief Financial Officer, Verimark Hospitality Group Inc. Howard Bellamy, Partner, Calderwood & Harkness LLP Tiffany Rosenthal, Associate, Calderwood & Harkness LLP

CONFIDENTIALITY NOTICE: This letter is protected by the attorney-client privilege and constitutes a confidential communication between Calderwood & Harkness LLP and Verimark Hospitality Group Inc. This letter is intended solely for the use of the addressees and the individuals identified on the copy line above. This letter contains privileged legal advice and analysis and should not be disclosed to, shared with, or distributed to any third party — including Tidewater Risk Advisors, Ironclad Indemnity Corporation, or any other insurer, broker, or third party — without the prior written authorization of Calderwood & Harkness LLP. Unauthorized disclosure of this letter may result in the waiver of the attorney-client privilege.

Carrier	Layer	Policy Limit	Settlement Amount	% of Layer
Ironclad Indemnity Corporation	Primary	$25,000,000	$24,500,000	98.00%
Pinnacle Surplus Lines Inc.	1st Excess ($15M xs $25M)	$15,000,000	$12,200,000	81.33%
Montclair Assurance Company	2nd Excess ($10M xs $40M)	$10,000,000	$6,800,000	68.00%
Sovereign Re Ltd.	3rd Excess ($10M xs $50M)	$10,000,000	$3,800,000	38.00%
Total	$60,000,000	$47,300,000	78.83%
Property	Claimed Loss
Verimark Grand Key Resort (Marathon, FL)	$31,400,000
Harborview Hotel & Conference Center	$18,700,000
Sunset Shores	$9,900,000
Total	$60,000,000
Category	Amount
Hourly fees	$2,684,700 (approx.)
Contingency enhancement	$865,000
Total legal fees	$3,549,700 (approx.)
Expenses advanced (expert fees, court costs, depositions, mediation)	$412,000 (approx.)
Total fees and expenses	$3,961,700 (approx.)

CALDERWOOD & HARKNESS LLP Attorneys at Law 333 SE 2nd Avenue, Suite 4400 Miami, FL 33131 Telephone: (305) 714-8200 Facsimile: (305) 714-8201 www.calderwoodharkness.com
January 12, 2024
VIA ELECTRONIC MAIL AND HAND DELIVERY
Nathaniel Driscoll, Esq. General Counsel Verimark Hospitality Group Inc. 1900 Brickell Avenue, Suite 3200 Miami, FL 33129
Sandra Pellegrini Vice President of Risk Management Verimark Hospitality Group Inc. 1900 Brickell Avenue, Suite 3200 Miami, FL 33129
Re: Post-Matter Assessment and Policy Renewal Recommendations — Hurricane Callista Business-Interruption Claim Matter No.: 1021-00003 Court Reference: Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al., Case No. 2022-CA-031547, Eleventh Judicial Circuit of Florida, Miami-Dade County
Dear Nathaniel and Sandra:
I. Introduction and Purpose of This Letter
With the filing of the Stipulation of Dismissal with Prejudice on January 5, 2024, and the formal administrative closure of Matter No. 1021-00003 on today's date, January 12, 2024, Calderwood & Harkness LLP ("Calderwood & Harkness" or the "Firm") is writing to memorialize the lessons learned from the Hurricane Callista business-interruption coverage litigation and to provide actionable, specific recommendations for Verimark Hospitality Group Inc.'s ("VHG") upcoming property and business-interruption insurance program renewal, which we understand is scheduled for a July 1, 2024 inception date.
The purpose of this letter is twofold. First, we wish to preserve an institutional record of the coverage defenses, litigation dynamics, and settlement considerations that shaped the outcome of the Ironclad Indemnity matter, so that VHG's legal and risk management teams can draw upon this experience in future claim situations. Second, and more importantly, we intend this letter to serve as a practical roadmap for policy-language improvements and procurement-process reforms that, if implemented at the next renewal, should help VHG avoid a recurrence of the coverage disputes that required seventeen months of adversarial litigation to resolve.
By way of summary, VHG achieved an aggregate recovery of $47,300,000, representing approximately 78.83% of the $60,000,000 total claim across the three affected resort properties. This recovery was achieved through a mediated settlement conducted on December 5, 2023, before the Honorable Richard Mendelson (Ret.) at Keystone Dispute Resolution Inc. in Miami, Florida, with the formal Settlement Agreement and Mutual Release executed by all parties on December 19, 2023. The settlement was structured across all four layers of VHG's insurance tower, with each carrier contributing to the aggregate recovery as detailed in Section III below.
While we view this result as favorable — particularly given the significant litigation risk that attended several of the coverage defenses — it is important that VHG recognize that approximately $12.7 million was left on the table. This gap between the full claim value and the ultimate recovery is not attributable to any weakness in VHG's underlying proof of loss or the merits of VHG's business-interruption claim. Rather, the discount was driven almost entirely by ambiguities and disputed provisions in the policy language — ambiguities that were, in our assessment, avoidable at the time of policy procurement and renewal. Each dollar of that $12.7 million gap represents a cost that VHG can and should seek to eliminate prospectively through more rigorous policy negotiation, endorsement confirmation, and broker oversight.
This letter addresses each of the principal coverage disputes that arose during the litigation, identifies the specific policy provisions and procurement failures that gave rise to those disputes, and sets forth eight concrete recommendations for VHG's next renewal cycle. We encourage VHG to share this letter with its broker, Tidewater Risk Advisors, to the extent VHG deems appropriate, and to engage Calderwood & Harkness in the renewal process if VHG determines that independent coverage counsel review would be beneficial.
II. Summary of the Matter and Key Coverage Disputes
The Hurricane Callista business-interruption claim involved three VHG-owned resort properties in the Florida Keys and Gulf Coast region, each of which sustained significant wind and storm-surge damage when Hurricane Callista made landfall on September 18, 2022, as a Category 4 hurricane with sustained winds of approximately 145 miles per hour near Big Pine Key, Florida. The storm generated storm surge of approximately eight to fourteen feet across Monroe County, causing extensive flooding in coastal areas.
VHG submitted a comprehensive proof of loss totaling $60,000,000 in business-interruption and related property damage claims across the three properties: Verimark Grand Key Resort ($31.4 million), Harborview Hotel & Conference Center ($18.7 million), and Sunset Shores ($9.9 million). The claim was submitted to Ironclad Indemnity Corporation ("Ironclad"), VHG's primary property and business-interruption insurer under Policy No. IIC-PRP-2022-07541, and notice was simultaneously provided to the three excess-layer carriers — Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd.
Ironclad acknowledged coverage in part but raised four principal coverage defenses, each of which created material litigation risk and collectively drove the settlement discount. We summarize each below.
A. Named-Windstorm Sub-Limit Dispute
The most consequential coverage issue in the litigation was the dispute over the existence and applicability of a $15,000,000 named-windstorm business-interruption sub-limit in the Ironclad primary policy. Ironclad asserted throughout the litigation that Policy No. IIC-PRP-2022-07541 contained such a sub-limit, which would have capped VHG's total business-interruption recovery for named-windstorm losses at $15 million across the entire tower — well below the $60 million claim and far short of the $60 million aggregate limit available under the four-layer program.
VHG's position, which was supported by the sworn deposition testimony of Franklin Orde (the Tidewater Risk Advisors account executive who handled the VHG account) and Sandra Pellegrini, was that this sub-limit had been expressly deleted during the July 2022 renewal negotiations. Specifically, during the renewal process in late June and early July 2022, VHG negotiated with Ironclad through Tidewater for the removal of the named-windstorm sub-limit in exchange for an increased annual premium. The binder issued by Ironclad on June 28, 2022, reflected the deletion of the sub-limit, and Mr. Orde's contemporaneous email correspondence with VHG confirmed that the deletion had been agreed to by Ironclad's underwriting team.
The dispute arose because the deletion was not memorialized through an unambiguous endorsement on the final issued policy. When the formal policy was issued by Ironclad in August 2022 — approximately six weeks after inception — the policy form itself contained language that was, at best, ambiguous as to whether the $15 million sub-limit remained in effect. Specifically, the sub-limit appeared in the Declarations Page schedule of sub-limits, but a general endorsement (Endorsement No. 7) contained a broadly worded modification clause that Ironclad contended was a general updating provision and VHG contended was the instrument through which the sub-limit deletion was effected. Neither the Declarations Page nor Endorsement No. 7 contained a clear, express statement that "the Named-Windstorm Business-Interruption Sub-Limit of $15,000,000 is hereby deleted."
This ambiguity was the single most consequential coverage issue in the litigation. Had the $15 million sub-limit been found to apply, VHG's aggregate recovery across the entire tower would have been capped at approximately $15 million — a reduction of more than $45 million from the claimed amount. While VHG had strong arguments under Florida's contra proferentem doctrine and the parol evidence rules applicable to insurance binder disputes, the risk of an adverse ruling on this point was not negligible, particularly given that the policy language itself arguably supported Ironclad's reading.
VHG filed a Motion for Partial Summary Judgment on the sub-limit issue on November 1, 2023, supported by the binder, Mr. Orde's deposition testimony, Ms. Pellegrini's testimony, and the renewal correspondence. Ironclad and the excess-layer defendants filed a Cross-Motion for Summary Judgment on November 15, 2023, arguing that the issued policy was the integrated and final expression of the parties' agreement and that extrinsic evidence of the binder negotiations was inadmissible. The Court entered an Order on November 20, 2023, directing the parties to mediation before ruling on either motion, and the case settled at mediation before the Court resolved these cross-motions. As a result, the sub-limit issue was never judicially determined, and it remains an open question how the Court would have ruled.
B. Concurrent Causation / Flood Exclusion
The second major coverage defense concerned the application of the flood exclusion and the anti-concurrent causation clause to the Verimark Grand Key Resort claim. The Grand Key Resort, located at Mile Marker 48 in Marathon, Florida 33050, sustained the most severe damage of any VHG property, with a claimed business-interruption loss of $31.4 million.
Ironclad argued that the storm-surge inundation at the Grand Key Resort constituted "flood" within the meaning of the policy's flood exclusion, and that the anti-concurrent causation ("ACC") clause in the Ironclad policy operated to exclude all losses arising from the combination of wind and flood, regardless of the relative contribution of each peril. Under Ironclad's reading, once any portion of the Grand Key loss was attributable to storm surge (which Ironclad characterized as "flood"), the ACC clause barred recovery for the entire Grand Key claim — including the substantial portion of the damage that was caused by wind, a covered peril.
VHG retained Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc., as its forensic engineering expert. Mr. Caldwell conducted a detailed physical inspection of the Grand Key Resort in October 2022 and prepared a comprehensive forensic engineering report opining that the predominant cause of structural damage at the Grand Key Resort was wind — specifically, the failure of the roof system and the resulting cascading structural damage caused by sustained winds in excess of 140 miles per hour — rather than storm surge. Mr. Caldwell acknowledged that storm-surge inundation caused damage to the ground-floor areas and mechanical systems, but opined that this damage was secondary to and substantially less severe than the wind damage to the upper floors and structural envelope.
Ironclad's engineering expert disputed Mr. Caldwell's allocation, and the concurrent causation issue created the greatest risk for the Grand Key Resort claim, which at $31.4 million was the largest single-property claim in the case. Had the flood exclusion and ACC clause been applied as Ironclad urged, VHG could have lost the entire Grand Key claim or, at minimum, been required to prove a segregated allocation of wind versus flood damage — a factual determination that would have been difficult to resolve on summary judgment and would have required a full trial.
C. Period of Restoration Disputes
The third significant coverage defense involved disputes over the appropriate period of restoration for each of the three VHG properties. Under the Ironclad policy, business-interruption coverage applies during the "period of restoration," which the policy defined as the period beginning with the date of the covered loss and ending when the property "could have been repaired or restored with reasonable speed and similar quality."
Ironclad argued that VHG unreasonably delayed restoration at all three properties, contending that VHG's claimed periods of restoration exceeded the time that would have been required to complete repairs with "reasonable speed." The actual closure and restoration periods were as follows:
• Verimark Grand Key Resort: Full closure from September 18, 2022 through March 15, 2023 — a period of 178 days.
• Harborview Hotel & Conference Center: Full closure from September 18, 2022 through January 31, 2023 — a period of 135 days.
• Sunset Shores: Full closure from September 18, 2022 through November 30, 2022 — a period of 73 days — followed by operations at reduced capacity through February 28, 2023, when the property returned to full operational capacity.
Ironclad's retained expert, Dr. Warren Birk of Graystone Consulting Group LLC, opined that each of these periods was excessive. Dr. Birk prepared a construction-timeline analysis purporting to show that, with diligent contracting and project management, the Grand Key Resort could have been reopened within 120 days (rather than 178 days), the Harborview could have been reopened within 90 days (rather than 135 days), and the Sunset Shores could have achieved full capacity within 50 days (rather than the 73 days of full closure and 163 days to full capacity). According to Dr. Birk, the aggregate overclaim attributable to delayed restoration was approximately $14.8 million.
VHG's expert, Dr. Helen Vasquez of Meridian Forensic Economics LLC, prepared a detailed rebuttal report documenting the post-hurricane conditions that affected restoration timelines throughout the Florida Keys following Hurricane Callista. Dr. Vasquez's report demonstrated that contractor availability in Monroe County was severely constrained in the months following the hurricane, that building-material supply chains were disrupted throughout South Florida, and that permitting backlogs at the Monroe County Building Department added an average of three to five weeks to every commercial renovation project in the affected area. Dr. Vasquez opined that VHG's claimed restoration periods were reasonable and consistent with, or even shorter than, the restoration timelines experienced by comparable hospitality properties in the same geographic area.
While we believe VHG's position on the period-of-restoration issue was well-supported and would have prevailed at trial, the existence of Dr. Birk's competing expert opinion created sufficient uncertainty to contribute to the settlement discount, particularly at the excess layers.
D. Failure to Mitigate
The fourth and final coverage defense was Ironclad's allegation that VHG failed to take reasonable steps to reduce the period of business interruption — essentially, a duty-to-mitigate defense. Ironclad contended that VHG should have engaged emergency contractors sooner, should have pursued temporary-operations alternatives to maintain partial revenue during the restoration period, and should have accelerated the permitting process through expedited-review applications.
This defense had relatively weak evidentiary support based on the depositions. VHG was able to demonstrate that it engaged emergency restoration contractors within 48 hours of the storm's passage, that it pursued temporary-operations alternatives where feasible (including the temporary relocation of the Harborview's conference and events business to an undamaged partner facility), and that it applied for expedited permit review where available. However, VHG's contemporaneous documentation of these mitigation efforts was inconsistent across the three properties, which allowed Ironclad to advance this defense with at least some factual basis. While the failure-to-mitigate defense was unlikely to succeed at trial, it contributed modestly to the settlement discount, particularly with respect to the excess-layer carriers.
III. Analysis of Settlement Allocation and What It Reveals
A. Settlement by Layer
The mediated settlement achieved a total recovery of $47,300,000, allocated across the four layers of VHG's insurance tower as follows:
Several observations are warranted.
Ironclad Indemnity Corporation (Primary Layer). Ironclad paid $24,500,000 of its $25,000,000 policy limit — effectively the full primary layer minus the $500,000 deductible. This near-full-limit payment demonstrates that Ironclad's own coverage defenses had limited traction at the primary level. Ironclad's willingness to pay substantially all of its limit suggests that its counsel assessed significant risk of an adverse ruling on the sub-limit issue and that the concurrent-causation defense, while viable, was not strong enough to warrant holding back a substantial portion of the primary limit.
Pinnacle Surplus Lines Inc. (1st Excess Layer). Pinnacle paid $12,200,000 of its $15,000,000 layer, or 81.33%. Pinnacle's follow-form policy tracked the Ironclad primary policy terms, and its exposure was most directly affected by the windstorm sub-limit issue. Had the $15 million sub-limit applied, Pinnacle's layer would not have been reached at all, which explains the approximately 19% discount from full-layer payment.
Montclair Assurance Company (2nd Excess Layer). Montclair paid $6,800,000 of its $10,000,000 layer, or 68.0%. The deeper discount at this level reflects the compounding effect of coverage uncertainty at higher attachment points. Montclair's exposure was contingent on both the resolution of the sub-limit issue and the period-of-restoration dispute; even a partial reduction in the claimed loss could have eroded or eliminated Montclair's exposure entirely.
Sovereign Re Ltd. (3rd Excess Layer). Sovereign Re paid $3,800,000 of its $10,000,000 layer, representing only 38.0% of its available limit. This was the steepest discount in the tower and reflects the mathematical reality that the highest excess layer bears the greatest risk from any downward adjustment to the total claim. Sovereign Re's layer attached at $50 million and was therefore the most vulnerable to the combined effect of the windstorm sub-limit defense, the period-of-restoration defense, and the concurrent-causation exclusion argument. Any one of these defenses, if successful, could have reduced VHG's total recoverable loss below Sovereign Re's $50 million attachment point.
B. Key Takeaway
The settlement allocation reveals a clear and instructive pattern: the discounts increased progressively up the tower, from 2% at the primary level to 62% at the highest excess layer. This pattern is directly attributable to the ambiguity in the windstorm sub-limit endorsement and, to a lesser extent, the concurrent-causation and period-of-restoration issues. Clear, unambiguous policy language would have eliminated or substantially reduced the leverage that the excess carriers exercised during settlement negotiations. Had the windstorm sub-limit deletion been memorialized in an express, standalone endorsement — leaving no room for dispute — VHG would have been in a substantially stronger negotiating position with respect to the excess layers, and we believe the aggregate recovery would have been significantly closer to the full $60 million claim.
IV. Lessons Learned
Drawing on the experience of the Hurricane Callista litigation, we have identified four principal areas in which VHG's policy procurement, policy language, and claims-management practices can and should be improved. We address each in turn.
A. Policy Procurement Process Deficiencies
The central and most consequential problem in this matter was a failure in the policy procurement process. As described in Section II.A above, VHG's broker, Tidewater Risk Advisors — specifically, account executive Franklin Orde — successfully negotiated the deletion of the named-windstorm business-interruption sub-limit during the July 2022 renewal. This was a significant and valuable coverage enhancement for which VHG paid additional premium. However, the final issued policy from Ironclad did not contain a clear, standalone endorsement reflecting that deletion. Instead, the deletion was arguably — but ambiguously — captured in a general endorsement whose language was susceptible to multiple interpretations.
The root cause of this problem was twofold. First, Tidewater Risk Advisors did not ensure that the issued policy contained an express endorsement memorializing the sub-limit deletion in clear and specific terms. Second, VHG's risk management team, under Sandra Pellegrini's direction, relied on the broker's representations and the binder confirmation and did not independently verify the issued policy language before the policy period began on July 1, 2022. When the formal policy was received from Ironclad in August 2022, VHG did not conduct a line-by-line comparison of the issued policy against the binder and renewal correspondence to confirm that all negotiated terms were accurately reflected.
This disconnect between the binder, the broker's confirmation, and the issued policy was the root cause of the most significant coverage dispute in the entire litigation. It is a correctable process failure, and we address our specific recommendations for remediation in Section V below.
B. Flood Exclusion and Anti-Concurrent Causation Language
The flood exclusion in the Ironclad policy, combined with the anti-concurrent causation ("ACC") clause, created a mechanism through which Ironclad was able to argue for the broad exclusion of losses at the Grand Key Resort even though the predominant cause of damage was wind — a covered peril. The ACC clause, as drafted, provided that when a loss involves the concurrence of a covered cause and an excluded cause, the exclusion applies to the entire loss, regardless of the relative contribution of each cause.
This is an aggressive but increasingly common clause in commercial property policies, and it places an enormous burden on the insured to demonstrate that its loss is solely and exclusively attributable to a covered peril — a burden that is nearly impossible to meet in a hurricane scenario where wind and storm surge inevitably operate in combination.
VHG's policies should have contained one or more of the following protective provisions: (i) an express exception carving storm surge arising from named windstorms out of the definition of "flood" for purposes of the flood exclusion; (ii) a modification of the ACC clause to apply an "efficient proximate cause" or "predominant cause" standard, under which the exclusion would apply only if the excluded peril was the predominant or efficient proximate cause of the loss; or (iii) ideally, a complete deletion of the ACC clause. While Florida law provided VHG with some protection through the efficient proximate cause doctrine — which, as articulated by the Florida Supreme Court in Wallach v. Rosenberg, has been applied to override ACC clauses in certain circumstances — litigation on this point was costly, uncertain, and heavily dependent on expert testimony. Negotiating favorable policy language at the outset would have been far preferable to litigating the issue after a loss.
C. Period of Restoration Definition
The "reasonable speed" standard in the period-of-restoration clause was exploited by Ironclad and its expert to argue that VHG delayed reopening its properties and thereby inflated its business-interruption claim. The standard as written — requiring that the period of restoration end when repairs "could have been completed with reasonable speed and similar quality" — is facially neutral but invites hindsight second-guessing of the insured's restoration efforts.
Critically, the period-of-restoration clause in the Ironclad policy did not expressly account for the post-catastrophe conditions that are entirely foreseeable following a major hurricane. Contractor shortages, permitting backlogs, building-material supply-chain disruptions, and government-imposed access restrictions are predictable consequences of a major hurricane in the Florida Keys, yet the policy's "reasonable speed" standard gave Ironclad's expert a basis to argue that VHG should have restored its properties on a timeline that assumed normal, non-catastrophe conditions.
A more favorable clause would define the period of restoration to expressly include delays caused by circumstances beyond the insured's reasonable control, including but not limited to regulatory delays, labor shortages, material supply disruptions, government-imposed access restrictions, and utility-restoration timelines. Such a clause would have substantially neutralized Ironclad's period-of-restoration defense.
D. Duty to Mitigate / Documentation
Although VHG ultimately prevailed on the duty-to-mitigate issue — and this defense was, by the time of mediation, the weakest of Ironclad's four coverage defenses — VHG's contemporaneous documentation of its mitigation efforts was uneven across the three properties. The Grand Key Resort and the Harborview Hotel & Conference Center had reasonably complete records of contractor engagements, emergency-response actions, and communications with VHG management. The Sunset Shores documentation, however, was incomplete in several respects: emergency-contractor invoices were not matched to specific mitigation activities, the timeline for temporary-operations evaluation was not documented, and communications with the insurer regarding mitigation steps were conducted by telephone rather than in writing.
Better real-time documentation practices would have strengthened VHG's position on the mitigation issue and potentially avoided this defense entirely. In our experience, insurers are far less likely to raise a mitigation defense when the insured can produce a comprehensive, contemporaneous record demonstrating the specific steps taken to reduce the period and extent of the interruption.
V. Specific Recommendations for the Next Policy Renewal
Based on the lessons identified above, Calderwood & Harkness recommends that VHG implement the following eight measures in connection with its upcoming July 1, 2024 policy renewal and, more broadly, as part of its ongoing risk management program.
Recommendation 1: Express Deletion of Named-Windstorm Sub-Limit
VHG should insist on a standalone, clearly drafted endorsement expressly deleting any named-windstorm business-interruption sub-limit from the primary Ironclad policy (or any successor primary policy). The endorsement should state, in unambiguous terms, that "the Named-Windstorm Business-Interruption Sub-Limit is hereby deleted in its entirety and the full policy limit shall apply to business-interruption losses arising from named windstorms." The endorsement should be cross-referenced in the Declarations Page and should be separately numbered and identified as a standalone endorsement, rather than folded into a general or omnibus endorsement.
Equally important, VHG must confirm that all excess and surplus-lines policies in the tower — currently placed with Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd. — follow form on this specific endorsement. If any excess carrier's follow-form language is ambiguous as to whether it incorporates the sub-limit deletion, VHG should obtain a separate confirming endorsement from that carrier.
Finally, VHG risk management should obtain and review the actual issued policy within thirty (30) days of the policy inception date and conduct a side-by-side comparison against the binder to confirm that all negotiated terms, including the sub-limit deletion, are accurately reflected in the issued policy. This review should not be delegated solely to the broker.
Recommendation 2: Unambiguous Endorsements on All Negotiated Terms
The sub-limit issue is illustrative of a broader principle: every term negotiated during the renewal process — whether it involves a sub-limit deletion, a coverage expansion, an exclusion modification, a deductible adjustment, or any other material change from the expiring policy — must be memorialized in a signed, standalone endorsement that is clearly cross-referenced in the Declarations Page. Oral representations, binder notations, and broker correspondence are valuable evidence but are not substitutes for clear policy language.
VHG should request that Tidewater Risk Advisors prepare and deliver a "policy issuance checklist" in connection with each renewal. This checklist should itemize every negotiated change from the expiring policy, reference the specific endorsement in the issued policy that memorializes each change, and be signed by the Tidewater account executive responsible for the VHG account. Any discrepancy between the checklist and the issued policy should be flagged immediately to Ironclad (or any successor primary carrier) for correction by endorsement.
Recommendation 3: Review and Negotiate Flood Exclusion Language
Given the concurrent-causation issues that arose in the Hurricane Callista litigation, VHG should prioritize negotiation of the flood exclusion and the anti-concurrent causation clause at the next renewal. Specifically, VHG should pursue the following, in order of preference:
(a) Narrowest Flood Exclusion. VHG should negotiate for a flood exclusion that is limited to inland flooding (i.e., flooding caused by the overflow of inland bodies of water, rising groundwater, or surface-water accumulation) and that expressly excludes storm surge associated with named windstorms from the definition of "flood." Under this formulation, storm-surge damage caused by a named windstorm would be treated as wind damage — a covered peril — rather than flood damage subject to exclusion.
(b) Affirmative Storm-Surge Endorsement. If a narrowed flood exclusion cannot be obtained, VHG should seek a separate endorsement providing affirmative coverage for storm-surge losses arising from named windstorms, with a dedicated sub-limit if necessary.
(c) Modification of Anti-Concurrent Causation Clause. The ACC clause should be modified to apply an "efficient proximate cause" or "predominant cause" standard, under which the flood exclusion would apply only if flood (as distinguished from wind) is determined to be the predominant or efficient proximate cause of the loss. Ideally, the ACC clause should be deleted entirely, but if the carrier insists on retaining it, the predominant-cause modification provides meaningful protection.
Recommendation 4: Enhanced Period-of-Restoration Clause
VHG should negotiate a period-of-restoration definition that includes an express extension for post-catastrophe conditions. The revised clause should provide that the period of restoration includes any delays caused by circumstances beyond the insured's reasonable control, including but not limited to:
(a) Government-imposed access restrictions, curfews, or evacuation orders affecting the insured premises or the surrounding area;
(b) Contractor and skilled-labor shortages arising from the widespread nature of the catastrophic event;
(c) Building-material supply-chain disruptions, including delays in the delivery of materials required for restoration;
(d) Permitting and regulatory-approval backlogs at local, county, or state building departments; and
(e) Delays in the restoration of public utilities (power, water, telecommunications) necessary for the operation of the insured premises.
In addition, the clause should specify that the insurer bears the burden of proving, by a preponderance of the evidence, that the insured unreasonably delayed restoration, rather than leaving this as an undefined and ambiguous "reasonable speed" standard that invites post-loss second-guessing.
Recommendation 5: Follow-Form Coordination Across the Tower
VHG should ensure that all excess layers — currently placed with Pinnacle Surplus Lines Inc. (1st excess), Montclair Assurance Company (2nd excess), and Sovereign Re Ltd. (3rd excess) — follow form to the negotiated primary policy on all material coverage terms. This includes, without limitation, the windstorm sub-limit deletion, flood exclusion modifications, ACC clause revisions, and period-of-restoration enhancements recommended above.
Any deviations from follow-form in excess policies should be identified and documented during the placement process. Tidewater Risk Advisors should be required to provide a written comparison of each excess policy against the primary policy, highlighting any terms on which the excess policy does not follow form and explaining whether and how those deviations may affect VHG's coverage. Where deviations are identified, VHG should evaluate whether the deviation is acceptable or whether the excess carrier should be asked to conform its policy to the primary terms.
Recommendation 6: Closer Coordination with Tidewater Risk Advisors
VHG should establish a formal protocol with Tidewater Risk Advisors governing the renewal process and policy-issuance verification. At a minimum, this protocol should include the following elements:
(a) Pre-Renewal Strategy Meeting. Tidewater should convene a pre-renewal strategy meeting with VHG's risk management team (Sandra Pellegrini and her designees) and, at VHG's option, outside coverage counsel, no later than ninety (90) days before the expiration of the current policy period. This meeting should address the renewal strategy, identify coverage enhancements to be pursued, and establish priorities for the negotiation process.
(b) Written Confirmation of Negotiated Terms. At the binder stage, Tidewater should provide a written summary of all negotiated terms, including a specific identification of every change from the expiring policy. This summary should be countersigned by VHG's risk management representative to confirm mutual understanding.
(c) Policy-Audit Meeting. Within thirty (30) days of policy issuance, Tidewater should convene a formal policy-audit meeting with VHG's risk management team to compare the issued policies — including the primary policy and all excess policies — against the binders and the negotiation correspondence. Any discrepancy should be documented and immediately escalated to the carrier for correction.
In addition, Franklin Orde (or his successor as the Tidewater account executive for the VHG account) should be required to provide a signed "compliance certificate" confirming that the issued policy language matches the bound terms in all material respects. While this certificate would not substitute for VHG's own review of the policy, it would establish a clear record of the broker's representations and create accountability for any future discrepancies.
Recommendation 7: Improved Internal Documentation and Incident-Response Protocols
VHG should develop and maintain a formal catastrophe-response and documentation protocol. This protocol should be designed to ensure that, in the event of a future catastrophic event affecting any VHG property, the company maintains a comprehensive, contemporaneous record of all actions taken to mitigate the loss and restore operations. At a minimum, the protocol should address the following:
(a) Contemporaneous recording of all mitigation efforts, including emergency-response actions, temporary-protection measures, and decisions regarding the scope and timing of restoration;
(b) Written documentation of all communications with insurers, brokers, adjusters, and any third-party administrators, including summaries of telephone conversations;
(c) Property inspection results, including dated photographs, video recordings, and written narratives prepared by qualified personnel;
(d) Contractor and vendor engagements, including the timeline of solicitation, selection, contracting, and commencement of work;
(e) Reopening timelines, including daily or weekly status reports tracking the progress of restoration and identifying the specific factors causing any delay; and
(f) Revenue and operational data during the period of interruption and the ramp-up to full capacity.
This protocol should be maintained by Sandra Pellegrini's risk management team and should be activated immediately upon the occurrence of any event that may give rise to a property or business-interruption claim. In the event of a future claim, the protocol file should be shared with outside counsel promptly to facilitate early assessment and to support VHG's position in any coverage dispute. All communications with Ironclad or any carrier should be documented in writing — not merely by telephone — to create a clear evidentiary record.
Recommendation 8: Consideration of Dedicated Windstorm / Catastrophe Coverage
Given VHG's significant Florida coastal exposure — three resort properties in the Florida Keys and Gulf Coast region, all located in high-risk windstorm and storm-surge zones — VHG should evaluate whether a dedicated named-windstorm policy or parametric catastrophe coverage product would provide more certain and comprehensive protection than the current all-risk tower with carved-out windstorm provisions.
A dedicated windstorm policy would provide coverage specifically designed for named-windstorm losses, with policy language drafted for that peril and without the flood-exclusion and concurrent-causation issues that plagued the Hurricane Callista claim. Parametric catastrophe coverage, which pays a predetermined amount upon the occurrence of a triggering event (such as a hurricane of specified intensity making landfall within a defined geographic radius of VHG's properties), would provide an additional layer of certainty by eliminating the need to prove causation, period of restoration, or any other coverage condition.
Calderwood & Harkness can provide introductions to specialty brokers and underwriters who focus on windstorm and catastrophe coverage for hospitality-sector clients in hurricane-exposed regions if VHG wishes to explore this option.
VI. Broker Engagement Considerations
While we wish to be clear that Tidewater Risk Advisors performed its core brokerage functions competently in many respects — including the successful negotiation of the sub-limit deletion, the timely placement of the insurance tower, and the effective coordination of the claim submission process — the windstorm sub-limit documentation failure was a serious lapse that had material financial consequences for VHG. The $12.7 million gap between VHG's claim and its recovery is attributable in significant part to this documentation failure, and it is reasonable for VHG to evaluate whether additional oversight of the broker's work product is warranted going forward.
VHG may wish to consider whether to engage separate coverage counsel to review policy manuscripts at each renewal, independent of the broker's review. The role of coverage counsel in this context would be to examine the issued policy against the binder and negotiation correspondence, identify any discrepancies or ambiguities, and recommend corrective endorsements before a loss occurs. This is a fundamentally different function from the broker's role and provides an independent layer of quality assurance that can prevent the type of documentation failure that occurred in the Hurricane Callista matter.
Calderwood & Harkness is available to serve in this capacity on an annual retainer basis if VHG determines that independent coverage counsel review would be beneficial. We are familiar with VHG's insurance program, the coverage issues specific to VHG's Florida coastal hospitality portfolio, and the lessons of the Hurricane Callista litigation, and we believe we are well-positioned to provide value in this role. We would be pleased to discuss the scope and terms of such an engagement at your convenience.
VII. Financial Summary Reference
For ease of reference, we set forth below a summary of the key financial figures associated with the Hurricane Callista claim and the resulting litigation.
Total Claimed Loss:
Total Recovery: $47,300,000 (78.83% of total claimed loss)
Calderwood & Harkness Fees and Expenses:
Net Recovery to VHG After Fees and Expenses: Approximately $43,338,300
Annual Premium for Insurance Program: $1,840,000. We note that this annual premium — a fraction of the losses at stake — underscores the critical importance of ensuring that the coverage purchased is accurately reflected in the issued policy. The premium increase associated with the windstorm sub-limit deletion was itself modest relative to the substantial coverage benefit it was intended to provide, which makes the documentation failure all the more regrettable.
VIII. Availability for Further Discussion
Calderwood & Harkness remains available to discuss these recommendations in detail at your convenience. We recognize that implementing these recommendations will require coordination among VHG's legal, risk management, and finance teams, as well as engagement with Tidewater Risk Advisors and the carrier markets.
We would welcome the opportunity to participate in VHG's next renewal strategy session with Tidewater Risk Advisors and Sandra Pellegrini's risk management team. Our familiarity with the specific coverage issues that arose in the Hurricane Callista litigation positions us to provide targeted, practical input during the renewal negotiations, particularly with respect to the flood exclusion, ACC clause, and period-of-restoration language.
We suggest scheduling a call during the first quarter of 2024 — ideally no later than the end of March — to begin the process of implementing these recommendations well in advance of the July 1, 2024 renewal date. Early engagement will allow sufficient time to develop negotiation positions, prepare draft endorsement language, and coordinate with Tidewater on the placement strategy.
IX. Closing
In closing, we wish to express our sincere appreciation for VHG's confidence in Calderwood & Harkness throughout this engagement. The Hurricane Callista matter was a complex, high-stakes coverage dispute that demanded sustained effort and close collaboration between VHG and outside counsel over a period of seventeen months. We are gratified that the result achieved reflects a meaningful recovery for VHG and its stakeholders.
We also wish to acknowledge the invaluable contributions of Marcus Ellsworth and Diane Calder, whose strategic guidance and executive support were instrumental throughout the litigation. Nathaniel, your management of the legal function and your coordination between VHG's business teams and outside counsel were exemplary, and Sandra, your deep knowledge of VHG's insurance program and your willingness to testify in deposition on the sub-limit issue were essential to the favorable outcome.
Please know that the Firm's entire engagement team — including Howard Bellamy, Tiffany Rosenthal, and Andrew Fitzpatrick — remains available for any follow-up, whether in connection with these policy renewal recommendations, any future coverage questions, or any other matter in which we can be of service.
We look forward to continuing our relationship with VHG and to helping ensure that the lessons of the Hurricane Callista experience are translated into stronger, more protective coverage for the future.
Sincerely,
CALDERWOOD & HARKNESS LLP
By: ________
Elaine Forsythe Partner 333 SE 2nd Avenue, Suite 4400 Miami, FL 33131 Telephone: (305) 714-8200 eforsythe@calderwoodharkness.com
cc: Marcus Ellsworth, Chief Executive Officer, Verimark Hospitality Group Inc. Diane Calder, Chief Financial Officer, Verimark Hospitality Group Inc. Howard Bellamy, Partner, Calderwood & Harkness LLP Tiffany Rosenthal, Associate, Calderwood & Harkness LLP
CONFIDENTIALITY NOTICE: This letter is protected by the attorney-client privilege and constitutes a confidential communication between Calderwood & Harkness LLP and Verimark Hospitality Group Inc. This letter is intended solely for the use of the addressees and the individuals identified on the copy line above. This letter contains privileged legal advice and analysis and should not be disclosed to, shared with, or distributed to any third party — including Tidewater Risk Advisors, Ironclad Indemnity Corporation, or any other insurer, broker, or third party — without the prior written authorization of Calderwood & Harkness LLP. Unauthorized disclosure of this letter may result in the waiver of the attorney-client privilege.
Carrier | Layer | Policy Limit | Settlement Amount | % of Layer
Ironclad Indemnity Corporation | Primary | $25,000,000 | $24,500,000 | 98.00%
Pinnacle Surplus Lines Inc. | 1st Excess ($15M xs $25M) | $15,000,000 | $12,200,000 | 81.33%
Montclair Assurance Company | 2nd Excess ($10M xs $40M) | $10,000,000 | $6,800,000 | 68.00%
Sovereign Re Ltd. | 3rd Excess ($10M xs $50M) | $10,000,000 | $3,800,000 | 38.00%
Total | $60,000,000 | $47,300,000 | 78.83%
Property | Claimed Loss
Verimark Grand Key Resort (Marathon, FL) | $31,400,000
Harborview Hotel & Conference Center | $18,700,000
Sunset Shores | $9,900,000
Total | $60,000,000
Category | Amount
Hourly fees | $2,684,700 (approx.)
Contingency enhancement | $865,000
Total legal fees | $3,549,700 (approx.)
Expenses advanced (expert fees, court costs, depositions, mediation) | $412,000 (approx.)
Total fees and expenses | $3,961,700 (approx.)

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