1021-00003 · Verimark Hospitality Group · Pre-Litigation Correspondence

demand-letter-ironclad.docx DOCUMENT Antitrust

71 / 75 ← → ✕

CALDERWOOD & HARKNESS LLP Attorneys at Law

333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 884-7200 Facsimile: (305) 884-7201 www.calderwoodharkness.com

November 20, 2022

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND VIA ELECTRONIC MAIL (vhaddon@ironcladindemnity.com)

Mr. Victor Haddon Senior Vice President of Claims Ironclad Indemnity Corporation 55 Constitution Boulevard Hartford, CT 06103

Re: Demand for Payment of Business-Interruption Losses — Verimark Hospitality Group Inc.

Policy No.: IIC-PRP-2022-07541

Policy Period: July 1, 2022 – July 1, 2023

Date of Loss: September 18, 2022 (Hurricane Callista)

Claim Amount: $60,000,000 (total tower); $25,000,000 demanded from Ironclad Indemnity Corporation (primary layer limit)

Our File No.: 1021-00003

Dear Mr. Haddon:

I. Introduction and Purpose of This Letter

This firm represents Verimark Hospitality Group Inc. ("VHG"), a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK, with its principal offices located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. We have been retained in connection with VHG's business-interruption insurance claim arising from the devastating impact of Hurricane Callista, which made landfall in the State of Florida on September 18, 2022. The responsible partner on this matter is Elaine Forsythe, and all future communications regarding this claim should be directed to her attention at the address and contact information set forth above and in the signature block below.

This letter constitutes VHG's formal demand for payment of the full primary layer policy limit of Twenty-Five Million Dollars ($25,000,000) under Ironclad Indemnity Corporation's ("Ironclad") all-risk property and business-interruption insurance policy, Policy No. IIC-PRP-2022-07541 (the "Policy"), less the applicable deductible of Five Hundred Thousand Dollars ($500,000), for a net demand amount of Twenty-Four Million Five Hundred Thousand Dollars ($24,500,000).

As set forth in detail below, VHG's total business-interruption losses resulting from Hurricane Callista across its three insured resort properties amount to Sixty Million Dollars ($60,000,000), as documented in VHG's sworn statement in proof of loss submitted to Ironclad on November 15, 2022 (the "Proof of Loss"). VHG's losses far exceed the limits of the primary layer, and accordingly, this is a clear full-limits claim that warrants prompt and complete payment. VHG has satisfied all conditions precedent under the Policy, and there is no legitimate basis for Ironclad to withhold or delay payment.

We write now because nearly two months have passed since VHG's initial notice of loss, more than five weeks have passed since Ironclad's independent adjusting firm inspected the damaged properties, and Ironclad has neither paid nor made any partial payment on this claim. The continued delay is unjustified and, if prolonged, may give rise to additional liability on the part of Ironclad under the laws of the State of Florida.

II. The Insured and the Insurance Program

A. Verimark Hospitality Group Inc.

VHG is a publicly traded hospitality and real-estate company that develops, owns, and operates luxury resort hotels, conference centers, and related hospitality facilities throughout the State of Florida. VHG is widely recognized as one of the premier luxury hospitality operators in the southeastern United States, and its properties cater to high-end leisure travelers, corporate groups, and conference attendees.

VHG's senior management team includes the following key personnel relevant to this matter:

• Marcus Ellsworth — Chief Executive Officer

• Diane Calder — Chief Financial Officer

• Nathaniel Driscoll — General Counsel

• Sandra Pellegrini — Vice President of Risk Management

VHG reported total revenues of approximately $412 million for fiscal year 2021, with earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $78 million. These figures underscore the significant scale and value of VHG's insured operations and the magnitude of the business-interruption losses at issue in this claim. VHG's financial performance and the revenue-generating capacity of its properties are well-documented in its public filings with the Securities and Exchange Commission and have been made available to Ironclad in connection with the adjustment of this claim.

B. VHG's Property and Business-Interruption Insurance Program

VHG maintains a comprehensive property and business-interruption insurance program that was placed by its broker of record, Tidewater Risk Advisors LLC ("Tidewater"), through its account executive, Franklin Orde. The program was structured as a layered tower providing aggregate coverage of $60,000,000 in excess of a $500,000 per-occurrence deductible for the policy period of July 1, 2022 through July 1, 2023. The tower is comprised of the following layers:

All policies within the tower provide "all risks" coverage for physical loss or damage to insured property, including coverage for business interruption and extra expense. The policies share a common policy period of July 1, 2022 through July 1, 2023. VHG has timely paid all premiums in full across the tower, including the primary layer premium of $980,000 to Ironclad. VHG is and at all relevant times has been in good standing under all policies in the tower.

It is important to note that the total annual premium paid by VHG for this program — $1,840,000 — reflects the breadth and scope of coverage VHG bargained for and expected to receive in the event of a catastrophic loss of precisely the type that occurred on September 18, 2022.

III. Hurricane Callista and the Covered Loss

A. The Storm

Hurricane Callista was identified as a tropical depression in the eastern Caribbean Sea on September 9, 2022, and was formally named by the National Hurricane Center ("NHC") on September 12, 2022, upon reaching tropical storm strength. The storm rapidly intensified over the warm waters of the Caribbean and the Straits of Florida. By September 17, 2022, Hurricane Callista had strengthened to a Category 4 hurricane on the Saffir-Veltason Hurricane Wind Scale.

Hurricane Callista made landfall on September 18, 2022, at approximately 1:30 PM Eastern Daylight Time in the Lower Florida Keys, near the Big Pine Key area of Monroe County, Florida. At the time of landfall, Hurricane Callista carried maximum sustained winds of approximately 145 miles per hour, placing it firmly within the upper range of Category 4 intensity. The storm produced catastrophic storm surge of 8 to 14 feet in Monroe County and 6 to 10 feet in Lee County, along with widespread destructive winds, torrential rainfall, and dangerous surf conditions extending well beyond the immediate landfall area.

In anticipation of Hurricane Callista's approach, Monroe County issued a mandatory evacuation order on September 16, 2022, and Lee County issued a mandatory evacuation order on September 17, 2022. VHG fully complied with all evacuation orders, undertook pre-storm preparations to secure its properties to the extent feasible, and ensured the safety of all guests and employees at its affected resort properties.

Hurricane Callista was one of the most destructive hurricanes to strike the Florida Keys and the southwestern Florida coast in decades, causing billions of dollars in insured losses across the region and prompting a federal major disaster declaration by the President of the United States.

B. Damage to VHG Properties

VHG's three insured resort properties sustained catastrophic damage from Hurricane Callista, resulting in prolonged closures and massive business-interruption losses. Each property is described below, together with a summary of the damage sustained and the resulting estimated business-interruption losses.

1. Verimark Grand Key Resort — Mile Marker 48, Marathon, FL 33050. The Verimark Grand Key Resort is a 312-room luxury resort and full-service marina located at Mile Marker 48 in Marathon, Florida, in the heart of the Florida Keys. The Grand Key Resort is VHG's flagship property and its highest-grossing asset. Prior to Hurricane Callista, the Grand Key Resort operated at an average daily rate ("ADR") of $389 and maintained an average occupancy rate of 82%, reflecting exceptionally strong demand and revenue performance.

Hurricane Callista inflicted severe and widespread damage on the Grand Key Resort. The property sustained catastrophic wind damage to the main building's roof, exterior walls, windows, and structural elements, as well as devastating storm surge flooding that inundated the ground floor, lobby, restaurant facilities, and spa. The resort's marina, which accommodated more than 100 vessels and served as a significant ancillary revenue source, was almost entirely destroyed. Guest rooms on the upper floors suffered extensive water intrusion from wind-driven rain penetrating the compromised roof structure. The resort's mechanical, electrical, and plumbing systems were severely damaged by both wind and water.

As a result of this damage, the Verimark Grand Key Resort was closed from September 18, 2022 through March 15, 2023, a total of 178 days. The property could not be reopened sooner due to the magnitude of structural repairs required, the need for complete remediation of water damage and mold, the destruction of the marina requiring full reconstruction, and post-hurricane delays in obtaining building permits and securing qualified contractors in the Florida Keys, where demand for construction services was extraordinarily high following Hurricane Callista.

The estimated business-interruption loss for the Verimark Grand Key Resort is $31,400,000. This figure accounts for lost room revenue (based on historical ADR and occupancy data), lost ancillary revenue from food and beverage operations, spa services, marina fees, and other resort amenities, net of expenses saved during the closure period, and inclusive of extra expenses incurred by VHG to expedite restoration and mitigate further losses.

2. Verimark Harborview Hotel & Conference Center — 1400 Estero Boulevard, Fort Myers Beach, FL 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 Fort Myers Beach, Florida. The Harborview is a significant revenue generator for VHG, serving both the leisure travel market and the corporate meetings and events sector. Prior to Hurricane Callista, the Harborview operated at an ADR of $295 and an average occupancy rate of 74%.

Hurricane Callista caused significant wind damage to the Harborview's roof and exterior façade, resulting in extensive water intrusion throughout the hotel. The 40,000-square-foot conference center sustained particularly severe damage, with portions of the roof peeled away by high winds, rendering the facility entirely unusable. The hotel's exterior landscaping, pool complex, and beachfront amenities were destroyed or severely damaged by storm surge and wind. Electrical and HVAC systems required replacement in multiple sections of the building.

As a result of this damage, the Verimark Harborview Hotel & Conference Center was closed from September 18, 2022 through January 31, 2023, a total of 135 days. The conference center required particularly extensive reconstruction due to the large span of its roof structure and the specialized nature of its audiovisual, lighting, and climate-control systems.

The estimated business-interruption loss for the Verimark Harborview Hotel & Conference Center is $18,700,000. This figure reflects lost room revenue, lost conference and events revenue (including cancellations of pre-booked conferences and corporate events during the closure period), lost food and beverage revenue, and other ancillary revenue, net of saved expenses and inclusive of extra expenses.

3. Verimark Sunset Shores — 7200 Gulf Boulevard, St. Pete Beach, FL 33706. The Verimark Sunset Shores is a 186-room boutique resort located on St. Pete Beach, Florida. Although situated further north than VHG's other two properties, the Sunset Shores was well within the destructive wind field of Hurricane Callista and sustained significant damage. Prior to Hurricane Callista, the Sunset Shores operated at an ADR of $342 and an average occupancy rate of 79%.

Hurricane Callista caused substantial wind damage to the Sunset Shores' roof, windows, and exterior elements, along with water intrusion in numerous guest rooms and public areas. While the damage was less severe than at the Grand Key Resort or the Harborview, it was nonetheless sufficient to require full closure of the property from September 18, 2022 through November 30, 2022, a period of 73 days. Following the initial closure, the Sunset Shores reopened at significantly reduced capacity while repairs continued, and did not return to full operational capacity until February 28, 2023.

The estimated business-interruption loss for the Verimark Sunset Shores is $9,900,000. This figure accounts for lost revenue during the full closure period, reduced revenue during the period of limited operations, lost ancillary revenue, net saved expenses, and extra expenses incurred to accelerate restoration and reopen the property as quickly as possible.

C. Total Claimed Loss

VHG's total business-interruption losses across its three insured resort properties are summarized as follows:

These losses are documented in VHG's sworn statement in proof of loss, submitted to Ironclad on November 15, 2022, a copy of which is enclosed herewith. The loss calculations were prepared by VHG's internal finance team under the supervision of CFO Diane Calder and VP of Risk Management Sandra Pellegrini, and account for lost room revenue (based on historical ADR and occupancy rates at each property), lost ancillary revenue from food and beverage operations, spa services, marina operations, conference and events bookings, and other resort amenities, net of expenses saved during the respective closure periods, and inclusive of all extra expenses reasonably incurred by VHG to expedite restoration and resume operations. A summary of the business-interruption loss calculations by property is enclosed with this letter as a separate exhibit.

IV. VHG's Compliance with Policy Conditions

VHG has fully complied with all conditions precedent and policy requirements under the Policy, including but not limited to the following:

Timely Notice of Loss. VHG submitted its initial notice of loss to Ironclad on September 22, 2022, just four days after Hurricane Callista's landfall. Given the catastrophic nature of the storm and the widespread disruption it caused throughout South Florida and the Florida Keys — including power outages, road closures, and evacuations — this notice was provided with exemplary promptness. The notice was transmitted to Ironclad's claims department via email and followed by hard copy via overnight courier.

Cooperation with Ironclad's Adjusters. VHG cooperated fully and in good faith with Arbor Claims Services LLC ("Arbor"), the independent adjusting firm retained by Ironclad to investigate and adjust the claim. Arbor's lead adjuster, Denise Whitford, and her team conducted their initial inspection of all three VHG properties on October 5, 2022. VHG's personnel, including Sandra Pellegrini and property-level general managers, accompanied Ms. Whitford's team during the inspections, provided unrestricted access to all damaged areas, and furnished all requested documentation, including historical financial records, occupancy data, booking records, contractor estimates, and remediation reports.

Sworn Statement in Proof of Loss. VHG submitted its comprehensive sworn statement in proof of loss to Ironclad on November 15, 2022, within the timeframe required under the Policy. The Proof of Loss was sworn to by Diane Calder, CFO, and provides a detailed accounting of VHG's business-interruption losses at each of the three insured properties.

Documentation and Records. VHG has provided, and continues to stand ready to provide, all documentation reasonably requested by Ironclad in connection with the adjustment of this claim, including but not limited to financial statements, tax returns, booking records, payroll data, vendor invoices, contractor estimates, permit applications, and all other records bearing on the nature and extent of VHG's losses.

Mitigation of Losses. VHG has at all times taken reasonable and prudent steps to mitigate its losses, including securing damaged properties immediately following the storm to prevent further damage, engaging emergency water extraction and remediation contractors, tarping damaged roofs, boarding up broken windows and compromised openings, commencing permanent repairs as soon as building permits were obtained and qualified contractors were available, and working diligently to reopen its properties as quickly as conditions permitted. VHG incurred significant extra expense in connection with these mitigation efforts, which expense is included in VHG's loss calculations as provided for under the Policy.

In sum, VHG has satisfied every obligation imposed upon it by the Policy. There is no legitimate basis upon which Ironclad may deny or delay payment based on any alleged failure by VHG to comply with policy conditions.

V. Response to Ironclad's Reservation of Rights

By letter dated October 12, 2022, Ironclad issued a reservation of rights letter to VHG, purporting to identify several grounds upon which Ironclad might seek to limit or deny coverage for VHG's Hurricane Callista losses. Calderwood & Harkness responded to Ironclad's reservation of rights letter on October 25, 2022, disputing each stated basis in detail. A copy of our October 25, 2022 response letter is enclosed. We address each of Ironclad's purported coverage defenses below and explain why none of them provides a valid basis for Ironclad to refuse payment.

A. The Named Windstorm Sub-Limit Is Inapplicable

Ironclad's reservation of rights letter references a purported named-windstorm sub-limit of $15,000,000 for business-interruption losses, which Ironclad suggests may cap its payment obligation under the Policy.

VHG categorically rejects this contention. The $15,000,000 named-windstorm sub-limit that appeared in VHG's prior policy year (July 1, 2021 – July 1, 2022) was expressly deleted during the July 2022 policy renewal negotiations. The removal of the sub-limit was a material term of the renewal and was agreed upon between Tidewater Risk Advisors (on behalf of VHG) and Ironclad's underwriting department. Specifically, correspondence between Franklin Orde of Tidewater and Ironclad's Senior Underwriter, during the renewal process in June and July 2022, confirms that the named-windstorm sub-limit was eliminated in exchange for an increased annual premium on the primary layer. VHG paid the full $980,000 primary layer premium for the 2022–2023 policy year, which included the incremental premium attributable to the deletion of the sub-limit.

The 2022–2023 renewal binder issued by Ironclad and the corresponding policy endorsements clearly reflect the removal of the named-windstorm sub-limit. VHG's coverage is subject to the full $25,000,000 per-occurrence primary layer limit, without any named-windstorm sub-limitation.

Ironclad is well aware that this sub-limit was removed, and its invocation in the reservation of rights letter is, at best, the product of an internal miscommunication within Ironclad's claims and underwriting departments. We urge Ironclad to confirm its underwriting files and correct this error immediately. To the extent there is any ambiguity in the policy language — which VHG does not concede — such ambiguity must be construed against Ironclad as the drafter of the policy and in favor of coverage, consistent with well-established Florida law. See, e.g., Excelsior Ins. Co. v. Pomona Park Bar & Package Store, 369 So. 2d 938, 942 (Fla. 1979); Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000).

Moreover, even if the named-windstorm sub-limit were somehow found to be applicable — which VHG denies — VHG's total losses of $60,000,000 far exceed the full primary layer limit regardless. The sub-limit issue, at most, would affect the quantum payable under the primary policy, not the existence of Ironclad's obligation to pay. This argument does not relieve Ironclad of any obligation to make prompt payment of covered losses.

B. The Periods of Restoration Are Reasonable

Ironclad's reservation of rights letter suggests that VHG may have "unreasonably delayed" restoration of its properties, thereby extending the period of restoration and inflating its business-interruption claim. This suggestion is baseless and unsupported by any factual evidence.

VHG commenced restoration activities at each of its three properties as promptly as was reasonably possible given the catastrophic nature of the damage caused by a Category 4 hurricane. The restoration timeline at each property was dictated by objective, real-world constraints that were entirely beyond VHG's control, including:

• The severe extent of structural damage at each property, requiring comprehensive engineering assessments before repairs could begin;

• Post-hurricane permitting delays caused by the overwhelming volume of building permit applications filed with Monroe County, Lee County, and Pinellas County authorities in the aftermath of Hurricane Callista;

• Acute contractor shortages throughout South Florida, as the limited pool of qualified contractors was inundated with repair and reconstruction work following one of the most destructive hurricanes in the region's history;

• Supply-chain disruptions affecting the availability of construction materials, building components, and specialized equipment required for the restoration of luxury hospitality properties; and

• The need to comply with updated building codes and flood-zone regulations that applied to reconstruction in coastal areas.

The closure periods at each property — 178 days for the Grand Key Resort, 135 days for the Harborview Hotel & Conference Center, and 73 days of full closure (with additional reduced-capacity operations) for the Sunset Shores — are entirely reasonable and, indeed, are consistent with the restoration timelines experienced by comparable hospitality properties in the affected areas following Hurricane Callista.

The Policy's period-of-restoration provision covers the period of time that would be required to rebuild or repair the damaged property with "reasonable speed and similar quality." VHG's restoration efforts have been conducted with reasonable speed and at a quality consistent with the properties' pre-loss condition. VHG has not delayed restoration, and Ironclad has not identified any specific instance in which VHG allegedly failed to proceed with reasonable dispatch.

C. The Concurrent Causation / Flood Exclusion Defense Is Without Merit

Ironclad's reservation of rights letter raises the flood exclusion contained in the Policy as potentially applicable to storm-surge damage at the Verimark Grand Key Resort, and suggests that the anti-concurrent causation clause may operate to bar or limit coverage.

VHG rejects this defense for several independent reasons.

First, under Florida law, the efficient proximate cause doctrine applies in cases where multiple perils — including both covered and allegedly excluded perils — combine to cause a loss. Where wind, a covered peril under an all-risk property policy, and flooding or storm surge, an allegedly excluded peril, concurrently cause damage as part of a single weather event, coverage applies if wind was a concurrent or dominant cause of the loss. See Glenrock Enterprises, 208 So. 3d 694 (Fla. 2016). Hurricane Callista was a named windstorm that produced both catastrophic winds and storm surge as inseparable components of a single, indivisible meteorological event. The wind and the storm surge were not independent causes; they were concurrent consequences of the same covered occurrence — a Category 4 hurricane.

Second, to the extent Ironclad seeks to invoke the anti-concurrent causation ("ACC") clause in the Policy, Florida courts have subjected such clauses to careful scrutiny and have declined to enforce them where doing so would effectively nullify coverage for losses caused in significant part by covered perils. The ACC clause cannot be wielded as a blanket exclusion to deny coverage for wind damage simply because storm surge accompanied the wind during a hurricane. Such an interpretation would render the windstorm coverage illusory, a result that Florida courts have consistently refused to countenance.

Third, the overwhelming majority of the damage sustained at all three VHG properties — and particularly at the Grand Key Resort — was caused by Category 4 winds with sustained speeds of 145 miles per hour. Roof destruction, structural damage to buildings, window failures, wind-driven rain infiltration, and exterior damage were all the direct result of extreme wind forces. While storm surge contributed to flooding on the ground floor and at the marina at the Grand Key Resort, the wind damage alone far exceeds the primary layer limit.

VHG is prepared, if necessary, to engage a qualified forensic engineer to conduct a causation analysis differentiating wind damage from any storm-surge-related damage at the Grand Key Resort. However, VHG submits that such an exercise should not be required before Ironclad pays the undisputed portion of VHG's claim. Even under the most conservative allocation of losses between wind and storm surge, the wind-attributable damage vastly exceeds the $25,000,000 primary layer limit.

D. The Failure-to-Mitigate Defense Is Factually Baseless

Ironclad's reservation of rights letter contains a boilerplate assertion that VHG may have failed to take reasonable steps to mitigate its losses. This assertion is entirely without factual support, and Ironclad has not identified any specific act or omission by VHG that allegedly constitutes a failure to mitigate.

As detailed in Section IV above, VHG took immediate and comprehensive steps to mitigate its losses following Hurricane Callista, including:

• Immediately securing all three properties to prevent further damage from weather, intrusion, or vandalism;

• Engaging emergency water extraction and remediation contractors within hours of gaining safe access to the properties;

• Tarping damaged roofs and boarding up compromised windows and openings;

• Retaining qualified general contractors and commencing permanent repairs as soon as building permits were issued;

• Working diligently to reopen properties and resume revenue-generating operations as quickly as safely possible; and

• Incurring significant extra expense to expedite the restoration process, all in accordance with the extra-expense provisions of the Policy.

VHG has at all times acted as a prudent and responsible property owner and policyholder. The suggestion that VHG failed to mitigate is a perfunctory reservation without substance. VHG respectfully requests that Ironclad either withdraw this defense or identify, with specificity, the factual basis upon which it is asserted. In the absence of any identified mitigation failure, this defense should play no role in Ironclad's coverage determination.

VI. Demand for Payment

Based on the foregoing, VHG hereby formally demands that Ironclad Indemnity Corporation pay the full primary layer policy limit of Twenty-Five Million Dollars ($25,000,000) under Policy No. IIC-PRP-2022-07541, less the applicable per-occurrence deductible of Five Hundred Thousand Dollars ($500,000), for a net payment of:

$24,500,000.00

Payment shall be made by wire transfer to the trust account of Calderwood & Harkness LLP on behalf of Verimark Hospitality Group Inc. Wire transfer instructions will be provided upon Ironclad's confirmation of payment. In the alternative, payment may be made by cashier's check or certified check made payable to "Calderwood & Harkness LLP, as attorneys for Verimark Hospitality Group Inc." and delivered to our offices at the address set forth in the letterhead above.

VHG's total documented business-interruption losses of $60,000,000 far exceed the $25,000,000 primary layer limit, making this an unambiguous full-limits demand. There is no scenario under which VHG's covered losses fall below the primary layer limit. Ironclad's obligation to pay the full $25,000,000 limit (less the deductible) is clear and indisputable.

VHG is simultaneously transmitting demand letters to the three excess-layer carriers — Pinnacle Surplus Lines Inc. ($15,000,000), Montclair Assurance Company ($10,000,000), and Sovereign Re Ltd. ($10,000,000) — demanding payment of their respective policy limits. The demands upon the excess carriers are without prejudice to VHG's demand upon Ironclad as the primary layer carrier.

VHG demands that Ironclad acknowledge receipt of this demand and provide a substantive response within ten (10) business days of the date of this letter — that is, on or before December 6, 2022. VHG expects payment to follow promptly thereafter.

VII. Bad-Faith Warning and Reservation of Rights

We are compelled to advise Ironclad that its continued failure to pay VHG's covered business-interruption losses may expose Ironclad to statutory and common-law bad-faith liability under the laws of the State of Florida.

Under Florida Statutes § 624.155, an insurer may be liable in a civil action for damages caused by its failure to attempt in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for the insured's interests. Florida courts have consistently held that an insurer's unjustified delay in paying a valid claim constitutes bad faith. See, e.g., Berges v. Infinity Ins. Co., 896 So. 2d 665 (Fla. 2004); Hollowell Industries, 386 So. 2d 783 (Fla. 1980).

Ironclad has had ample time to investigate and evaluate VHG's claim. VHG provided initial notice of loss on September 22, 2022 — nearly two months ago. Ironclad's retained independent adjusting firm, Arbor Claims Services, inspected all three properties on October 5, 2022 — more than six weeks ago. VHG submitted a comprehensive sworn statement in proof of loss, supported by extensive documentation, on November 15, 2022. The nature and extent of VHG's losses are well-documented and not subject to reasonable dispute. The fact that VHG's losses exceed the primary layer limit is beyond question.

Under these circumstances, any continued delay in payment by Ironclad would be difficult to characterize as anything other than a failure to act in good faith.

VHG hereby reserves all rights and remedies available to it under the Policy, Florida statutory law, and common law, including but not limited to:

• Claims for breach of the insurance contract;

• Claims for statutory bad faith under Florida Statutes § 624.155;

• Claims for common-law bad faith;

• Claims for consequential damages resulting from Ironclad's failure to pay;

• Claims for prejudgment interest;

• Claims for attorneys' fees and costs pursuant to Florida Statutes § 627.428 and other applicable provisions of law; and

• Any and all other remedies available at law or in equity.

This demand letter is made without waiver of any of VHG's rights, claims, or defenses, all of which are expressly preserved. Nothing in this letter shall be construed as a limitation on VHG's right to pursue the full measure of damages to which it may be entitled.

VIII. Request for Ongoing Good-Faith Adjustment

Notwithstanding the serious concerns set forth above, VHG remains willing to engage constructively with Ironclad in the adjustment of this claim. Accordingly, VHG respectfully requests the following:

1. That Ironclad immediately resume good-faith adjustment of VHG's business-interruption claim, including the prompt evaluation and payment of undisputed amounts;

2. That Ironclad provide VHG and its counsel with a complete and specific description of any additional documentation or information Ironclad requires to complete its evaluation of the claim, so that VHG may respond promptly and cooperatively;

3. That Ironclad identify, with specificity, any coverage defense or objection it intends to assert, together with the factual and policy-language basis for each such defense or objection; and

4. That all future communications regarding this claim, including any communications from Ironclad's claims department, adjusting firm, coverage counsel, or any other representative, be directed to the undersigned at the following address:

Elaine Forsythe, Partner Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, FL 33131 Telephone: (305) 884-7214

Email: eforsythe@calderwoodharkness.com

VHG reiterates its willingness to cooperate fully with any reasonable investigation or adjustment process. VHG has nothing to hide and welcomes a thorough and fair evaluation of its claim. What VHG will not accept, however, is indefinite delay, unfounded coverage defenses, or any effort by Ironclad to avoid its contractual obligation to pay a valid claim.

IX. Closing

VHG expects prompt resolution of this matter and full payment of its primary layer claim. The losses sustained by VHG as a result of Hurricane Callista are real, documented, and devastating. VHG purchased comprehensive all-risk property and business-interruption insurance from Ironclad — and paid substantial premiums for that coverage — precisely so that it would be protected in the event of a catastrophic loss such as this one. VHG is entitled to the benefit of its bargain.

It is our sincere hope that this matter can be resolved without the necessity of litigation. However, if Ironclad does not honor its contractual obligations within a reasonable time, VHG is fully prepared to pursue all available legal remedies, including filing suit for breach of contract, statutory bad faith, and all other applicable causes of action. VHG will also seek recovery of its attorneys' fees and costs incurred in prosecuting its claim.

Please be advised that simultaneous demand letters substantially similar to this one are being transmitted today to Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd., demanding payment from each of those excess-layer carriers for their respective policy limits.

We look forward to your prompt response.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Elaine Forsythe Partner 333 SE 2nd Avenue, Suite 4400 Miami, FL 33131 Telephone: (305) 884-7214 Facsimile: (305) 884-7201

Email: eforsythe@calderwoodharkness.com

cc:

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

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

Enclosures:

1. Copy of VHG's Sworn Statement in Proof of Loss dated November 15, 2022

2. Copy of Calderwood & Harkness LLP's Response to Ironclad's Reservation of Rights Letter dated October 25, 2022

3. Summary of Business-Interruption Loss Calculations by Property

Layer	Carrier	Limit	Attachment	Policy Number	Annual Premium
Primary	Ironclad Indemnity Corporation	$25,000,000 per occurrence	$500,000 deductible	IIC-PRP-2022-07541	$980,000
First Excess	Pinnacle Surplus Lines Inc.	$15,000,000	$25,000,000 xs	PSL-XS1-2022-3390	$410,000
Second Excess	Montclair Assurance Company	$10,000,000	$40,000,000 xs	MAC-XS2-2022-09817	$265,000
Third Excess	Sovereign Re Ltd.	$10,000,000	$50,000,000 xs	SRL-XS3-2022-5102	$185,000
Total Tower	$60,000,000	$1,840,000
Property	Closure Period	Estimated BI Loss
Verimark Grand Key Resort	Sept. 18, 2022 – Mar. 15, 2023 (178 days)	$31,400,000
Verimark Harborview Hotel & Conference Center	Sept. 18, 2022 – Jan. 31, 2023 (135 days)	$18,700,000
Verimark Sunset Shores	Sept. 18, 2022 – Feb. 28, 2023 (73 days closure + reduced capacity)	$9,900,000
Total	$60,000,000

CALDERWOOD & HARKNESS LLP Attorneys at Law
333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 884-7200 Facsimile: (305) 884-7201 www.calderwoodharkness.com
November 20, 2022
VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND VIA ELECTRONIC MAIL (vhaddon@ironcladindemnity.com)
Mr. Victor Haddon Senior Vice President of Claims Ironclad Indemnity Corporation 55 Constitution Boulevard Hartford, CT 06103
Re: Demand for Payment of Business-Interruption Losses — Verimark Hospitality Group Inc.
Policy No.: IIC-PRP-2022-07541
Policy Period: July 1, 2022 – July 1, 2023
Date of Loss: September 18, 2022 (Hurricane Callista)
Claim Amount: $60,000,000 (total tower); $25,000,000 demanded from Ironclad Indemnity Corporation (primary layer limit)
Our File No.: 1021-00003
Dear Mr. Haddon:
I. Introduction and Purpose of This Letter
This firm represents Verimark Hospitality Group Inc. ("VHG"), a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK, with its principal offices located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. We have been retained in connection with VHG's business-interruption insurance claim arising from the devastating impact of Hurricane Callista, which made landfall in the State of Florida on September 18, 2022. The responsible partner on this matter is Elaine Forsythe, and all future communications regarding this claim should be directed to her attention at the address and contact information set forth above and in the signature block below.
This letter constitutes VHG's formal demand for payment of the full primary layer policy limit of Twenty-Five Million Dollars ($25,000,000) under Ironclad Indemnity Corporation's ("Ironclad") all-risk property and business-interruption insurance policy, Policy No. IIC-PRP-2022-07541 (the "Policy"), less the applicable deductible of Five Hundred Thousand Dollars ($500,000), for a net demand amount of Twenty-Four Million Five Hundred Thousand Dollars ($24,500,000).
As set forth in detail below, VHG's total business-interruption losses resulting from Hurricane Callista across its three insured resort properties amount to Sixty Million Dollars ($60,000,000), as documented in VHG's sworn statement in proof of loss submitted to Ironclad on November 15, 2022 (the "Proof of Loss"). VHG's losses far exceed the limits of the primary layer, and accordingly, this is a clear full-limits claim that warrants prompt and complete payment. VHG has satisfied all conditions precedent under the Policy, and there is no legitimate basis for Ironclad to withhold or delay payment.
We write now because nearly two months have passed since VHG's initial notice of loss, more than five weeks have passed since Ironclad's independent adjusting firm inspected the damaged properties, and Ironclad has neither paid nor made any partial payment on this claim. The continued delay is unjustified and, if prolonged, may give rise to additional liability on the part of Ironclad under the laws of the State of Florida.
II. The Insured and the Insurance Program
A. Verimark Hospitality Group Inc.
VHG is a publicly traded hospitality and real-estate company that develops, owns, and operates luxury resort hotels, conference centers, and related hospitality facilities throughout the State of Florida. VHG is widely recognized as one of the premier luxury hospitality operators in the southeastern United States, and its properties cater to high-end leisure travelers, corporate groups, and conference attendees.
VHG's senior management team includes the following key personnel relevant to this matter:
• Marcus Ellsworth — Chief Executive Officer
• Diane Calder — Chief Financial Officer
• Nathaniel Driscoll — General Counsel
• Sandra Pellegrini — Vice President of Risk Management
VHG reported total revenues of approximately $412 million for fiscal year 2021, with earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $78 million. These figures underscore the significant scale and value of VHG's insured operations and the magnitude of the business-interruption losses at issue in this claim. VHG's financial performance and the revenue-generating capacity of its properties are well-documented in its public filings with the Securities and Exchange Commission and have been made available to Ironclad in connection with the adjustment of this claim.
B. VHG's Property and Business-Interruption Insurance Program
VHG maintains a comprehensive property and business-interruption insurance program that was placed by its broker of record, Tidewater Risk Advisors LLC ("Tidewater"), through its account executive, Franklin Orde. The program was structured as a layered tower providing aggregate coverage of $60,000,000 in excess of a $500,000 per-occurrence deductible for the policy period of July 1, 2022 through July 1, 2023. The tower is comprised of the following layers:
All policies within the tower provide "all risks" coverage for physical loss or damage to insured property, including coverage for business interruption and extra expense. The policies share a common policy period of July 1, 2022 through July 1, 2023. VHG has timely paid all premiums in full across the tower, including the primary layer premium of $980,000 to Ironclad. VHG is and at all relevant times has been in good standing under all policies in the tower.
It is important to note that the total annual premium paid by VHG for this program — $1,840,000 — reflects the breadth and scope of coverage VHG bargained for and expected to receive in the event of a catastrophic loss of precisely the type that occurred on September 18, 2022.
III. Hurricane Callista and the Covered Loss
A. The Storm
Hurricane Callista was identified as a tropical depression in the eastern Caribbean Sea on September 9, 2022, and was formally named by the National Hurricane Center ("NHC") on September 12, 2022, upon reaching tropical storm strength. The storm rapidly intensified over the warm waters of the Caribbean and the Straits of Florida. By September 17, 2022, Hurricane Callista had strengthened to a Category 4 hurricane on the Saffir-Veltason Hurricane Wind Scale.
Hurricane Callista made landfall on September 18, 2022, at approximately 1:30 PM Eastern Daylight Time in the Lower Florida Keys, near the Big Pine Key area of Monroe County, Florida. At the time of landfall, Hurricane Callista carried maximum sustained winds of approximately 145 miles per hour, placing it firmly within the upper range of Category 4 intensity. The storm produced catastrophic storm surge of 8 to 14 feet in Monroe County and 6 to 10 feet in Lee County, along with widespread destructive winds, torrential rainfall, and dangerous surf conditions extending well beyond the immediate landfall area.
In anticipation of Hurricane Callista's approach, Monroe County issued a mandatory evacuation order on September 16, 2022, and Lee County issued a mandatory evacuation order on September 17, 2022. VHG fully complied with all evacuation orders, undertook pre-storm preparations to secure its properties to the extent feasible, and ensured the safety of all guests and employees at its affected resort properties.
Hurricane Callista was one of the most destructive hurricanes to strike the Florida Keys and the southwestern Florida coast in decades, causing billions of dollars in insured losses across the region and prompting a federal major disaster declaration by the President of the United States.
B. Damage to VHG Properties
VHG's three insured resort properties sustained catastrophic damage from Hurricane Callista, resulting in prolonged closures and massive business-interruption losses. Each property is described below, together with a summary of the damage sustained and the resulting estimated business-interruption losses.
1. Verimark Grand Key Resort — Mile Marker 48, Marathon, FL 33050. The Verimark Grand Key Resort is a 312-room luxury resort and full-service marina located at Mile Marker 48 in Marathon, Florida, in the heart of the Florida Keys. The Grand Key Resort is VHG's flagship property and its highest-grossing asset. Prior to Hurricane Callista, the Grand Key Resort operated at an average daily rate ("ADR") of $389 and maintained an average occupancy rate of 82%, reflecting exceptionally strong demand and revenue performance.
Hurricane Callista inflicted severe and widespread damage on the Grand Key Resort. The property sustained catastrophic wind damage to the main building's roof, exterior walls, windows, and structural elements, as well as devastating storm surge flooding that inundated the ground floor, lobby, restaurant facilities, and spa. The resort's marina, which accommodated more than 100 vessels and served as a significant ancillary revenue source, was almost entirely destroyed. Guest rooms on the upper floors suffered extensive water intrusion from wind-driven rain penetrating the compromised roof structure. The resort's mechanical, electrical, and plumbing systems were severely damaged by both wind and water.
As a result of this damage, the Verimark Grand Key Resort was closed from September 18, 2022 through March 15, 2023, a total of 178 days. The property could not be reopened sooner due to the magnitude of structural repairs required, the need for complete remediation of water damage and mold, the destruction of the marina requiring full reconstruction, and post-hurricane delays in obtaining building permits and securing qualified contractors in the Florida Keys, where demand for construction services was extraordinarily high following Hurricane Callista.
The estimated business-interruption loss for the Verimark Grand Key Resort is $31,400,000. This figure accounts for lost room revenue (based on historical ADR and occupancy data), lost ancillary revenue from food and beverage operations, spa services, marina fees, and other resort amenities, net of expenses saved during the closure period, and inclusive of extra expenses incurred by VHG to expedite restoration and mitigate further losses.
2. Verimark Harborview Hotel & Conference Center — 1400 Estero Boulevard, Fort Myers Beach, FL 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 Fort Myers Beach, Florida. The Harborview is a significant revenue generator for VHG, serving both the leisure travel market and the corporate meetings and events sector. Prior to Hurricane Callista, the Harborview operated at an ADR of $295 and an average occupancy rate of 74%.
Hurricane Callista caused significant wind damage to the Harborview's roof and exterior façade, resulting in extensive water intrusion throughout the hotel. The 40,000-square-foot conference center sustained particularly severe damage, with portions of the roof peeled away by high winds, rendering the facility entirely unusable. The hotel's exterior landscaping, pool complex, and beachfront amenities were destroyed or severely damaged by storm surge and wind. Electrical and HVAC systems required replacement in multiple sections of the building.
As a result of this damage, the Verimark Harborview Hotel & Conference Center was closed from September 18, 2022 through January 31, 2023, a total of 135 days. The conference center required particularly extensive reconstruction due to the large span of its roof structure and the specialized nature of its audiovisual, lighting, and climate-control systems.
The estimated business-interruption loss for the Verimark Harborview Hotel & Conference Center is $18,700,000. This figure reflects lost room revenue, lost conference and events revenue (including cancellations of pre-booked conferences and corporate events during the closure period), lost food and beverage revenue, and other ancillary revenue, net of saved expenses and inclusive of extra expenses.
3. Verimark Sunset Shores — 7200 Gulf Boulevard, St. Pete Beach, FL 33706. The Verimark Sunset Shores is a 186-room boutique resort located on St. Pete Beach, Florida. Although situated further north than VHG's other two properties, the Sunset Shores was well within the destructive wind field of Hurricane Callista and sustained significant damage. Prior to Hurricane Callista, the Sunset Shores operated at an ADR of $342 and an average occupancy rate of 79%.
Hurricane Callista caused substantial wind damage to the Sunset Shores' roof, windows, and exterior elements, along with water intrusion in numerous guest rooms and public areas. While the damage was less severe than at the Grand Key Resort or the Harborview, it was nonetheless sufficient to require full closure of the property from September 18, 2022 through November 30, 2022, a period of 73 days. Following the initial closure, the Sunset Shores reopened at significantly reduced capacity while repairs continued, and did not return to full operational capacity until February 28, 2023.
The estimated business-interruption loss for the Verimark Sunset Shores is $9,900,000. This figure accounts for lost revenue during the full closure period, reduced revenue during the period of limited operations, lost ancillary revenue, net saved expenses, and extra expenses incurred to accelerate restoration and reopen the property as quickly as possible.
C. Total Claimed Loss
VHG's total business-interruption losses across its three insured resort properties are summarized as follows:
These losses are documented in VHG's sworn statement in proof of loss, submitted to Ironclad on November 15, 2022, a copy of which is enclosed herewith. The loss calculations were prepared by VHG's internal finance team under the supervision of CFO Diane Calder and VP of Risk Management Sandra Pellegrini, and account for lost room revenue (based on historical ADR and occupancy rates at each property), lost ancillary revenue from food and beverage operations, spa services, marina operations, conference and events bookings, and other resort amenities, net of expenses saved during the respective closure periods, and inclusive of all extra expenses reasonably incurred by VHG to expedite restoration and resume operations. A summary of the business-interruption loss calculations by property is enclosed with this letter as a separate exhibit.
IV. VHG's Compliance with Policy Conditions
VHG has fully complied with all conditions precedent and policy requirements under the Policy, including but not limited to the following:
Timely Notice of Loss. VHG submitted its initial notice of loss to Ironclad on September 22, 2022, just four days after Hurricane Callista's landfall. Given the catastrophic nature of the storm and the widespread disruption it caused throughout South Florida and the Florida Keys — including power outages, road closures, and evacuations — this notice was provided with exemplary promptness. The notice was transmitted to Ironclad's claims department via email and followed by hard copy via overnight courier.
Cooperation with Ironclad's Adjusters. VHG cooperated fully and in good faith with Arbor Claims Services LLC ("Arbor"), the independent adjusting firm retained by Ironclad to investigate and adjust the claim. Arbor's lead adjuster, Denise Whitford, and her team conducted their initial inspection of all three VHG properties on October 5, 2022. VHG's personnel, including Sandra Pellegrini and property-level general managers, accompanied Ms. Whitford's team during the inspections, provided unrestricted access to all damaged areas, and furnished all requested documentation, including historical financial records, occupancy data, booking records, contractor estimates, and remediation reports.
Sworn Statement in Proof of Loss. VHG submitted its comprehensive sworn statement in proof of loss to Ironclad on November 15, 2022, within the timeframe required under the Policy. The Proof of Loss was sworn to by Diane Calder, CFO, and provides a detailed accounting of VHG's business-interruption losses at each of the three insured properties.
Documentation and Records. VHG has provided, and continues to stand ready to provide, all documentation reasonably requested by Ironclad in connection with the adjustment of this claim, including but not limited to financial statements, tax returns, booking records, payroll data, vendor invoices, contractor estimates, permit applications, and all other records bearing on the nature and extent of VHG's losses.
Mitigation of Losses. VHG has at all times taken reasonable and prudent steps to mitigate its losses, including securing damaged properties immediately following the storm to prevent further damage, engaging emergency water extraction and remediation contractors, tarping damaged roofs, boarding up broken windows and compromised openings, commencing permanent repairs as soon as building permits were obtained and qualified contractors were available, and working diligently to reopen its properties as quickly as conditions permitted. VHG incurred significant extra expense in connection with these mitigation efforts, which expense is included in VHG's loss calculations as provided for under the Policy.
In sum, VHG has satisfied every obligation imposed upon it by the Policy. There is no legitimate basis upon which Ironclad may deny or delay payment based on any alleged failure by VHG to comply with policy conditions.
V. Response to Ironclad's Reservation of Rights
By letter dated October 12, 2022, Ironclad issued a reservation of rights letter to VHG, purporting to identify several grounds upon which Ironclad might seek to limit or deny coverage for VHG's Hurricane Callista losses. Calderwood & Harkness responded to Ironclad's reservation of rights letter on October 25, 2022, disputing each stated basis in detail. A copy of our October 25, 2022 response letter is enclosed. We address each of Ironclad's purported coverage defenses below and explain why none of them provides a valid basis for Ironclad to refuse payment.
A. The Named Windstorm Sub-Limit Is Inapplicable
Ironclad's reservation of rights letter references a purported named-windstorm sub-limit of $15,000,000 for business-interruption losses, which Ironclad suggests may cap its payment obligation under the Policy.
VHG categorically rejects this contention. The $15,000,000 named-windstorm sub-limit that appeared in VHG's prior policy year (July 1, 2021 – July 1, 2022) was expressly deleted during the July 2022 policy renewal negotiations. The removal of the sub-limit was a material term of the renewal and was agreed upon between Tidewater Risk Advisors (on behalf of VHG) and Ironclad's underwriting department. Specifically, correspondence between Franklin Orde of Tidewater and Ironclad's Senior Underwriter, during the renewal process in June and July 2022, confirms that the named-windstorm sub-limit was eliminated in exchange for an increased annual premium on the primary layer. VHG paid the full $980,000 primary layer premium for the 2022–2023 policy year, which included the incremental premium attributable to the deletion of the sub-limit.
The 2022–2023 renewal binder issued by Ironclad and the corresponding policy endorsements clearly reflect the removal of the named-windstorm sub-limit. VHG's coverage is subject to the full $25,000,000 per-occurrence primary layer limit, without any named-windstorm sub-limitation.
Ironclad is well aware that this sub-limit was removed, and its invocation in the reservation of rights letter is, at best, the product of an internal miscommunication within Ironclad's claims and underwriting departments. We urge Ironclad to confirm its underwriting files and correct this error immediately. To the extent there is any ambiguity in the policy language — which VHG does not concede — such ambiguity must be construed against Ironclad as the drafter of the policy and in favor of coverage, consistent with well-established Florida law. See, e.g., Excelsior Ins. Co. v. Pomona Park Bar & Package Store, 369 So. 2d 938, 942 (Fla. 1979); Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000).
Moreover, even if the named-windstorm sub-limit were somehow found to be applicable — which VHG denies — VHG's total losses of $60,000,000 far exceed the full primary layer limit regardless. The sub-limit issue, at most, would affect the quantum payable under the primary policy, not the existence of Ironclad's obligation to pay. This argument does not relieve Ironclad of any obligation to make prompt payment of covered losses.
B. The Periods of Restoration Are Reasonable
Ironclad's reservation of rights letter suggests that VHG may have "unreasonably delayed" restoration of its properties, thereby extending the period of restoration and inflating its business-interruption claim. This suggestion is baseless and unsupported by any factual evidence.
VHG commenced restoration activities at each of its three properties as promptly as was reasonably possible given the catastrophic nature of the damage caused by a Category 4 hurricane. The restoration timeline at each property was dictated by objective, real-world constraints that were entirely beyond VHG's control, including:
• The severe extent of structural damage at each property, requiring comprehensive engineering assessments before repairs could begin;
• Post-hurricane permitting delays caused by the overwhelming volume of building permit applications filed with Monroe County, Lee County, and Pinellas County authorities in the aftermath of Hurricane Callista;
• Acute contractor shortages throughout South Florida, as the limited pool of qualified contractors was inundated with repair and reconstruction work following one of the most destructive hurricanes in the region's history;
• Supply-chain disruptions affecting the availability of construction materials, building components, and specialized equipment required for the restoration of luxury hospitality properties; and
• The need to comply with updated building codes and flood-zone regulations that applied to reconstruction in coastal areas.
The closure periods at each property — 178 days for the Grand Key Resort, 135 days for the Harborview Hotel & Conference Center, and 73 days of full closure (with additional reduced-capacity operations) for the Sunset Shores — are entirely reasonable and, indeed, are consistent with the restoration timelines experienced by comparable hospitality properties in the affected areas following Hurricane Callista.
The Policy's period-of-restoration provision covers the period of time that would be required to rebuild or repair the damaged property with "reasonable speed and similar quality." VHG's restoration efforts have been conducted with reasonable speed and at a quality consistent with the properties' pre-loss condition. VHG has not delayed restoration, and Ironclad has not identified any specific instance in which VHG allegedly failed to proceed with reasonable dispatch.
C. The Concurrent Causation / Flood Exclusion Defense Is Without Merit
Ironclad's reservation of rights letter raises the flood exclusion contained in the Policy as potentially applicable to storm-surge damage at the Verimark Grand Key Resort, and suggests that the anti-concurrent causation clause may operate to bar or limit coverage.
VHG rejects this defense for several independent reasons.
First, under Florida law, the efficient proximate cause doctrine applies in cases where multiple perils — including both covered and allegedly excluded perils — combine to cause a loss. Where wind, a covered peril under an all-risk property policy, and flooding or storm surge, an allegedly excluded peril, concurrently cause damage as part of a single weather event, coverage applies if wind was a concurrent or dominant cause of the loss. See Glenrock Enterprises, 208 So. 3d 694 (Fla. 2016). Hurricane Callista was a named windstorm that produced both catastrophic winds and storm surge as inseparable components of a single, indivisible meteorological event. The wind and the storm surge were not independent causes; they were concurrent consequences of the same covered occurrence — a Category 4 hurricane.
Second, to the extent Ironclad seeks to invoke the anti-concurrent causation ("ACC") clause in the Policy, Florida courts have subjected such clauses to careful scrutiny and have declined to enforce them where doing so would effectively nullify coverage for losses caused in significant part by covered perils. The ACC clause cannot be wielded as a blanket exclusion to deny coverage for wind damage simply because storm surge accompanied the wind during a hurricane. Such an interpretation would render the windstorm coverage illusory, a result that Florida courts have consistently refused to countenance.
Third, the overwhelming majority of the damage sustained at all three VHG properties — and particularly at the Grand Key Resort — was caused by Category 4 winds with sustained speeds of 145 miles per hour. Roof destruction, structural damage to buildings, window failures, wind-driven rain infiltration, and exterior damage were all the direct result of extreme wind forces. While storm surge contributed to flooding on the ground floor and at the marina at the Grand Key Resort, the wind damage alone far exceeds the primary layer limit.
VHG is prepared, if necessary, to engage a qualified forensic engineer to conduct a causation analysis differentiating wind damage from any storm-surge-related damage at the Grand Key Resort. However, VHG submits that such an exercise should not be required before Ironclad pays the undisputed portion of VHG's claim. Even under the most conservative allocation of losses between wind and storm surge, the wind-attributable damage vastly exceeds the $25,000,000 primary layer limit.
D. The Failure-to-Mitigate Defense Is Factually Baseless
Ironclad's reservation of rights letter contains a boilerplate assertion that VHG may have failed to take reasonable steps to mitigate its losses. This assertion is entirely without factual support, and Ironclad has not identified any specific act or omission by VHG that allegedly constitutes a failure to mitigate.
As detailed in Section IV above, VHG took immediate and comprehensive steps to mitigate its losses following Hurricane Callista, including:
• Immediately securing all three properties to prevent further damage from weather, intrusion, or vandalism;
• Engaging emergency water extraction and remediation contractors within hours of gaining safe access to the properties;
• Tarping damaged roofs and boarding up compromised windows and openings;
• Retaining qualified general contractors and commencing permanent repairs as soon as building permits were issued;
• Working diligently to reopen properties and resume revenue-generating operations as quickly as safely possible; and
• Incurring significant extra expense to expedite the restoration process, all in accordance with the extra-expense provisions of the Policy.
VHG has at all times acted as a prudent and responsible property owner and policyholder. The suggestion that VHG failed to mitigate is a perfunctory reservation without substance. VHG respectfully requests that Ironclad either withdraw this defense or identify, with specificity, the factual basis upon which it is asserted. In the absence of any identified mitigation failure, this defense should play no role in Ironclad's coverage determination.
VI. Demand for Payment
Based on the foregoing, VHG hereby formally demands that Ironclad Indemnity Corporation pay the full primary layer policy limit of Twenty-Five Million Dollars ($25,000,000) under Policy No. IIC-PRP-2022-07541, less the applicable per-occurrence deductible of Five Hundred Thousand Dollars ($500,000), for a net payment of:
$24,500,000.00
Payment shall be made by wire transfer to the trust account of Calderwood & Harkness LLP on behalf of Verimark Hospitality Group Inc. Wire transfer instructions will be provided upon Ironclad's confirmation of payment. In the alternative, payment may be made by cashier's check or certified check made payable to "Calderwood & Harkness LLP, as attorneys for Verimark Hospitality Group Inc." and delivered to our offices at the address set forth in the letterhead above.
VHG's total documented business-interruption losses of $60,000,000 far exceed the $25,000,000 primary layer limit, making this an unambiguous full-limits demand. There is no scenario under which VHG's covered losses fall below the primary layer limit. Ironclad's obligation to pay the full $25,000,000 limit (less the deductible) is clear and indisputable.
VHG is simultaneously transmitting demand letters to the three excess-layer carriers — Pinnacle Surplus Lines Inc. ($15,000,000), Montclair Assurance Company ($10,000,000), and Sovereign Re Ltd. ($10,000,000) — demanding payment of their respective policy limits. The demands upon the excess carriers are without prejudice to VHG's demand upon Ironclad as the primary layer carrier.
VHG demands that Ironclad acknowledge receipt of this demand and provide a substantive response within ten (10) business days of the date of this letter — that is, on or before December 6, 2022. VHG expects payment to follow promptly thereafter.
VII. Bad-Faith Warning and Reservation of Rights
We are compelled to advise Ironclad that its continued failure to pay VHG's covered business-interruption losses may expose Ironclad to statutory and common-law bad-faith liability under the laws of the State of Florida.
Under Florida Statutes § 624.155, an insurer may be liable in a civil action for damages caused by its failure to attempt in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for the insured's interests. Florida courts have consistently held that an insurer's unjustified delay in paying a valid claim constitutes bad faith. See, e.g., Berges v. Infinity Ins. Co., 896 So. 2d 665 (Fla. 2004); Hollowell Industries, 386 So. 2d 783 (Fla. 1980).
Ironclad has had ample time to investigate and evaluate VHG's claim. VHG provided initial notice of loss on September 22, 2022 — nearly two months ago. Ironclad's retained independent adjusting firm, Arbor Claims Services, inspected all three properties on October 5, 2022 — more than six weeks ago. VHG submitted a comprehensive sworn statement in proof of loss, supported by extensive documentation, on November 15, 2022. The nature and extent of VHG's losses are well-documented and not subject to reasonable dispute. The fact that VHG's losses exceed the primary layer limit is beyond question.
Under these circumstances, any continued delay in payment by Ironclad would be difficult to characterize as anything other than a failure to act in good faith.
VHG hereby reserves all rights and remedies available to it under the Policy, Florida statutory law, and common law, including but not limited to:
• Claims for breach of the insurance contract;
• Claims for statutory bad faith under Florida Statutes § 624.155;
• Claims for common-law bad faith;
• Claims for consequential damages resulting from Ironclad's failure to pay;
• Claims for prejudgment interest;
• Claims for attorneys' fees and costs pursuant to Florida Statutes § 627.428 and other applicable provisions of law; and
• Any and all other remedies available at law or in equity.
This demand letter is made without waiver of any of VHG's rights, claims, or defenses, all of which are expressly preserved. Nothing in this letter shall be construed as a limitation on VHG's right to pursue the full measure of damages to which it may be entitled.
VIII. Request for Ongoing Good-Faith Adjustment
Notwithstanding the serious concerns set forth above, VHG remains willing to engage constructively with Ironclad in the adjustment of this claim. Accordingly, VHG respectfully requests the following:
1. That Ironclad immediately resume good-faith adjustment of VHG's business-interruption claim, including the prompt evaluation and payment of undisputed amounts;
2. That Ironclad provide VHG and its counsel with a complete and specific description of any additional documentation or information Ironclad requires to complete its evaluation of the claim, so that VHG may respond promptly and cooperatively;
3. That Ironclad identify, with specificity, any coverage defense or objection it intends to assert, together with the factual and policy-language basis for each such defense or objection; and
4. That all future communications regarding this claim, including any communications from Ironclad's claims department, adjusting firm, coverage counsel, or any other representative, be directed to the undersigned at the following address:
Elaine Forsythe, Partner Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, FL 33131 Telephone: (305) 884-7214
Email: eforsythe@calderwoodharkness.com
VHG reiterates its willingness to cooperate fully with any reasonable investigation or adjustment process. VHG has nothing to hide and welcomes a thorough and fair evaluation of its claim. What VHG will not accept, however, is indefinite delay, unfounded coverage defenses, or any effort by Ironclad to avoid its contractual obligation to pay a valid claim.
IX. Closing
VHG expects prompt resolution of this matter and full payment of its primary layer claim. The losses sustained by VHG as a result of Hurricane Callista are real, documented, and devastating. VHG purchased comprehensive all-risk property and business-interruption insurance from Ironclad — and paid substantial premiums for that coverage — precisely so that it would be protected in the event of a catastrophic loss such as this one. VHG is entitled to the benefit of its bargain.
It is our sincere hope that this matter can be resolved without the necessity of litigation. However, if Ironclad does not honor its contractual obligations within a reasonable time, VHG is fully prepared to pursue all available legal remedies, including filing suit for breach of contract, statutory bad faith, and all other applicable causes of action. VHG will also seek recovery of its attorneys' fees and costs incurred in prosecuting its claim.
Please be advised that simultaneous demand letters substantially similar to this one are being transmitted today to Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd., demanding payment from each of those excess-layer carriers for their respective policy limits.
We look forward to your prompt response.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Elaine Forsythe Partner 333 SE 2nd Avenue, Suite 4400 Miami, FL 33131 Telephone: (305) 884-7214 Facsimile: (305) 884-7201
Email: eforsythe@calderwoodharkness.com
cc:
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
Franklin Orde Account Executive Tidewater Risk Advisors LLC 2600 S. Bayshore Drive, Suite 800 Miami, FL 33133
Enclosures:
1. Copy of VHG's Sworn Statement in Proof of Loss dated November 15, 2022
2. Copy of Calderwood & Harkness LLP's Response to Ironclad's Reservation of Rights Letter dated October 25, 2022
3. Summary of Business-Interruption Loss Calculations by Property
Layer | Carrier | Limit | Attachment | Policy Number | Annual Premium
Primary | Ironclad Indemnity Corporation | $25,000,000 per occurrence | $500,000 deductible | IIC-PRP-2022-07541 | $980,000
First Excess | Pinnacle Surplus Lines Inc. | $15,000,000 | $25,000,000 xs | PSL-XS1-2022-3390 | $410,000
Second Excess | Montclair Assurance Company | $10,000,000 | $40,000,000 xs | MAC-XS2-2022-09817 | $265,000
Third Excess | Sovereign Re Ltd. | $10,000,000 | $50,000,000 xs | SRL-XS3-2022-5102 | $185,000
Total Tower | $60,000,000 | $1,840,000
Property | Closure Period | Estimated BI Loss
Verimark Grand Key Resort | Sept. 18, 2022 – Mar. 15, 2023 (178 days) | $31,400,000
Verimark Harborview Hotel & Conference Center | Sept. 18, 2022 – Jan. 31, 2023 (135 days) | $18,700,000
Verimark Sunset Shores | Sept. 18, 2022 – Feb. 28, 2023 (73 days closure + reduced capacity) | $9,900,000
Total | $60,000,000

CALDERWOOD & HARKNESS LLP Attorneys at Law

CALDERWOOD & HARKNESS LLP

Record

Parties

Dates

Amounts