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

demand-letter-montclair.docx DOCUMENT Antitrust

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CALDERWOOD & HARKNESS LLP Attorneys at Law

333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 814-7200 Facsimile: (305) 814-7201 www.calderwoodharkness.com

November 21, 2022

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND VIA OVERNIGHT COURIER (Severin Partners LLC)

Montclair Assurance Company 1 Liberty Plaza, 38th Floor New York, NY 10006

Attention: Claims Department / Authorized Representative

Re: Verimark Hospitality Group Inc. — Demand for Payment Under Policy No. MAC-XS2-2022-09817; Second Excess Layer — Business-Interruption Losses Arising from Hurricane Callista; Date of Loss: September 18, 2022

Dear Sir or Madam:

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 executive offices located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. We write on behalf of VHG to make formal demand for payment of the full Ten Million Dollars ($10,000,000) limit of liability under the second excess property and business-interruption insurance policy issued by Montclair Assurance Company ("Montclair") to VHG, identified as Policy No. MAC-XS2-2022-09817, for the policy period July 1, 2022 through July 1, 2023 (the "Policy"). This demand arises from the catastrophic business-interruption losses sustained by VHG as a direct and proximate result of Hurricane Callista, which made landfall in the Lower Florida Keys on September 18, 2022. This matter is being handled under our engagement reference 1021-00003 by the undersigned, Elaine Forsythe, Partner.

The facts and circumstances supporting this demand are set forth in detail below.

I. THE INSURED AND THE INSURED PROPERTIES

VHG is a leading publicly traded hospitality and real-estate company with an established portfolio of luxury resort and hotel properties concentrated along Florida's Gulf Coast and the Florida Keys. For the fiscal year ended December 31, 2021, VHG reported consolidated revenues of approximately $412 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $78 million. VHG's senior management team includes Marcus Ellsworth, Chief Executive Officer; Diane Calder, Chief Financial Officer; Nathaniel Driscoll, General Counsel; and Sandra Pellegrini, Vice President of Risk Management. VHG is a sophisticated and well-capitalized hospitality enterprise with a strong track record of operational performance across its properties.

Three of VHG's flagship resort and hotel properties are at issue in this claim, each of which sustained catastrophic damage and prolonged operational shutdowns as a result of Hurricane Callista:

1. Verimark Grand Key Resort — Located at Mile Marker 48, Marathon, Florida 33050, the Grand Key Resort is VHG's premier Florida Keys property. The resort consists of 312 luxury guest rooms and suites, together with a full-service deep-water marina, multiple food and beverage outlets, a destination spa, and extensive pool and beach amenities. In the twelve months preceding the loss, the Grand Key Resort maintained a pre-loss average daily rate ("ADR") of $389 and an average occupancy rate of 82%, reflecting the property's strong market positioning and consistent demand profile within the Upper and Middle Keys luxury segment.

2. Verimark Harborview Hotel & Conference Center — Located at 1400 Estero Boulevard, Fort Myers Beach, Florida 33931, the Harborview Hotel & Conference Center is a 224-room full-service hotel anchored by a 40,000-square-foot conference and event facility that serves as one of the largest dedicated meeting venues on the Southwest Florida coast. The property generates significant group and corporate meeting revenue in addition to leisure transient demand. In the twelve months preceding the loss, the Harborview Hotel maintained a pre-loss ADR of $295 and an average occupancy rate of 74%.

3. Verimark Sunset Shores — Located at 7200 Gulf Boulevard, St. Pete Beach, Florida 33706, Sunset Shores is a 186-room boutique resort positioned as a lifestyle-oriented beachfront property. The resort features curated food and beverage concepts, a rooftop bar, and beachside amenities that have earned it recognition in multiple national hospitality industry publications. In the twelve months preceding the loss, Sunset Shores maintained a pre-loss ADR of $342 and an average occupancy rate of 79%.

Each of these properties represents a significant revenue-generating asset for VHG, and all three were operating at or near peak seasonal demand levels when Hurricane Callista struck.

II. THE INSURANCE PROGRAM AND MONTCLAIR'S ROLE

VHG maintains a comprehensive all-risk property and business-interruption insurance program designed to protect against precisely the type of catastrophic event that occurred here. The program was placed by Tidewater Risk Advisors LLC ("Tidewater"), VHG's broker of record, under the direction of account executive Franklin Orde. The program was structured as a four-layer tower providing a total of $60,000,000 in aggregate coverage above a $500,000 per-occurrence deductible. The tower is composed of the following layers:

As reflected in the table above, Montclair's Policy sits as the second excess layer in the program. The Policy attaches at $40,000,000—that is, it attaches above the combined $25,000,000 limit of the Ironclad Indemnity Corporation primary policy and the $15,000,000 limit of the Pinnacle Surplus Lines Inc. first excess policy—and provides $10,000,000 in additional coverage. All four policies share a common policy period of July 1, 2022 through July 1, 2023, and were placed contemporaneously as part of a unified program designed to provide seamless, layered coverage.

The annual premium for Montclair's second excess layer was $265,000, which VHG paid in full and on time. The total annual premium for the entire four-layer program was $1,840,000. VHG has at all relevant times been in full compliance with all premium payment obligations and all other conditions precedent under the program.

Critically, all policies in the tower, including Montclair's Policy, provide "all-risk" coverage for physical loss or damage, including business interruption and extra expense. The policies were negotiated and placed with the understanding that VHG's hospitality properties face significant exposure to named-storm and hurricane risks, and the program was specifically designed to provide meaningful protection against such perils. The coverage purchased by VHG was comprehensive and broad, reflecting both the magnitude of VHG's insurable interests and the substantial premiums paid to the participating carriers.

III. HURRICANE CALLISTA AND THE COVERED LOSS

Hurricane Callista was designated a named tropical storm by the National Hurricane Center on September 12, 2022, and rapidly intensified as it tracked northward through the warm waters of the Caribbean Sea and the Straits of Florida. By the time Callista made landfall at approximately 1:30 PM Eastern Daylight Time on September 18, 2022, near Big Pine Key in the Lower Florida Keys, it had strengthened to a Category 4 hurricane on the Saffir-Veltason Hurricane Wind Scale, with maximum sustained winds of approximately 145 miles per hour and gusts in excess of 175 miles per hour. The storm produced catastrophic wind damage across Monroe, Lee, Collier, and Pinellas Counties.

In addition to devastating sustained winds, Hurricane Callista generated a massive and destructive storm surge. Storm surge levels in Monroe County ranged from approximately 8 to 14 feet above normally dry ground, inundating large swaths of the Florida Keys including areas proximate to VHG's Grand Key Resort. Lee County, where VHG's Harborview Hotel is located, experienced storm surge of 6 to 10 feet, which caused widespread flooding along Fort Myers Beach and Estero Island. Even in Pinellas County, the storm's outer bands and surge effects caused significant damage along the beaches of St. Pete Beach, where VHG's Sunset Shores resort is situated.

In response to the approaching storm, local emergency management authorities issued mandatory evacuation orders for the affected coastal areas. Monroe County issued its mandatory evacuation order on September 16, 2022, and Lee County followed with its own mandatory evacuation order on September 17, 2022. VHG immediately complied with these evacuation orders, closing all three affected properties and evacuating all guests and non-essential staff in an orderly and responsible manner consistent with VHG's emergency preparedness protocols.

All three VHG properties sustained catastrophic property damage as a direct result of Hurricane Callista's winds, storm surge, and wind-driven rain. The resulting closures, operational disruptions, and loss of revenue were severe and prolonged:

• Grand Key Resort: The Grand Key Resort suffered the most extensive damage of the three properties. The resort was forced to close entirely on September 18, 2022, and did not reopen until March 15, 2023—a total closure period of 178 days. The property sustained catastrophic roof damage, destruction of multiple guest room buildings, total loss of the marina facilities, and extensive water intrusion throughout the main building and amenity structures. VHG's estimated business-interruption loss attributable to the Grand Key Resort is $31,400,000, based on lost room revenue, food and beverage revenue, marina revenue, spa and ancillary revenue, and extra expenses incurred in connection with restoration efforts, reduced by saved expenses during the closure period.

• Harborview Hotel & Conference Center: The Harborview Hotel was also forced to close on September 18, 2022. The property sustained severe wind and surge damage, including destruction of the conference center roof system, flooding of the ground floor and lower-level meeting rooms, and significant damage to mechanical, electrical, and plumbing systems. The hotel reopened on January 31, 2023, after a closure period of 135 days. VHG's estimated business-interruption loss attributable to the Harborview Hotel is $18,700,000, reflecting lost room revenue, group and conference revenue, food and beverage revenue, and extra expenses, net of saved expenses.

• Sunset Shores: Sunset Shores experienced a full closure from September 18, 2022 through November 30, 2022—a period of 73 days—followed by a period of significantly reduced capacity as repairs continued. The property did not return to full operational capacity until February 28, 2023. Damage at Sunset Shores included partial roof loss, exterior facade damage, flooding of ground-floor guest rooms and public areas, and destruction of the rooftop bar and beachside amenity structures. VHG's estimated business-interruption loss attributable to Sunset Shores is $9,900,000, encompassing lost revenue during both the full closure and reduced-capacity periods, together with extra expenses and net of saved expenses.

In sum, VHG's total claimed business-interruption loss across the three affected properties is $60,000,000 ($31,400,000 + $18,700,000 + $9,900,000 = $60,000,000). This figure represents a conservative estimate based on VHG's historical financial performance, property-level revenue data, and the actual duration and severity of the operational disruptions caused by Hurricane Callista. The total loss figure is subject to further refinement and supplementation as the forensic accounting analysis described in Section V below is completed.

IV. NOTICE AND PROOF OF LOSS

VHG has fully complied with all notice and proof-of-loss requirements under the insurance program. Specifically:

• On September 22, 2022—just four days after landfall—VHG submitted timely initial notice of loss to Ironclad Indemnity Corporation as lead carrier under the primary layer of the program. This notice identified the date and nature of the loss, the affected properties, and the anticipated magnitude of VHG's claim.

• Arbor Claims Services LLC, the independent adjusting firm retained by Ironclad to investigate the claim, conducted initial property inspections of all three affected VHG properties beginning on October 5, 2022. The lead adjuster assigned by Arbor Claims Services is Denise Whitford. VHG cooperated fully with Ms. Whitford's inspections and has continued to cooperate with the adjusting process.

• On November 15, 2022, VHG submitted a sworn statement in proof of loss in the total amount of $60,000,000 to Ironclad Indemnity Corporation as lead carrier. The sworn statement was executed by VHG's Chief Financial Officer, Diane Calder, and sets forth in detail the nature, cause, and amount of VHG's claimed losses across all three affected properties.

• Copies of the initial notice of loss and the sworn statement in proof of loss have been, or are concurrently herewith being, provided to Montclair Assurance Company. To the extent that the Montclair Policy contains any independent notice or proof-of-loss requirements, VHG considers this correspondence and the enclosed documentation to satisfy those requirements. VHG reserves its rights to supplement its proof of loss as additional information becomes available through the ongoing forensic accounting process.

We note additionally that Ironclad Indemnity Corporation issued a reservation of rights letter to VHG dated October 12, 2022. VHG vigorously disputes each and every basis for reservation of rights stated in that letter and has responded in detail through correspondence dated October 25, 2022, copies of which are enclosed herewith for Montclair's reference. The specific coverage issues raised in Ironclad's reservation of rights are addressed further in Section VI below insofar as they may relate to Montclair's Policy.

V. VHG'S LOSSES EXCEED MONTCLAIR'S ATTACHMENT POINT

VHG's total business-interruption losses of $60,000,000 far exceed the combined limits of the primary and first excess layers of the insurance program. The Ironclad primary policy provides $25,000,000 in coverage (above the $500,000 deductible), and the Pinnacle first excess policy provides an additional $15,000,000 in coverage. Together, these two underlying layers provide a combined $40,000,000 in coverage, which is precisely Montclair's attachment point under the second excess layer.

Because VHG's total losses of $60,000,000 exceed $40,000,000 by a margin of $20,000,000, the underlying primary and first excess layers are fully exhausted by the claim, and Montclair's $10,000,000 second excess layer is triggered in its entirety. Indeed, VHG's losses are so substantial that they also fully penetrate Montclair's layer and reach into the third excess layer issued by Sovereign Re Ltd. There is no credible basis upon which Montclair can contend that its layer is not fully engaged by this loss.

The loss quantification supporting VHG's claim has been prepared by VHG's internal finance team under the direction of Chief Financial Officer Diane Calder and Vice President of Risk Management Sandra Pellegrini. The quantification is based on detailed, property-level financial data, including but not limited to: historical revenue performance by revenue category (rooms, food and beverage, conference and events, marina, spa, and ancillary); average daily rates and occupancy data maintained in VHG's property management systems; group and conference booking pace and cancellation data; seasonal demand patterns and competitive set performance data; extra expenses actually incurred in connection with property restoration, guest relocation, and emergency remediation; and saved expenses (including payroll, utilities, cost of goods sold, and other variable expenses) during periods of full and partial closure.

In addition to the internal analysis, VHG has retained the services of Meridian Forensic Economics LLC to provide an independent forensic accounting verification and quantification of VHG's business-interruption losses. The engagement is being led by Dr. Helen Vasquez, CPA, CFF, a nationally recognized expert in the forensic quantification of insurance loss claims, with particular expertise in the hospitality industry. Dr. Vasquez and her team are currently in the process of completing their analysis, and VHG intends to supplement its sworn statement in proof of loss with Dr. Vasquez's detailed report and supporting workpapers upon completion. VHG anticipates that the Meridian analysis will confirm and support the total loss figure of $60,000,000, if not exceed it.

VI. MONTCLAIR'S COVERAGE OBLIGATIONS

Montclair's coverage obligations under the Policy are clear and unambiguous. The Policy is an "all-risk" property and business-interruption insurance policy, which means that it covers all risks of physical loss or damage to covered property, including the resulting loss of business income and necessary extra expenses, unless a specific exclusion applies. Hurricane Callista unquestionably constitutes a covered "occurrence" under the Policy—a sudden, catastrophic, and fortuitous event that caused direct physical loss and damage to VHG's insured properties and resulted in the business-interruption losses for which VHG now seeks indemnification.

VHG is not aware of any exclusion, limitation, or condition in the Montclair Policy that would relieve Montclair of its obligation to pay VHG's claim in full. In particular, VHG addresses the following issues that have been raised by Ironclad Indemnity Corporation in its reservation of rights letter, to the extent Montclair may seek to rely upon similar arguments:

Windstorm Sub-Limit. Ironclad's reservation of rights asserts the existence of a windstorm sub-limit in the primary policy. VHG disputes this assertion on two independent grounds. First, the Montclair second excess policy does not contain any windstorm sub-limit, and Montclair cannot rely upon a sub-limit that appears only in an underlying policy to reduce its own coverage obligations. The Montclair Policy provides $10,000,000 in coverage, full stop. Second, and in any event, VHG contends that the windstorm sub-limit was expressly deleted from the Ironclad primary policy at the time of the July 2022 renewal, pursuant to broker negotiations conducted by Tidewater Risk Advisors. VHG's broker, Franklin Orde of Tidewater, has confirmed that the deletion of the windstorm sub-limit was a specific condition of VHG's renewal of the program, and VHG possesses documentation supporting this position. Even assuming arguendo that such a sub-limit were found to exist in the primary policy (which VHG emphatically disputes), it would not reduce VHG's total loss amount, which independently and substantially exceeds all attachment points in the tower, including Montclair's.

Flood Exclusion. Ironclad's reservation of rights also asserts a potential flood exclusion with respect to storm surge damage at the Grand Key Resort. This argument is without merit for multiple reasons. The damage to the Grand Key Resort was overwhelmingly caused by hurricane-force winds, and to the extent storm surge contributed to any portion of the damage, such surge was wind-driven water that is not properly characterized as "flood" within the meaning of the policy. Moreover, under the efficient proximate cause doctrine recognized and applied by Florida courts, when a covered peril (here, hurricane-force winds) sets in motion a chain of events that includes both covered and arguably excluded causes of loss, the covered peril controls and the entire loss is covered. See Ostrander Partners LLC, 208 So. 3d 694 (Fla. 2016). Wind was indisputably the efficient proximate cause of the damage to VHG's properties, and the flood exclusion therefore does not apply.

Period of Restoration / Failure to Mitigate. Ironclad's reservation of rights further suggests that VHG's claimed period of restoration may be unreasonable and that VHG may have failed to mitigate its losses. These assertions are baseless. VHG undertook commercially reasonable and diligent restoration efforts under extraordinarily difficult post-hurricane conditions, including severe disruption to local infrastructure, supply chain constraints, contractor and labor shortages throughout South Florida, permitting delays caused by overwhelmed local building departments, and ongoing debris removal and environmental remediation requirements. The closure periods for each property reflect the minimum time reasonably necessary to restore the properties to operational condition, and VHG acted at all times with due diligence and in accordance with its obligations under the policy and at law.

VHG further notes that Montclair, as an excess carrier, is contractually obligated to respond to VHG's claim once the underlying layers are exhausted, whether by actual payment by the underlying carriers or by a determination that the underlying carriers' aggregate limits have been reached. An excess carrier may not hide behind the pendency of a primary or first excess claim to delay its own coverage obligations. To the contrary, Montclair has an independent duty to investigate VHG's claim promptly and in good faith, and to make a coverage determination within a reasonable time. Florida law imposes upon all insurers—including excess carriers—an obligation of good faith in the handling of claims, and Montclair's duty to investigate and respond runs parallel to, and independent of, the obligations of the underlying carriers. VHG therefore demands that Montclair not delay its own investigation or coverage determination pending the resolution of the primary and first excess layers. Any such delay would constitute a violation of Montclair's duties under Florida law and the Policy.

VII. DEMAND FOR PAYMENT

Based on the foregoing, Verimark Hospitality Group Inc. hereby makes formal demand upon Montclair Assurance Company for payment of the full Ten Million Dollars ($10,000,000) limit of liability under its second excess layer, Policy No. MAC-XS2-2022-09817. VHG's losses are clear, well-documented, and far in excess of Montclair's attachment point. There is no legitimate basis upon which Montclair can deny or delay payment of this claim.

VHG demands that payment be made promptly and in any event within the time periods required by applicable Florida law, including but not limited to the claims-handling time frames set forth in Florida Statutes § 627.70131 and related provisions. VHG specifically reserves all rights and remedies available to it in the event that Montclair fails to acknowledge coverage, unreasonably delays its investigation, or fails to pay VHG's claim within a reasonable time, including without limitation the right to pursue statutory bad-faith claims under Florida Statutes § 624.155. As Montclair is aware, a finding of bad faith under Florida law may subject an insurer to liability for damages in excess of policy limits, consequential damages, attorneys' fees and costs, and punitive damages in appropriate circumstances. VHG trusts that such measures will not be necessary but is prepared to pursue all available remedies if Montclair fails to honor its contractual obligations.

VHG further demands pre-judgment interest at the applicable statutory rate on any amounts that are improperly withheld or delayed beyond the date upon which they are due and owing under the Policy and applicable law.

VHG notes that concurrent demand letters of even date herewith have been sent to Ironclad Indemnity Corporation, Pinnacle Surplus Lines Inc., and Sovereign Re Ltd. for their respective layer limits. VHG expects each carrier in the program to fulfill its obligations promptly and in good faith.

VIII. RESERVATION OF RIGHTS BY VHG

VHG expressly reserves all rights, claims, and remedies available to it under the Policy, at law, and in equity, including but not limited to the following:

• Breach of contract for failure to pay benefits due under the Policy;

• Declaratory judgment as to the parties' respective rights and obligations under the Policy;

• Bad faith, both statutory under Florida Statutes § 624.155 and at common law, for unreasonable delay or denial of VHG's claim;

• Recovery of attorneys' fees and costs pursuant to Florida Statutes § 627.428 and any other applicable fee-shifting provisions; and

• Any and all other claims, causes of action, and remedies that may be available under applicable law.

Nothing in this letter, and no action taken or omitted by VHG or its counsel in connection with this claim, shall be construed as a waiver, release, or limitation of any of VHG's rights, claims, or remedies, whether presently known or unknown, accrued or unaccrued. VHG's rights are cumulative, and the exercise of any one right or remedy shall not be deemed an election that precludes the exercise of any other right or remedy.

IX. REQUEST FOR RESPONSE AND CONTACT INFORMATION

VHG respectfully requests that Montclair Assurance Company respond in writing within thirty (30) days of the date of this letter, acknowledging coverage under the Policy and confirming Montclair's intention to pay VHG's claim in full. In its response, VHG further requests that Montclair identify its designated claims handler for this matter, together with that individual's direct contact information, and disclose the identity of any outside counsel that Montclair has retained or intends to retain in connection with this claim.

All communications regarding this matter should be directed to the undersigned:

Elaine Forsythe, Partner Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 814-7200

Email: eforsythe@calderwoodharkness.com

Engagement No. 1021-00003

Please do not contact VHG or any of its officers, directors, or employees directly regarding this claim without first coordinating through this office.

We look forward to Montclair's prompt and substantive response.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Elaine Forsythe Partner Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131

cc: Nathaniel Driscoll, General Counsel, Verimark Hospitality Group Inc. cc: Sandra Pellegrini, Vice President of Risk Management, Verimark Hospitality Group Inc. cc: Franklin Orde, Account Executive, Tidewater Risk Advisors LLC

Enclosures:

1. Copy of Sworn Statement in Proof of Loss (dated November 15, 2022)

2. Copy of Ironclad Indemnity Corporation Reservation of Rights Letter (dated October 12, 2022)

3. Copy of VHG's Response to Ironclad Reservation of Rights (dated October 25, 2022)

Layer	Carrier	Limit	Attachment Point	Policy No.
Primary	Ironclad Indemnity Corporation	$25,000,000	$500,000 deductible	IIC-PRP-2022-07541
1st Excess	Pinnacle Surplus Lines Inc.	$15,000,000	$25,000,000	PSL-XS1-2022-3390
2nd Excess	Montclair Assurance Company	$10,000,000	$40,000,000	MAC-XS2-2022-09817
3rd Excess	Sovereign Re Ltd.	$10,000,000	$50,000,000	SRL-XS3-2022-5102

CALDERWOOD & HARKNESS LLP Attorneys at Law
333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 814-7200 Facsimile: (305) 814-7201 www.calderwoodharkness.com
November 21, 2022
VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND VIA OVERNIGHT COURIER (Severin Partners LLC)
Montclair Assurance Company 1 Liberty Plaza, 38th Floor New York, NY 10006
Attention: Claims Department / Authorized Representative
Re: Verimark Hospitality Group Inc. — Demand for Payment Under Policy No. MAC-XS2-2022-09817; Second Excess Layer — Business-Interruption Losses Arising from Hurricane Callista; Date of Loss: September 18, 2022
Dear Sir or Madam:
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 executive offices located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. We write on behalf of VHG to make formal demand for payment of the full Ten Million Dollars ($10,000,000) limit of liability under the second excess property and business-interruption insurance policy issued by Montclair Assurance Company ("Montclair") to VHG, identified as Policy No. MAC-XS2-2022-09817, for the policy period July 1, 2022 through July 1, 2023 (the "Policy"). This demand arises from the catastrophic business-interruption losses sustained by VHG as a direct and proximate result of Hurricane Callista, which made landfall in the Lower Florida Keys on September 18, 2022. This matter is being handled under our engagement reference 1021-00003 by the undersigned, Elaine Forsythe, Partner.
The facts and circumstances supporting this demand are set forth in detail below.
I. THE INSURED AND THE INSURED PROPERTIES
VHG is a leading publicly traded hospitality and real-estate company with an established portfolio of luxury resort and hotel properties concentrated along Florida's Gulf Coast and the Florida Keys. For the fiscal year ended December 31, 2021, VHG reported consolidated revenues of approximately $412 million and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $78 million. VHG's senior management team includes Marcus Ellsworth, Chief Executive Officer; Diane Calder, Chief Financial Officer; Nathaniel Driscoll, General Counsel; and Sandra Pellegrini, Vice President of Risk Management. VHG is a sophisticated and well-capitalized hospitality enterprise with a strong track record of operational performance across its properties.
Three of VHG's flagship resort and hotel properties are at issue in this claim, each of which sustained catastrophic damage and prolonged operational shutdowns as a result of Hurricane Callista:
1. Verimark Grand Key Resort — Located at Mile Marker 48, Marathon, Florida 33050, the Grand Key Resort is VHG's premier Florida Keys property. The resort consists of 312 luxury guest rooms and suites, together with a full-service deep-water marina, multiple food and beverage outlets, a destination spa, and extensive pool and beach amenities. In the twelve months preceding the loss, the Grand Key Resort maintained a pre-loss average daily rate ("ADR") of $389 and an average occupancy rate of 82%, reflecting the property's strong market positioning and consistent demand profile within the Upper and Middle Keys luxury segment.
2. Verimark Harborview Hotel & Conference Center — Located at 1400 Estero Boulevard, Fort Myers Beach, Florida 33931, the Harborview Hotel & Conference Center is a 224-room full-service hotel anchored by a 40,000-square-foot conference and event facility that serves as one of the largest dedicated meeting venues on the Southwest Florida coast. The property generates significant group and corporate meeting revenue in addition to leisure transient demand. In the twelve months preceding the loss, the Harborview Hotel maintained a pre-loss ADR of $295 and an average occupancy rate of 74%.
3. Verimark Sunset Shores — Located at 7200 Gulf Boulevard, St. Pete Beach, Florida 33706, Sunset Shores is a 186-room boutique resort positioned as a lifestyle-oriented beachfront property. The resort features curated food and beverage concepts, a rooftop bar, and beachside amenities that have earned it recognition in multiple national hospitality industry publications. In the twelve months preceding the loss, Sunset Shores maintained a pre-loss ADR of $342 and an average occupancy rate of 79%.
Each of these properties represents a significant revenue-generating asset for VHG, and all three were operating at or near peak seasonal demand levels when Hurricane Callista struck.
II. THE INSURANCE PROGRAM AND MONTCLAIR'S ROLE
VHG maintains a comprehensive all-risk property and business-interruption insurance program designed to protect against precisely the type of catastrophic event that occurred here. The program was placed by Tidewater Risk Advisors LLC ("Tidewater"), VHG's broker of record, under the direction of account executive Franklin Orde. The program was structured as a four-layer tower providing a total of $60,000,000 in aggregate coverage above a $500,000 per-occurrence deductible. The tower is composed of the following layers:
As reflected in the table above, Montclair's Policy sits as the second excess layer in the program. The Policy attaches at $40,000,000—that is, it attaches above the combined $25,000,000 limit of the Ironclad Indemnity Corporation primary policy and the $15,000,000 limit of the Pinnacle Surplus Lines Inc. first excess policy—and provides $10,000,000 in additional coverage. All four policies share a common policy period of July 1, 2022 through July 1, 2023, and were placed contemporaneously as part of a unified program designed to provide seamless, layered coverage.
The annual premium for Montclair's second excess layer was $265,000, which VHG paid in full and on time. The total annual premium for the entire four-layer program was $1,840,000. VHG has at all relevant times been in full compliance with all premium payment obligations and all other conditions precedent under the program.
Critically, all policies in the tower, including Montclair's Policy, provide "all-risk" coverage for physical loss or damage, including business interruption and extra expense. The policies were negotiated and placed with the understanding that VHG's hospitality properties face significant exposure to named-storm and hurricane risks, and the program was specifically designed to provide meaningful protection against such perils. The coverage purchased by VHG was comprehensive and broad, reflecting both the magnitude of VHG's insurable interests and the substantial premiums paid to the participating carriers.
III. HURRICANE CALLISTA AND THE COVERED LOSS
Hurricane Callista was designated a named tropical storm by the National Hurricane Center on September 12, 2022, and rapidly intensified as it tracked northward through the warm waters of the Caribbean Sea and the Straits of Florida. By the time Callista made landfall at approximately 1:30 PM Eastern Daylight Time on September 18, 2022, near Big Pine Key in the Lower Florida Keys, it had strengthened to a Category 4 hurricane on the Saffir-Veltason Hurricane Wind Scale, with maximum sustained winds of approximately 145 miles per hour and gusts in excess of 175 miles per hour. The storm produced catastrophic wind damage across Monroe, Lee, Collier, and Pinellas Counties.
In addition to devastating sustained winds, Hurricane Callista generated a massive and destructive storm surge. Storm surge levels in Monroe County ranged from approximately 8 to 14 feet above normally dry ground, inundating large swaths of the Florida Keys including areas proximate to VHG's Grand Key Resort. Lee County, where VHG's Harborview Hotel is located, experienced storm surge of 6 to 10 feet, which caused widespread flooding along Fort Myers Beach and Estero Island. Even in Pinellas County, the storm's outer bands and surge effects caused significant damage along the beaches of St. Pete Beach, where VHG's Sunset Shores resort is situated.
In response to the approaching storm, local emergency management authorities issued mandatory evacuation orders for the affected coastal areas. Monroe County issued its mandatory evacuation order on September 16, 2022, and Lee County followed with its own mandatory evacuation order on September 17, 2022. VHG immediately complied with these evacuation orders, closing all three affected properties and evacuating all guests and non-essential staff in an orderly and responsible manner consistent with VHG's emergency preparedness protocols.
All three VHG properties sustained catastrophic property damage as a direct result of Hurricane Callista's winds, storm surge, and wind-driven rain. The resulting closures, operational disruptions, and loss of revenue were severe and prolonged:
• Grand Key Resort: The Grand Key Resort suffered the most extensive damage of the three properties. The resort was forced to close entirely on September 18, 2022, and did not reopen until March 15, 2023—a total closure period of 178 days. The property sustained catastrophic roof damage, destruction of multiple guest room buildings, total loss of the marina facilities, and extensive water intrusion throughout the main building and amenity structures. VHG's estimated business-interruption loss attributable to the Grand Key Resort is $31,400,000, based on lost room revenue, food and beverage revenue, marina revenue, spa and ancillary revenue, and extra expenses incurred in connection with restoration efforts, reduced by saved expenses during the closure period.
• Harborview Hotel & Conference Center: The Harborview Hotel was also forced to close on September 18, 2022. The property sustained severe wind and surge damage, including destruction of the conference center roof system, flooding of the ground floor and lower-level meeting rooms, and significant damage to mechanical, electrical, and plumbing systems. The hotel reopened on January 31, 2023, after a closure period of 135 days. VHG's estimated business-interruption loss attributable to the Harborview Hotel is $18,700,000, reflecting lost room revenue, group and conference revenue, food and beverage revenue, and extra expenses, net of saved expenses.
• Sunset Shores: Sunset Shores experienced a full closure from September 18, 2022 through November 30, 2022—a period of 73 days—followed by a period of significantly reduced capacity as repairs continued. The property did not return to full operational capacity until February 28, 2023. Damage at Sunset Shores included partial roof loss, exterior facade damage, flooding of ground-floor guest rooms and public areas, and destruction of the rooftop bar and beachside amenity structures. VHG's estimated business-interruption loss attributable to Sunset Shores is $9,900,000, encompassing lost revenue during both the full closure and reduced-capacity periods, together with extra expenses and net of saved expenses.
In sum, VHG's total claimed business-interruption loss across the three affected properties is $60,000,000 ($31,400,000 + $18,700,000 + $9,900,000 = $60,000,000). This figure represents a conservative estimate based on VHG's historical financial performance, property-level revenue data, and the actual duration and severity of the operational disruptions caused by Hurricane Callista. The total loss figure is subject to further refinement and supplementation as the forensic accounting analysis described in Section V below is completed.
IV. NOTICE AND PROOF OF LOSS
VHG has fully complied with all notice and proof-of-loss requirements under the insurance program. Specifically:
• On September 22, 2022—just four days after landfall—VHG submitted timely initial notice of loss to Ironclad Indemnity Corporation as lead carrier under the primary layer of the program. This notice identified the date and nature of the loss, the affected properties, and the anticipated magnitude of VHG's claim.
• Arbor Claims Services LLC, the independent adjusting firm retained by Ironclad to investigate the claim, conducted initial property inspections of all three affected VHG properties beginning on October 5, 2022. The lead adjuster assigned by Arbor Claims Services is Denise Whitford. VHG cooperated fully with Ms. Whitford's inspections and has continued to cooperate with the adjusting process.
• On November 15, 2022, VHG submitted a sworn statement in proof of loss in the total amount of $60,000,000 to Ironclad Indemnity Corporation as lead carrier. The sworn statement was executed by VHG's Chief Financial Officer, Diane Calder, and sets forth in detail the nature, cause, and amount of VHG's claimed losses across all three affected properties.
• Copies of the initial notice of loss and the sworn statement in proof of loss have been, or are concurrently herewith being, provided to Montclair Assurance Company. To the extent that the Montclair Policy contains any independent notice or proof-of-loss requirements, VHG considers this correspondence and the enclosed documentation to satisfy those requirements. VHG reserves its rights to supplement its proof of loss as additional information becomes available through the ongoing forensic accounting process.
We note additionally that Ironclad Indemnity Corporation issued a reservation of rights letter to VHG dated October 12, 2022. VHG vigorously disputes each and every basis for reservation of rights stated in that letter and has responded in detail through correspondence dated October 25, 2022, copies of which are enclosed herewith for Montclair's reference. The specific coverage issues raised in Ironclad's reservation of rights are addressed further in Section VI below insofar as they may relate to Montclair's Policy.
V. VHG'S LOSSES EXCEED MONTCLAIR'S ATTACHMENT POINT
VHG's total business-interruption losses of $60,000,000 far exceed the combined limits of the primary and first excess layers of the insurance program. The Ironclad primary policy provides $25,000,000 in coverage (above the $500,000 deductible), and the Pinnacle first excess policy provides an additional $15,000,000 in coverage. Together, these two underlying layers provide a combined $40,000,000 in coverage, which is precisely Montclair's attachment point under the second excess layer.
Because VHG's total losses of $60,000,000 exceed $40,000,000 by a margin of $20,000,000, the underlying primary and first excess layers are fully exhausted by the claim, and Montclair's $10,000,000 second excess layer is triggered in its entirety. Indeed, VHG's losses are so substantial that they also fully penetrate Montclair's layer and reach into the third excess layer issued by Sovereign Re Ltd. There is no credible basis upon which Montclair can contend that its layer is not fully engaged by this loss.
The loss quantification supporting VHG's claim has been prepared by VHG's internal finance team under the direction of Chief Financial Officer Diane Calder and Vice President of Risk Management Sandra Pellegrini. The quantification is based on detailed, property-level financial data, including but not limited to: historical revenue performance by revenue category (rooms, food and beverage, conference and events, marina, spa, and ancillary); average daily rates and occupancy data maintained in VHG's property management systems; group and conference booking pace and cancellation data; seasonal demand patterns and competitive set performance data; extra expenses actually incurred in connection with property restoration, guest relocation, and emergency remediation; and saved expenses (including payroll, utilities, cost of goods sold, and other variable expenses) during periods of full and partial closure.
In addition to the internal analysis, VHG has retained the services of Meridian Forensic Economics LLC to provide an independent forensic accounting verification and quantification of VHG's business-interruption losses. The engagement is being led by Dr. Helen Vasquez, CPA, CFF, a nationally recognized expert in the forensic quantification of insurance loss claims, with particular expertise in the hospitality industry. Dr. Vasquez and her team are currently in the process of completing their analysis, and VHG intends to supplement its sworn statement in proof of loss with Dr. Vasquez's detailed report and supporting workpapers upon completion. VHG anticipates that the Meridian analysis will confirm and support the total loss figure of $60,000,000, if not exceed it.
VI. MONTCLAIR'S COVERAGE OBLIGATIONS
Montclair's coverage obligations under the Policy are clear and unambiguous. The Policy is an "all-risk" property and business-interruption insurance policy, which means that it covers all risks of physical loss or damage to covered property, including the resulting loss of business income and necessary extra expenses, unless a specific exclusion applies. Hurricane Callista unquestionably constitutes a covered "occurrence" under the Policy—a sudden, catastrophic, and fortuitous event that caused direct physical loss and damage to VHG's insured properties and resulted in the business-interruption losses for which VHG now seeks indemnification.
VHG is not aware of any exclusion, limitation, or condition in the Montclair Policy that would relieve Montclair of its obligation to pay VHG's claim in full. In particular, VHG addresses the following issues that have been raised by Ironclad Indemnity Corporation in its reservation of rights letter, to the extent Montclair may seek to rely upon similar arguments:
Windstorm Sub-Limit. Ironclad's reservation of rights asserts the existence of a windstorm sub-limit in the primary policy. VHG disputes this assertion on two independent grounds. First, the Montclair second excess policy does not contain any windstorm sub-limit, and Montclair cannot rely upon a sub-limit that appears only in an underlying policy to reduce its own coverage obligations. The Montclair Policy provides $10,000,000 in coverage, full stop. Second, and in any event, VHG contends that the windstorm sub-limit was expressly deleted from the Ironclad primary policy at the time of the July 2022 renewal, pursuant to broker negotiations conducted by Tidewater Risk Advisors. VHG's broker, Franklin Orde of Tidewater, has confirmed that the deletion of the windstorm sub-limit was a specific condition of VHG's renewal of the program, and VHG possesses documentation supporting this position. Even assuming arguendo that such a sub-limit were found to exist in the primary policy (which VHG emphatically disputes), it would not reduce VHG's total loss amount, which independently and substantially exceeds all attachment points in the tower, including Montclair's.
Flood Exclusion. Ironclad's reservation of rights also asserts a potential flood exclusion with respect to storm surge damage at the Grand Key Resort. This argument is without merit for multiple reasons. The damage to the Grand Key Resort was overwhelmingly caused by hurricane-force winds, and to the extent storm surge contributed to any portion of the damage, such surge was wind-driven water that is not properly characterized as "flood" within the meaning of the policy. Moreover, under the efficient proximate cause doctrine recognized and applied by Florida courts, when a covered peril (here, hurricane-force winds) sets in motion a chain of events that includes both covered and arguably excluded causes of loss, the covered peril controls and the entire loss is covered. See Ostrander Partners LLC, 208 So. 3d 694 (Fla. 2016). Wind was indisputably the efficient proximate cause of the damage to VHG's properties, and the flood exclusion therefore does not apply.
Period of Restoration / Failure to Mitigate. Ironclad's reservation of rights further suggests that VHG's claimed period of restoration may be unreasonable and that VHG may have failed to mitigate its losses. These assertions are baseless. VHG undertook commercially reasonable and diligent restoration efforts under extraordinarily difficult post-hurricane conditions, including severe disruption to local infrastructure, supply chain constraints, contractor and labor shortages throughout South Florida, permitting delays caused by overwhelmed local building departments, and ongoing debris removal and environmental remediation requirements. The closure periods for each property reflect the minimum time reasonably necessary to restore the properties to operational condition, and VHG acted at all times with due diligence and in accordance with its obligations under the policy and at law.
VHG further notes that Montclair, as an excess carrier, is contractually obligated to respond to VHG's claim once the underlying layers are exhausted, whether by actual payment by the underlying carriers or by a determination that the underlying carriers' aggregate limits have been reached. An excess carrier may not hide behind the pendency of a primary or first excess claim to delay its own coverage obligations. To the contrary, Montclair has an independent duty to investigate VHG's claim promptly and in good faith, and to make a coverage determination within a reasonable time. Florida law imposes upon all insurers—including excess carriers—an obligation of good faith in the handling of claims, and Montclair's duty to investigate and respond runs parallel to, and independent of, the obligations of the underlying carriers. VHG therefore demands that Montclair not delay its own investigation or coverage determination pending the resolution of the primary and first excess layers. Any such delay would constitute a violation of Montclair's duties under Florida law and the Policy.
VII. DEMAND FOR PAYMENT
Based on the foregoing, Verimark Hospitality Group Inc. hereby makes formal demand upon Montclair Assurance Company for payment of the full Ten Million Dollars ($10,000,000) limit of liability under its second excess layer, Policy No. MAC-XS2-2022-09817. VHG's losses are clear, well-documented, and far in excess of Montclair's attachment point. There is no legitimate basis upon which Montclair can deny or delay payment of this claim.
VHG demands that payment be made promptly and in any event within the time periods required by applicable Florida law, including but not limited to the claims-handling time frames set forth in Florida Statutes § 627.70131 and related provisions. VHG specifically reserves all rights and remedies available to it in the event that Montclair fails to acknowledge coverage, unreasonably delays its investigation, or fails to pay VHG's claim within a reasonable time, including without limitation the right to pursue statutory bad-faith claims under Florida Statutes § 624.155. As Montclair is aware, a finding of bad faith under Florida law may subject an insurer to liability for damages in excess of policy limits, consequential damages, attorneys' fees and costs, and punitive damages in appropriate circumstances. VHG trusts that such measures will not be necessary but is prepared to pursue all available remedies if Montclair fails to honor its contractual obligations.
VHG further demands pre-judgment interest at the applicable statutory rate on any amounts that are improperly withheld or delayed beyond the date upon which they are due and owing under the Policy and applicable law.
VHG notes that concurrent demand letters of even date herewith have been sent to Ironclad Indemnity Corporation, Pinnacle Surplus Lines Inc., and Sovereign Re Ltd. for their respective layer limits. VHG expects each carrier in the program to fulfill its obligations promptly and in good faith.
VIII. RESERVATION OF RIGHTS BY VHG
VHG expressly reserves all rights, claims, and remedies available to it under the Policy, at law, and in equity, including but not limited to the following:
• Breach of contract for failure to pay benefits due under the Policy;
• Declaratory judgment as to the parties' respective rights and obligations under the Policy;
• Bad faith, both statutory under Florida Statutes § 624.155 and at common law, for unreasonable delay or denial of VHG's claim;
• Recovery of attorneys' fees and costs pursuant to Florida Statutes § 627.428 and any other applicable fee-shifting provisions; and
• Any and all other claims, causes of action, and remedies that may be available under applicable law.
Nothing in this letter, and no action taken or omitted by VHG or its counsel in connection with this claim, shall be construed as a waiver, release, or limitation of any of VHG's rights, claims, or remedies, whether presently known or unknown, accrued or unaccrued. VHG's rights are cumulative, and the exercise of any one right or remedy shall not be deemed an election that precludes the exercise of any other right or remedy.
IX. REQUEST FOR RESPONSE AND CONTACT INFORMATION
VHG respectfully requests that Montclair Assurance Company respond in writing within thirty (30) days of the date of this letter, acknowledging coverage under the Policy and confirming Montclair's intention to pay VHG's claim in full. In its response, VHG further requests that Montclair identify its designated claims handler for this matter, together with that individual's direct contact information, and disclose the identity of any outside counsel that Montclair has retained or intends to retain in connection with this claim.
All communications regarding this matter should be directed to the undersigned:
Elaine Forsythe, Partner Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 814-7200
Email: eforsythe@calderwoodharkness.com
Engagement No. 1021-00003
Please do not contact VHG or any of its officers, directors, or employees directly regarding this claim without first coordinating through this office.
We look forward to Montclair's prompt and substantive response.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Elaine Forsythe Partner Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131
cc: Nathaniel Driscoll, General Counsel, Verimark Hospitality Group Inc. cc: Sandra Pellegrini, Vice President of Risk Management, Verimark Hospitality Group Inc. cc: Franklin Orde, Account Executive, Tidewater Risk Advisors LLC
Enclosures:
1. Copy of Sworn Statement in Proof of Loss (dated November 15, 2022)
2. Copy of Ironclad Indemnity Corporation Reservation of Rights Letter (dated October 12, 2022)
3. Copy of VHG's Response to Ironclad Reservation of Rights (dated October 25, 2022)
Layer | Carrier | Limit | Attachment Point | Policy No.
Primary | Ironclad Indemnity Corporation | $25,000,000 | $500,000 deductible | IIC-PRP-2022-07541
1st Excess | Pinnacle Surplus Lines Inc. | $15,000,000 | $25,000,000 | PSL-XS1-2022-3390
2nd Excess | Montclair Assurance Company | $10,000,000 | $40,000,000 | MAC-XS2-2022-09817
3rd Excess | Sovereign Re Ltd. | $10,000,000 | $50,000,000 | SRL-XS3-2022-5102