MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: File — Matter 1021-00003
FROM: Elaine Forsythe, Responsible Partner Tiffany Rosenthal, Lead Associate
DATE: January 12, 2024
RE: Matter Closing Memorandum — Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al., Case No. 2022-CA-031547 (Eleventh Judicial Circuit of Florida, Miami-Dade County)
ENGAGEMENT NUMBER: 1021-00003
CLIENT: Verimark Hospitality Group Inc. (Nasdaq: VMRK)
STATUS: CLOSED — COMPLETED
This memorandum is protected by the attorney-client privilege, the work product doctrine, and such other applicable privileges and protections as may exist under federal and state law. It is prepared solely for internal use by Calderwood & Harkness LLP in connection with the closing of the above-referenced matter. Any disclosure, distribution, or copying of this memorandum or its contents to any person or entity not authorized to receive it is strictly prohibited.
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I. PURPOSE
This memorandum documents the formal closing of Matter 1021-00003, the insurance-coverage dispute prosecuted by Calderwood & Harkness LLP on behalf of Verimark Hospitality Group Inc. ("VHG" or the "Client") against Ironclad Indemnity Corporation ("Ironclad"), Pinnacle Surplus Lines Inc. ("Pinnacle"), Montclair Assurance Company ("Montclair"), and Sovereign Re Ltd. ("Sovereign Re," and collectively with Ironclad, Pinnacle, and Montclair, the "Insurer Defendants"). The matter was styled Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al., Case No. 2022-CA-031547, and was filed and prosecuted in the Eleventh Judicial Circuit of Florida, in and for Miami-Dade County, before the Honorable Catherine Embry.
The matter arose from the Insurer Defendants' denial of approximately $60,000,000 in business-interruption ("BI") and extra-expense coverage following Hurricane Callista, which made landfall in the Lower Florida Keys on September 18, 2022, as a Category 4 hurricane. The hurricane caused catastrophic property damage and prolonged business interruption at three VHG luxury hospitality properties located in Marathon, Fort Myers Beach, and St. Pete Beach, Florida.
Following approximately seventeen months of intensive pre-litigation and litigation work — including comprehensive coverage analysis, extensive fact and expert discovery, dispositive motions practice, and a two-day mediation before the Honorable Richard Mendelson (Ret.) — the matter was resolved through a mediated settlement yielding a total aggregate recovery of $47,300,000, representing approximately 78.83% of the total $60,000,000 claim. This recovery was achieved against all four layers of VHG's insurance tower.
The stipulation of dismissal with prejudice was filed with the Eleventh Judicial Circuit on January 5, 2024. All settlement funds were received into the Firm's trust account on January 3, 2024, and all disbursements to the Client and the Firm have been completed. The matter is now formally closed as of the date of this memorandum.
The purpose of this memorandum is to provide a comprehensive record of the matter for the Firm's files, including the identification of all parties, a description of the underlying loss event and insurance program, a chronological narrative of the case history, a summary of the settlement terms and financial resolution, an analysis of the key coverage issues and their outcomes, and documentation of file retention and closing procedures.
II. CLIENT AND PARTY IDENTIFICATION
A. Client. Verimark Hospitality Group Inc. ("VHG") is a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK. VHG is headquartered at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. VHG operates in the luxury hospitality and real estate sector, with a portfolio of resort properties concentrated in the coastal regions of Florida and the Caribbean. For fiscal year 2021, VHG reported total revenue of approximately $412 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $78 million.
The following VHG officers and personnel were the primary points of contact for the Firm throughout the engagement:
• Marcus Ellsworth — Chief Executive Officer
• Diane Calder — Chief Financial Officer
• Nathaniel Driscoll — General Counsel (primary day-to-day contact for Calderwood & Harkness)
• Sandra Pellegrini — Vice President, Risk Management
All substantive legal strategy communications and settlement authority decisions were channeled through Mr. Driscoll, with Mr. Ellsworth and Ms. Calder providing supplemental input as needed, particularly on financial matters and settlement valuation.
B. Defendants / Insurer Defendants
The four Insurer Defendants, which collectively comprised VHG's property-insurance tower for the applicable policy period, are described below in order from the primary layer through the third excess layer:
1. Ironclad Indemnity Corporation — A Connecticut-domiciled stock insurance company (NAIC No. 20537), with its principal place of business at 55 Constitution Boulevard, Hartford, Connecticut 06103. Ironclad served as the lead primary carrier under Policy No. IIC-PRP-2022-07541, which provided a $25,000,000 primary layer of all-risk property insurance, including business-interruption and extra-expense coverage, subject to a $500,000 deductible. Ironclad was the carrier that issued the initial reservation of rights letter (October 12, 2022) and the subsequent formal coverage denial (February 3, 2023). The Firm's primary claims-department contact at Ironclad was Victor Haddon, Senior Vice President of Claims.
2. Pinnacle Surplus Lines Inc. — A Texas-domiciled surplus-lines insurer (NAIC No. 38214), with its principal place of business at 200 Congress Avenue, Suite 1400, Austin, Texas 78701. Pinnacle provided the first excess layer of $15,000,000 in excess of $25,000,000 under Policy No. PSL-XS1-2022-3390. Pinnacle's policy followed form to the Ironclad primary policy on all material coverage terms and conditions. Pinnacle issued its own denial letter on February 10, 2023, expressly following the coverage position taken by Ironclad.
3. Montclair Assurance Company — A New York-domiciled admitted carrier (NAIC No. 15692), with its principal place of business at 1 Liberty Plaza, 38th Floor, New York, New York 10006. Montclair provided the second excess layer of $10,000,000 in excess of $40,000,000 under Policy No. MAC-XS2-2022-09817. Montclair reserved its rights but did not issue a formal coverage denial, instead asserting that its layer would not be reached in light of the named-windstorm sub-limit that Ironclad contended applied to the primary policy.
4. Sovereign Re Ltd. — A Bermuda-domiciled reinsurer and excess carrier, with offices at 14 Front Street, Hamilton HM 11, Bermuda. Sovereign Re provided the third excess layer of $10,000,000 in excess of $50,000,000 under Policy No. SRL-XS3-2022-5102. Like Montclair, Sovereign Re reserved its rights but did not issue a formal denial, taking the position that its attachment point would not be triggered if the windstorm sub-limit applied.
C. Defense Counsel
1. Fendowell Rourke & Stanton LLP (Hartford, Connecticut / Tampa, Florida) — Defense counsel for Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc., retained on a joint-defense basis. The lead defense partner was Gregory Stanton, a veteran insurance-coverage litigator based in Fendowell Rourke's Hartford office. Mr. Stanton was supported by Meredith Liang, Senior Associate, and Colin Ashford, Junior Associate. Fendowell Rourke handled all pleadings, discovery, depositions, motions practice, and mediation on behalf of the primary and first-excess carriers. The Firm's interactions with Fendowell Rourke were professional and generally cooperative on logistical matters, though substantive positions were vigorously contested throughout the litigation.
2. Delvecchio & Kraus LLP (New York, New York) — Defense counsel for Montclair Assurance Company and Sovereign Re Ltd., retained on a joint-representation basis. The lead defense partner was Patricia Kraus, who managed both the Montclair and Sovereign Re defenses from Delvecchio & Kraus's New York office. She was assisted by Raymond Cho, Senior Associate. Delvecchio & Kraus generally aligned with Fendowell Rourke on coverage positions but took a somewhat more moderate posture, particularly during the mediation, consistent with the fact that neither Montclair nor Sovereign Re had issued formal denials.
D. Key Third Parties
The following third parties played material roles in the underlying events, the claims process, and the litigation:
1. Tidewater Risk Advisors LLC (Miami, Florida) — VHG's insurance broker of record responsible for the placement and renewal of VHG's property-insurance program. The account executive assigned to the VHG account was Franklin Orde. Mr. Orde's testimony regarding the July 2022 renewal negotiations — and specifically the deletion of the named-windstorm sub-limit in exchange for an increased premium — was central to VHG's case on the sub-limit issue.
2. Arbor Claims Services LLC (Tampa, Florida) — An independent adjusting firm retained by Ironclad to conduct the initial investigation and adjustment of VHG's claim. The lead adjuster assigned to the VHG claim was Denise Whitford. Ms. Whitford conducted the initial property inspections of all three VHG properties in early October 2022 and prepared the loss analysis that Ironclad relied upon in its reservation of rights and ultimate denial.
3. Meridian Forensic Economics LLC (Atlanta, Georgia) — Retained by VHG as its forensic accounting and damages expert. The lead expert was Dr. Helen Vasquez, CPA, CFF, a recognized authority in the quantification of business-interruption losses in the hospitality industry. Dr. Vasquez prepared the comprehensive damages report quantifying VHG's aggregate BI and extra-expense losses at $60,000,000 and provided deposition testimony in support of her opinions.
4. Caldwell Engineering Associates Inc. (Doral, Florida) — Retained by VHG as its forensic engineering and cause-of-loss expert. The lead expert was Jeffrey Caldwell, PE, a licensed professional engineer with extensive experience in wind-damage and storm-surge analysis for hurricane-affected structures. Mr. Caldwell prepared the cause-of-loss report differentiating wind damage from storm-surge damage at each of the three VHG properties and opining that wind was the efficient proximate cause of loss.
5. Graystone Consulting Group LLC (Chicago, Illinois) — Retained by the defense as its damages and coverage expert. The lead expert was Dr. Warren Birk, who prepared a rebuttal report challenging VHG's BI-loss quantification, primarily on the basis of the period-of-restoration and failure-to-mitigate defenses.
6. Keystone Dispute Resolution Inc. (Miami, Florida) — The mediation services provider that administered the two-day mediation conducted on December 4–5, 2023. The mediator was the Honorable Richard Mendelson (Ret.), a former judge of the Eleventh Judicial Circuit and a well-regarded mediator with particular expertise in complex insurance-coverage disputes.
E. Calderwood & Harkness LLP Engagement Team
The Firm's engagement team for this matter was staffed as follows:
The blended hourly rate across all team members was approximately $785/hr. The Firm's work on this matter was conducted primarily from the Miami office, located at 333 SE 2nd Avenue, Suite 4400, Miami, Florida 33131. Additional support was provided by the Firm's litigation support, document review, and paralegal staff, whose time was billed at standard rates and is included in the aggregate hours and fees reported herein.
F. Court and Judge
The action was filed and prosecuted in the Eleventh Judicial Circuit of Florida, in and for Miami-Dade County, located at 73 West Flagler Street, Miami, Florida 33130. The case was assigned Case No. 2022-CA-031547 and was presided over by the Honorable Catherine Embry, Circuit Judge. Judge Embry managed the case efficiently, entering discovery and scheduling orders in a timely manner and demonstrating familiarity with the insurance-coverage issues presented.
III. INSURANCE PROGRAM OVERVIEW
A. Tower Structure
VHG's property-insurance program for the relevant policy period consisted of a four-layer insurance tower with an aggregate limit of $60,000,000, subject to a $500,000 deductible on the primary layer. The tower was structured as follows:
The total tower limit was $60,000,000 above the $500,000 deductible. All four policies shared a common policy period of July 1, 2022 through July 1, 2023. The program provided all-risk property coverage, including coverage for business interruption and extra expense, for VHG's portfolio of hospitality properties.
The Pinnacle first-excess policy followed form to the Ironclad primary policy on all material terms and conditions. The Montclair and Sovereign Re excess policies also generally followed form, though with certain differences in their respective terms regarding notice and claim-handling provisions that were not material to the issues in dispute.
B. Premium. The total annual premium for the four-layer tower for the July 2022 – July 2023 policy period was $1,840,000, allocated among the carriers as follows:
It is noteworthy that the Ironclad primary premium of $980,000 reflected an increase of approximately $145,000 over the prior policy year (July 2021 – July 2022). As discussed in greater detail in Section IX.A below, VHG's position was that this premium increase was agreed to in exchange for the deletion of the $15,000,000 named-windstorm sub-limit that had appeared in the prior-year policy.
C. Broker. The insurance program was placed by Tidewater Risk Advisors LLC, VHG's insurance broker of record, with offices in Miami, Florida. The account executive responsible for the VHG account was Franklin Orde. Tidewater managed the placement and renewal of all four layers of the tower and served as the intermediary between VHG and the carriers during the underwriting and renewal process. Mr. Orde's role in the July 2022 renewal negotiations, and his contemporaneous correspondence with Ironclad's underwriting department regarding the deletion of the named-windstorm sub-limit, became a central element of VHG's case.
IV. SUMMARY OF LOSS EVENT — HURRICANE CALLISTA
Hurricane Callista was named by the National Hurricane Center on September 12, 2022, as a tropical depression that rapidly intensified over the warm waters of the western Caribbean Sea. Over the following six days, the storm strengthened to a major hurricane, tracking northward through the Straits of Florida toward the Florida Keys.
Hurricane Callista made landfall on September 18, 2022, at approximately 1:30 PM EDT, in the Lower Florida Keys near the Big Pine Key area. At the time of landfall, the storm was classified as a Category 4 hurricane on the Saffir-Veltason Hurricane Wind Scale, with maximum sustained winds of approximately 145 miles per hour and a central pressure of approximately 940 millibars. The storm was among the most powerful hurricanes to strike the Florida Keys since Hurricane Irma in 2017.
Hurricane Callista produced catastrophic storm surge along the Florida coastline. Storm-surge heights ranged from approximately 8 to 14 feet in Monroe County (including the Florida Keys) and approximately 6 to 10 feet in Lee County (including the Fort Myers Beach area). The storm also produced significant storm surge along portions of Pinellas County, including St. Pete Beach.
In anticipation of the storm's landfall, the Monroe County Emergency Management Division issued a mandatory evacuation order on September 16, 2022, applicable to all residents and visitors in the Florida Keys. Lee County followed with its own mandatory evacuation order on September 17, 2022, covering barrier islands and coastal zones including Fort Myers Beach. These evacuation orders required VHG to cease operations and evacuate guests and non-essential personnel from all three of its affected properties.
All three VHG properties at issue in this matter — the Verimark Grand Key Resort (Marathon), the Verimark Harborview Hotel & Conference Center (Fort Myers Beach), and the Verimark Sunset Shores (St. Pete Beach) — sustained catastrophic property damage from the combined effects of hurricane-force winds, storm surge, and wind-driven rain. Each property experienced prolonged business interruption, as described in detail in Section V below.
The total destruction caused by Hurricane Callista across the state of Florida was estimated by the Florida Office of Insurance Regulation to exceed $38 billion in insured losses, making it one of the costliest hurricanes in the state's history.
V. PROPERTIES AT ISSUE AND BUSINESS-INTERRUPTION LOSS SUMMARY
A. Verimark Grand Key Resort
Location: Mile Marker 48, Marathon, Florida 33050
The Verimark Grand Key Resort is a 312-room luxury resort and marina situated on the oceanfront in Marathon, in the Middle Florida Keys. The property is VHG's flagship asset and its largest revenue generator. In the period prior to Hurricane Callista, the resort maintained a pre-loss average daily rate ("ADR") of $389 and an occupancy rate of approximately 82%, reflecting the property's status as a premier destination resort.
Hurricane Callista caused severe wind damage to the resort's guest-room buildings, common areas, spa facility, and marina infrastructure. The property also sustained significant storm-surge inundation, with surge waters reaching portions of the ground-floor structures and causing extensive damage to mechanical systems, landscaping, and beach amenities.
The Grand Key Resort was fully closed for a period of 178 days, from September 18, 2022, through March 15, 2023. The extended closure period was attributable to the severity of the structural damage, the difficulty of sourcing qualified contractors and building materials in the post-hurricane environment, and the need to comply with updated building-code requirements that applied to the restoration work.
The estimated business-interruption loss for the Grand Key Resort, as quantified by Dr. Helen Vasquez of Meridian Forensic Economics, was $31,400,000. This figure included lost revenue, continuing fixed expenses, and reasonable extra expenses incurred in connection with the restoration effort.
B. Verimark Harborview Hotel & Conference Center
Location: 1400 Estero Boulevard, Fort Myers Beach, Florida 33931
The Verimark Harborview Hotel & Conference Center is a 224-room hotel with an integrated 40,000-square-foot conference and events facility located on the beachfront in Fort Myers Beach, Lee County, Florida. The property serves both the leisure and business-travel segments and generates significant revenue from corporate meetings, conferences, and catered events. Pre-loss performance metrics included an ADR of $295 and an occupancy rate of approximately 74%.
The Harborview sustained extensive wind and storm-surge damage, including the destruction of portions of the roof system, water intrusion into the conference center, and damage to the property's mechanical, electrical, and plumbing systems. The storm surge at Fort Myers Beach was among the most destructive on Florida's Gulf Coast, with surge levels reaching approximately 8 feet at the Harborview property.
The Harborview was fully closed for a period of 135 days, from September 18, 2022, through January 31, 2023. The restoration period was shorter than the Grand Key Resort's due to the somewhat less extensive structural damage and greater availability of restoration contractors in the Lee County area.
The estimated business-interruption loss for the Harborview, as quantified by Dr. Vasquez, was $18,700,000.
C. Verimark Sunset Shores
Location: 7200 Gulf Boulevard, St. Pete Beach, Florida 33706
The Verimark Sunset Shores is a 186-room boutique resort located on the beachfront in St. Pete Beach, Pinellas County, Florida. The resort caters to upscale leisure travelers and is the smallest of VHG's three affected properties. Pre-loss performance metrics included an ADR of $342 and an occupancy rate of approximately 79%.
The Sunset Shores sustained significant but less catastrophic damage than the Grand Key and Harborview properties, reflecting its greater distance from Hurricane Callista's point of landfall and the comparatively lower storm-surge levels in the St. Pete Beach area. The property was fully closed for a period of 73 days, from September 18 through November 30, 2022. Following the full-closure period, the property operated at reduced capacity through February 2023, ultimately reaching full operational capacity on February 28, 2023.
The estimated business-interruption loss for the Sunset Shores, encompassing both the full-closure and reduced-capacity periods, was $9,900,000 as quantified by Dr. Vasquez.
D. Total Claimed Loss
The aggregate business-interruption and extra-expense loss claimed by VHG across all three properties was calculated as follows:
This $60,000,000 total corresponded to the full aggregate limit of VHG's four-layer insurance tower (above the $500,000 deductible), and was the amount asserted in VHG's sworn statement in proof of loss and in the Complaint.
VI. CASE HISTORY — CHRONOLOGICAL NARRATIVE
A. Pre-Litigation Phase (August 2022 – February 2023)
The Firm's engagement on this matter was opened on August 30, 2022, approximately three weeks before Hurricane Callista's landfall, when VHG's General Counsel, Nathaniel Driscoll, contacted Elaine Forsythe to discuss the potential insurance-coverage implications of the approaching hurricane. Given the magnitude of VHG's coastal property exposure and the complexity of its insurance tower, VHG sought to engage coverage counsel proactively to ensure that all claim-preservation obligations and coverage positions would be properly managed from the outset.
The engagement letter was executed on August 30, 2022, and the initial coverage review of VHG's insurance program commenced immediately. The Firm was assigned engagement number 1021-00003. The initial review focused on the terms and conditions of the Ironclad primary policy and the follow-form provisions of the excess policies, with particular attention to the business-interruption and extra-expense coverage grants, applicable sub-limits, deductibles, exclusions, and notice requirements.
September 18, 2022: Hurricane Callista made landfall in the Lower Florida Keys at approximately 1:30 PM EDT. All three VHG properties sustained damage, as described in Section V above.
September 19, 2022: The Firm issued a litigation hold notice to key VHG personnel, including Marcus Ellsworth (CEO), Diane Calder (CFO), Nathaniel Driscoll (General Counsel), and Sandra Pellegrini (VP Risk Management). The litigation hold directed preservation of all documents, communications, and electronic records relating to Hurricane Callista, the VHG properties, the insurance program, and any loss-mitigation efforts.
September 22, 2022: VHG submitted its initial notice of loss to Ironclad Indemnity Corporation, as required under the primary policy. The notice was prepared with input from the Firm and transmitted by VHG's Risk Management department via certified mail, email, and the Ironclad online claims portal. Courtesy copies were sent to Pinnacle, Montclair, and Sovereign Re.
October 5, 2022: Ironclad's designated independent adjusting firm, Arbor Claims Services LLC, dispatched its lead adjuster, Denise Whitford, to conduct initial property inspections at all three VHG properties. Ms. Whitford and her team conducted multi-day inspections at each property, documenting the extent of wind damage, storm-surge inundation, water intrusion, and structural impairment.
October 12, 2022: Ironclad issued a reservation of rights letter, acknowledging receipt of VHG's notice of loss but reserving its rights to deny coverage on multiple grounds. The reservation of rights letter identified four potential bases for denial: (1) the application of a $15,000,000 named-windstorm sub-limit to the BI coverage; (2) disputes regarding the period of restoration; (3) the concurrent causation doctrine and the flood exclusion; and (4) VHG's alleged failure to mitigate its losses.
October 25, 2022: Calderwood & Harkness responded to Ironclad's reservation of rights letter in a detailed twelve-page letter addressed to Victor Haddon, SVP Claims. The response disputed each of the four stated bases for the reservation, with particular emphasis on VHG's position that the $15,000,000 named-windstorm sub-limit had been deleted from the primary policy at the July 2022 renewal. The letter put Ironclad on notice that VHG would pursue all available remedies, including claims for breach of contract and bad faith, if coverage was wrongfully denied.
November 15, 2022: VHG submitted its sworn statement in proof of loss to Ironclad, supported by financial documentation and preliminary loss estimates. The proof of loss asserted total BI and extra-expense losses of $60,000,000 across the three affected properties, corresponding to the full aggregate limit of the insurance tower. The sworn statement was executed by Diane Calder (CFO) and notarized.
November 20–21, 2022: Calderwood & Harkness transmitted formal demand letters to all four carriers — Ironclad, Pinnacle, Montclair, and Sovereign Re — demanding payment of the full policy limits at each layer. The demand letters set forth the factual basis for the claim, identified the applicable coverage provisions, and attached copies of the sworn proof of loss and supporting financial documentation.
February 3, 2023: After a review period of approximately two and a half months following receipt of the sworn proof of loss, Ironclad issued its formal coverage denial. The denial letter, signed by Victor Haddon, asserted four grounds for denial:
(1) The primary policy contained a $15,000,000 named-windstorm sub-limit applicable to business-interruption losses, and VHG's claim exceeded that sub-limit;
(2) The period of restoration at one or more VHG properties was unreasonably prolonged, and Ironclad contended that the BI coverage terminated when repairs "could have been completed with reasonable speed";
(3) Storm-surge (flood) damage at the Grand Key Resort triggered the flood exclusion, and under the concurrent causation doctrine, all damage arising from the same weather event — including wind damage — was excluded to the extent it was concurrent with the excluded flood peril; and
(4) VHG failed to mitigate its losses by not taking reasonable steps to reduce the period of interruption at its properties.
February 10, 2023: Pinnacle Surplus Lines Inc. issued its own denial letter, expressly following Ironclad's coverage position on a follow-form basis. The Pinnacle denial stated that, as a follow-form excess carrier, Pinnacle adopted each of the four denial grounds articulated in Ironclad's February 3 denial letter.
February 15, 2023: Calderwood & Harkness transmitted a bad-faith implications letter to Ironclad, with a copy to Ironclad's outside counsel Gregory Stanton at Fendowell Rourke & Stanton LLP. The letter put Ironclad on formal notice that VHG considered the coverage denial to be made in bad faith, identified the specific factual and legal bases for VHG's bad-faith contention (including the windstorm sub-limit deletion), and reserved VHG's right to seek consequential and extra-contractual damages.
Montclair Assurance Company and Sovereign Re Ltd. reserved their rights but did not issue formal coverage denials. Both carriers took the position that their respective excess layers would not be reached if the $15,000,000 named-windstorm sub-limit applied at the primary level, and accordingly declined to pay or deny the claim pending resolution of the sub-limit issue.
B. Coverage Analysis and Strategic Work Product
Throughout the pre-litigation and early litigation phases, the Firm prepared extensive privileged coverage analyses and strategic memoranda, including the following:
• September 5, 2022 — Preliminary Coverage Analysis Memorandum. Prepared by Tiffany Rosenthal and reviewed by Elaine Forsythe. This memorandum provided an initial assessment of VHG's coverage under the Ironclad primary policy and the excess layers, identifying potential coverage issues and initial recommendations for claim strategy.
• September 8, 2022 — Policy Comparison Chart. A comprehensive side-by-side comparison of all four policies in the tower, prepared by Andrew Fitzpatrick, identifying areas of follow-form conformity and any material differences in coverage terms, conditions, exclusions, and endorsements.
• October 20, 2022 — Named-Windstorm Sub-Limit Deletion Endorsement Analysis. Prepared by Tiffany Rosenthal. This memorandum analyzed the documentary evidence surrounding the July 2022 renewal negotiations between Tidewater Risk Advisors (Franklin Orde) and Ironclad's underwriting department. The analysis concluded that the $15,000,000 named-windstorm sub-limit, which had appeared in the prior-year policy, was effectively removed at the 2022 renewal in exchange for the premium increase of approximately $145,000. The analysis relied on broker correspondence, underwriting notes, and the final policy forms issued by Ironclad.
• November 1, 2022 — Anti-Concurrent Causation Jurisprudence Memorandum. Prepared by Andrew Fitzpatrick and reviewed by Elaine Forsythe. This memorandum surveyed Florida case law on the concurrent causation doctrine and the anti-concurrent-causation clause, arguing that the efficient proximate cause doctrine applies under Florida law and that VHG's losses were proximately caused by wind — a covered peril — rather than storm surge or flooding.
• November 10, 2022 — Period of Restoration Memorandum. Prepared by Tiffany Rosenthal. This memorandum analyzed the period-of-restoration provisions in the Ironclad primary policy and rebutted Ironclad's position that VHG unreasonably delayed the restoration of its properties. The memorandum documented the post-hurricane contractor shortages, supply-chain disruptions, and building-code compliance requirements that extended the closure periods.
• December 2, 2022 — Flood Exclusion Applicability Memorandum. Prepared by Andrew Fitzpatrick. This memorandum addressed the scope and applicability of the flood exclusion in the Ironclad policy, concluding that the exclusion did not bar coverage for the BI losses at issue because the efficient proximate cause of the business interruption was wind damage, not storm surge.
• January 15, 2023 — Strategic Assessment and Litigation Recommendation Memorandum. Prepared by Elaine Forsythe and Tiffany Rosenthal. This comprehensive memorandum assessed the strengths and risks of VHG's coverage position and recommended filing suit in the Eleventh Judicial Circuit of Florida (Miami-Dade County), evaluating alternative forums and concluding that the Eleventh Circuit provided the most favorable combination of substantive law, procedural efficiency, and jury pool composition.
• January 10, 2023 — Revised Fee and Staffing Memorandum. This internal memorandum documented the revised fee arrangement, including the addition of the contingency enhancement component (5% of net recovery above $30,000,000), which was agreed to by the Client in connection with the transition from the pre-litigation advisory phase to active litigation.
C. Litigation Phase (March 2023 – December 2023)
1. Pleadings. March 1, 2023: Calderwood & Harkness filed the Complaint on behalf of VHG in the Eleventh Judicial Circuit of Florida, in and for Miami-Dade County. The case was assigned Case No. 2022-CA-031547 and was assigned to the Honorable Catherine Embry. The Complaint was a multi-count pleading asserting the following causes of action against all four Insurer Defendants:
• Count I: Breach of Contract (against all defendants) — for wrongful denial of VHG's claim for business-interruption and extra-expense coverage under the respective policies.
• Count II: Declaratory Judgment (against all defendants) — seeking a judicial declaration that VHG's BI and extra-expense losses were covered under the policies, that the named-windstorm sub-limit did not apply, and that the flood exclusion and concurrent causation defense did not bar coverage.
• Count III: Bad Faith (against Ironclad and Pinnacle) — for Ironclad's and Pinnacle's denial of the claim without a reasonable basis, in violation of Florida's unfair claims practices statute, Fla. Stat. § 624.155.
The Complaint was supported by exhibits including relevant excerpts from the Ironclad primary policy, the sworn statement in proof of loss, and the February 3, 2023 coverage denial letter.
April 1, 2023: VHG filed its opposition to the defendants' motion to dismiss and/or stay, which had been filed by Fendowell Rourke & Stanton on behalf of Ironclad and Pinnacle. The motion sought dismissal of the bad-faith count as premature and a stay of the declaratory judgment action pending arbitration. VHG's opposition argued that the bad-faith count was properly pleaded and that no valid arbitration clause existed in the policies. Judge Embry denied the motion to dismiss and stay in an oral ruling on the record on April 10, 2023.
April 15, 2023: All defendants filed answers and affirmative defenses. Ironclad and Pinnacle, through Fendowell Rourke, asserted seventeen affirmative defenses, including the named-windstorm sub-limit, the flood exclusion, the concurrent-causation defense, failure to mitigate, and various technical defenses relating to conditions precedent. Montclair and Sovereign Re, through Delvecchio & Kraus, filed separate answers asserting substantially similar affirmative defenses but generally adopting a less aggressive posture.
April 28, 2023: VHG filed its case management statement proposing a discovery schedule and trial date.
2. Case Management. May 1, 2023: The Court conducted the initial case management conference before Judge Embry. All parties were represented. Judge Embry entered a case management order establishing the following schedule:
• Fact discovery: June 1, 2023 – September 30, 2023
• Expert disclosures and reports: by September 15, 2023
• Expert rebuttal reports: by October 2, 2023
• Expert depositions: by October 31, 2023
• Dispositive motions: by November 15, 2023
• Mediation: to be completed by December 31, 2023
• Trial: tentatively set for March 2024
3. Discovery — Plaintiff's Propounded discovery. June 5, 2023: VHG served its first set of interrogatories (15 interrogatories), first request for production of documents (42 requests), and first request for admissions (28 requests) on Ironclad Indemnity Corporation, targeting Ironclad's claims investigation, coverage analysis, underwriting files, and communications with co-defendants and reinsurers. Simultaneously, VHG served its first set of interrogatories on Pinnacle Surplus Lines Inc., focusing on Pinnacle's follow-form coverage determination and any independent analysis of VHG's claim.
June 10, 2023: VHG served its first request for production of documents on Montclair Assurance Company, targeting Montclair's underwriting files, correspondence with Ironclad and Sovereign Re, and any independent coverage analysis.
June 20, 2023: VHG issued a subpoena duces tecum to Tidewater Risk Advisors LLC, directed to Franklin Orde, seeking production of all documents relating to the July 2022 renewal of VHG's insurance program, including all correspondence, underwriting submissions, binder communications, and internal notes relating to the named-windstorm sub-limit and the premium negotiations. The Tidewater production proved to be a significant source of favorable evidence for VHG's position on the sub-limit issue.
July 15, 2023: VHG served a second request for production of documents on Ironclad, specifically targeting underwriting files and internal communications relating to the July 2022 renewal, the named-windstorm sub-limit deletion, and the premium adjustment. This targeted discovery was propounded following the initial review of Ironclad's first-round production, which revealed gaps in the underwriting file documentation.
4. Discovery — Responses to Defendants' discovery. July 5, 2023: VHG served its verified responses to Ironclad's first set of interrogatories and its responses and objections to Ironclad's first request for production of documents. The production included financial records, property damage documentation, photographs, correspondence with Tidewater Risk Advisors, mitigation records, contractor communications, and related materials. Appropriate objections were asserted to protect privileged and work-product materials.
August 1, 2023: VHG served its privilege log identifying 247 documents withheld or redacted on the basis of attorney-client privilege and/or the work product doctrine. The privilege log was prepared in accordance with Florida Rule of Civil Procedure 1.280(b)(6) and included sufficient information to enable the defendants to assess the privilege claims. No challenge to the privilege log was filed by any defendant.
September 20, 2023: VHG served supplemental interrogatory responses updating certain financial data and expert-related information as required by the Court's scheduling order and the parties' discovery obligations.
5. Fact Depositions. The following fact depositions were conducted during the discovery period:
July 10, 2023 — Victor Haddon (Ironclad SVP Claims): Mr. Haddon was deposed by Calderwood & Harkness over a full day at the offices of Fendowell Rourke & Stanton in Tampa, Florida. Mr. Haddon testified regarding Ironclad's basis for the coverage denial, the claims investigation process, Ironclad's interpretation of the named-windstorm sub-limit, and the company's internal deliberations regarding the denial. Significantly, Mr. Haddon made several admissions that were favorable to VHG's position, including his acknowledgment that Ironclad's underwriting department had engaged in negotiations with Tidewater regarding the sub-limit at the July 2022 renewal and that the premium increase reflected, at least in part, a change in the scope of coverage.
July 24, 2023 — Denise Whitford (Arbor Claims Services, lead independent adjuster): Ms. Whitford was deposed regarding her property inspection methodology, her assessment of the extent and cause of damage at each VHG property, and her analysis of the period of restoration. Ms. Whitford's testimony was largely consistent with her written reports but provided useful detail regarding the post-hurricane conditions that complicated the restoration process.
August 7, 2023 — Marcus Ellsworth (VHG CEO): Mr. Ellsworth testified regarding VHG's evacuation decisions, the timeline of the restoration effort at each property, the financial impact of Hurricane Callista on VHG's operations and revenue, and the company's mitigation efforts. Mr. Ellsworth's testimony was well-prepared and effectively communicated the severity and duration of the business interruption.
August 8, 2023 — Diane Calder (VHG CFO): Ms. Calder testified regarding the financial data underlying VHG's $60,000,000 BI claim, including the calculation of lost revenue, continuing fixed expenses, saved expenses, and extra expenses at each property. Her testimony was consistent with Dr. Vasquez's expert analysis and provided the factual foundation for the damages quantification.
August 14, 2023 — Sandra Pellegrini (VHG VP Risk Management): Ms. Pellegrini testified regarding the design and placement of VHG's insurance program, her communications with Tidewater Risk Advisors during the July 2022 renewal process, and VHG's mitigation efforts following Hurricane Callista. Ms. Pellegrini's testimony was particularly valuable on the windstorm sub-limit issue, as she confirmed VHG's understanding that the sub-limit had been deleted at renewal.
August 28, 2023 — Franklin Orde (Tidewater Risk Advisors, broker): Mr. Orde was deposed regarding the July 2022 renewal negotiations between Tidewater and Ironclad's underwriting department. Mr. Orde testified at length about the specific discussions he had with Ironclad's underwriter regarding the deletion of the named-windstorm sub-limit in exchange for the premium increase. His testimony was corroborated by contemporaneous email correspondence produced in discovery and was one of the most significant pieces of evidence supporting VHG's position.
September 5, 2023: The Firm prepared a comprehensive post-deposition summary and key admissions memorandum analyzing the testimony elicited during the fact deposition phase, identifying favorable admissions, and assessing the implications for VHG's litigation strategy and settlement posture.
6. Expert Phase. April 20, 2023: Calderwood & Harkness retained Meridian Forensic Economics LLC as VHG's forensic accounting and damages expert. The lead expert was Dr. Helen Vasquez, CPA, CFF, whose billing rate was $625/hr, with supporting analysts billed at $375/hr. Dr. Vasquez was retained to quantify VHG's business-interruption and extra-expense losses across the three affected properties.
April 22, 2023: Calderwood & Harkness retained Caldwell Engineering Associates Inc. as VHG's forensic engineering and cause-of-loss expert. The lead expert was Jeffrey Caldwell, PE, a licensed professional engineer specializing in hurricane damage assessment and wind-versus-flood causation analysis.
May 1, 2023: The Firm issued detailed scope and data requirement memoranda to both experts, specifying the issues to be addressed, the methodology to be employed, and the documents and data to be reviewed. For Dr. Vasquez, this included VHG's financial records, occupancy data, revenue projections, expense reports, and contractor invoices. For Mr. Caldwell, this included property inspection reports, meteorological data, Arbor Claims Services' inspection documentation, and structural engineering plans for each property.
September 8–10, 2023: The Firm conducted an internal review and analysis of draft expert reports from both Dr. Vasquez and Mr. Caldwell. The review involved detailed discussions between the engagement team and each expert to ensure that the reports were accurate, complete, and consistent with VHG's coverage positions.
September 15, 2023: Expert reports were served on all defendants in accordance with the Court's scheduling order. Dr. Vasquez's report quantified VHG's total BI and extra-expense losses at $60,000,000-plus, broken down by property and by loss category. Mr. Caldwell's report addressed the cause-of-loss analysis, differentiating wind damage from storm-surge damage at each of the three properties and opining that wind was the efficient proximate cause of loss at all three sites.
The defense served the expert report of Dr. Warren Birk of Graystone Consulting Group LLC, which rebutted VHG's BI-loss quantification. Dr. Birk's report challenged VHG's claimed BI losses primarily on the basis of the period-of-restoration defense, arguing that the closure periods at the Grand Key and Harborview properties were unreasonably extended and that VHG's losses should have been mitigated through earlier restoration. Dr. Birk quantified what he characterized as the "reasonable" BI loss at approximately $38,000,000 to $42,000,000.
October 2, 2023: Rebuttal expert reports were served by both sides. Dr. Vasquez's rebuttal addressed Dr. Birk's criticisms point-by-point, demonstrating that the closure periods were reasonable in light of post-hurricane conditions and that Dr. Birk's alternative quantification was based on unrealistic assumptions about contractor availability and material procurement timelines.
October 16, 2023: Dr. Vasquez was deposed by defense counsel (Gregory Stanton) at Calderwood & Harkness's Miami office. Dr. Vasquez's deposition lasted approximately seven hours. She effectively defended her methodology and opinions under cross-examination, and defense counsel was unable to elicit any material concessions.
October 23, 2023: Dr. Birk was deposed by the Firm (Tiffany Rosenthal conducted the examination) at Graystone Consulting Group's Chicago office. Dr. Birk's deposition lasted approximately six hours. During the deposition, Dr. Birk made several concessions regarding the post-hurricane contractor shortage in South Florida and acknowledged that his alternative period-of-restoration analysis did not account for certain code-compliance requirements that extended the restoration timeline. These concessions weakened the defense's position on the period-of-restoration issue.
7. Motions Practice. November 1, 2023: VHG filed a motion for partial summary judgment on the named-windstorm sub-limit issue. The motion was supported by a comprehensive memorandum of law, a statement of undisputed material facts, and three supporting declarations:
• Declaration of Sandra Pellegrini (VHG VP Risk Management), attesting to VHG's understanding and intent that the sub-limit was deleted at the July 2022 renewal;
• Declaration of Franklin Orde (Tidewater broker), attesting to his specific negotiations with Ironclad's underwriting department regarding the deletion of the sub-limit and the corresponding premium increase; and
• Declaration of Dr. Helen Vasquez (damages expert), attesting to the impact of the sub-limit issue on VHG's total recoverable damages.
The motion argued that the undisputed facts established that the named-windstorm sub-limit had been deleted from the Ironclad primary policy at the July 2022 renewal, and that VHG was therefore entitled to the full $25,000,000 primary limit (less the $500,000 deductible) without the sub-limit reduction. The memorandum of law addressed the applicable standards for contract interpretation under Florida law, the parol evidence exception for ambiguous policy terms, and the doctrine of reasonable expectations.
November 15, 2023: Ironclad and Pinnacle, through Fendowell Rourke & Stanton, filed a cross-motion for partial summary judgment on the same issue, arguing that the policy language was unambiguous and that the named-windstorm sub-limit remained in effect notwithstanding the broker negotiations. The cross-motion argued that any deletion of the sub-limit required a formal endorsement, which was never issued, and that the broker negotiations were inadmissible parol evidence.
November 20, 2023: Before ruling on the competing summary judgment motions, Judge Embry entered an order directing the parties to mediation, consistent with the case management order's requirement that mediation be completed by December 31, 2023. The Court indicated that it would hold the summary judgment motions in abeyance pending the outcome of the mediation.
November 29, 2023: VHG filed its opposition to defendants' cross-motion for partial summary judgment, arguing that the policy was ambiguous as to whether the sub-limit had been deleted, that extrinsic evidence was admissible to resolve the ambiguity, and that the extrinsic evidence overwhelmingly supported VHG's position.
D. Mediation and Settlement (November – December 2023)
November 22, 2023: The Firm prepared a detailed settlement authority analysis and recommendation memorandum for the Client, evaluating the strengths and risks of VHG's position across all contested coverage issues. The memorandum recommended that the Client authorize a minimum settlement floor of $40,000,000, with the expectation that VHG's strong position on the windstorm sub-limit issue — particularly in light of the pending summary judgment motion — would provide substantial leverage to achieve a settlement above that floor.
November 25, 2023: Elaine Forsythe sent a pre-mediation strategy email to the Client's mediation team (Nathaniel Driscoll, Marcus Ellsworth, and Diane Calder), outlining the proposed mediation strategy. The strategy contemplated opening the mediation with a demand at full policy limits ($60,000,000), based on the full value of VHG's claim, and calibrating concessions based on the mediator's assessment of the parties' respective positions. The email discussed anticipated defense arguments, likely settlement ranges, and the dynamics among the four carrier defendants.
November 28, 2023: VHG's confidential mediation position statement was submitted to the Honorable Richard Mendelson (Ret.) at Keystone Dispute Resolution Inc. The position statement, totaling thirty-two pages, set forth VHG's factual and legal positions on each of the contested coverage issues, summarized the favorable deposition testimony and expert opinions, and identified what VHG viewed as the key weaknesses in the defendants' positions.
December 1, 2023: The Firm prepared a comprehensive mediation damages summary and exhibit book for use during the mediation sessions. The exhibit book included:
• Property-specific BI loss presentations for each of the three VHG properties, with supporting financial data and timeline charts;
• A diagram of the insurance tower structure and the payment obligations of each carrier;
• Key policy provisions, including the disputed named-windstorm sub-limit language and the flood exclusion;
• Excerpts from favorable deposition testimony (Haddon, Orde, Whitford);
• Photographs documenting property damage at all three properties;
• Summary charts of expert opinions from Dr. Vasquez and Mr. Caldwell; and
• A settlement-value analysis illustrating the range of probable outcomes at trial.
December 4–5, 2023: A two-day mediation was conducted before the Honorable Richard Mendelson (Ret.) at the offices of Keystone Dispute Resolution Inc., located at 200 South Biscayne Boulevard, Suite 3100, Miami, Florida 33131. The mediation fee was $15,000 per day, for a total mediation cost of $30,000.
VHG's mediation team consisted of Elaine Forsythe, Tiffany Rosenthal, Nathaniel Driscoll (General Counsel), Marcus Ellsworth (CEO), and Diane Calder (CFO). Ironclad and Pinnacle were represented by Gregory Stanton and Meredith Liang of Fendowell Rourke & Stanton, together with Victor Haddon (Ironclad) and corporate representatives of Pinnacle. Montclair and Sovereign Re were represented by Patricia Kraus and Raymond Cho of Delvecchio & Kraus, together with claims representatives of both carriers.
The first day of mediation involved joint session opening presentations, followed by extended caucus sessions in which Mediator Mendelson shuttled between the parties. The primary focus of Day One was the windstorm sub-limit issue, where VHG presented its evidence and argued that the pending summary judgment motion was highly likely to be resolved in VHG's favor. The defense countered with its argument that the policy language was unambiguous and that VHG could not rely on parol evidence to override the written terms.
On the second day, the parties engaged in sustained settlement negotiations through continued caucus sessions. The mediator facilitated discussions regarding allocation among the four carriers, addressing the differing exposure levels and coverage uncertainties at each layer of the tower. By approximately 6:30 PM on December 5, 2023, all parties reached agreement on a global settlement.
December 5, 2023: A term sheet was executed by all parties memorializing the principal settlement terms, including the aggregate settlement amount, the allocation among carriers, the payment terms, the mutual release framework, and the confidentiality provisions. The term sheet was signed by authorized representatives of all parties and their respective counsel.
E. Post-Settlement / Closing (December 2023 – January 2024)
December 19, 2023: The definitive settlement agreement and mutual release was executed by all parties. The agreement was a comprehensive document incorporating and expanding upon the terms of the December 5, 2023 term sheet. The settlement agreement included mutual general releases, confidentiality provisions, representations and warranties, indemnification provisions, and governing-law and dispute-resolution clauses. The agreement was governed by Florida law. Simultaneously, the Firm sent an email to the Client confirming execution of the settlement agreement.
December 20, 2023: The Firm transmitted wire instruction letters to defense counsel, directing payment as follows: (a) to Fendowell Rourke & Stanton LLP for transmittal of the Ironclad and Pinnacle settlement payments, and (b) to Delvecchio & Kraus LLP for transmittal of the Montclair and Sovereign Re settlement payments. All payments were to be made by wire transfer to the Calderwood & Harkness trust account at Greaves Bancorp
December 22, 2023: The Firm circulated a draft joint stipulation of dismissal with prejudice and proposed order of dismissal to Fendowell Rourke & Stanton and Delvecchio & Kraus for review and comment.
January 2, 2024: The final, agreed-upon stipulation of dismissal and proposed order was circulated to all defense counsel for signatures.
January 3, 2024: All settlement funds were received into the Calderwood & Harkness trust account, totaling $47,300,000. The aggregate funds were received via four separate wire transfers from the respective carriers, all of which cleared on the same date. Receipt of funds was confirmed by the Firm's trust account administrator and communicated to the engagement team and the Client.
January 4, 2024: The Firm transmitted a disbursement letter to Nathaniel Driscoll (VHG General Counsel), setting forth the calculation of net settlement proceeds due to the Client after deduction of fees and expenses. The disbursement letter itemized the gross settlement, the Firm's total fees (hourly and contingency enhancement), the expenses advanced, and the net proceeds to VHG. Disbursement of net proceeds to VHG was effectuated by wire transfer on the same date.
January 5, 2024: The stipulation of dismissal with prejudice and proposed order of dismissal were filed with the Eleventh Judicial Circuit of Florida, Miami-Dade County, in Case No. 2022-CA-031547. The stipulation was executed by counsel for all parties. Judge Embry entered the order of dismissal with prejudice on the same date.
January 12, 2024: The matter is formally closed as of the date of this memorandum.
VII. SETTLEMENT TERMS
A. Total Recovery
The aggregate settlement amount was $47,300,000, representing approximately 78.83% of VHG's total claimed loss of $60,000,000. This result was achieved through the participation of all four carrier defendants, with each carrier contributing to the settlement in proportion to the negotiated resolution of its respective layer exposure.
B. Allocation by Carrier
The $47,300,000 aggregate settlement was allocated among the four carriers as follows:
As reflected in the table above, Ironclad's contribution of $24,500,000 effectively represented payment of the full primary layer of $25,000,000 less the $500,000 policy deductible. The progressive discount at the excess layers — 81.33% at the first excess, 68.0% at the second excess, and 38.0% at the third excess — reflected the increasing coverage uncertainty as the tower was ascended, as discussed further in Section IX.E below.
C. Payment Terms
Under the terms of the settlement agreement, all payments were due in a single lump sum within forty-five (45) days of execution of the definitive settlement agreement (i.e., by February 2, 2024). In practice, all four carriers remitted their settlement contributions ahead of schedule, and the aggregate sum of $47,300,000 was received in the Firm's trust account on January 3, 2024 — thirty days before the contractual due date.
D. Key Settlement Provisions
The definitive settlement agreement contained the following material provisions:
• Mutual General Release. All parties exchanged mutual general releases of all claims, causes of action, demands, and liabilities arising from or related to the Hurricane Callista losses under the respective insurance policies. The release encompassed VHG's claims for breach of contract, declaratory judgment, and bad faith, as well as any potential counterclaims or cross-claims among the carriers.
• Confidentiality. The specific dollar amount of the settlement is confidential and may not be disclosed by any party without the prior written consent of all parties, except as required by law, regulation, or court order, or as necessary for VHG's public financial reporting obligations as a Nasdaq-listed company. The existence of the settlement and the resolution of the litigation may be disclosed.