response-to-ironclad-ror.docx

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

response-to-ironclad-ror.docx DOCUMENT Antitrust

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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

October 25, 2022

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED, AND EMAIL

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

Re: Verimark Hospitality Group Inc. — Hurricane Callista Claim Policy No.: IIC-PRP-2022-07541 Policy Period: July 1, 2022 – July 1, 2023 Date of Loss: September 18, 2022 Our File No.: 1021-00003

Dear Mr. Haddon:

I. Introduction and Purpose

This firm represents Verimark Hospitality Group Inc. ("VHG"), a Delaware corporation publicly traded on the Nasdaq Stock Market (ticker symbol: VMRK), with its principal offices located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129, in connection with VHG's claim for business-interruption and property losses arising from Hurricane Callista under the above-referenced all-risk commercial property policy (the "Policy") issued by Ironclad Indemnity Corporation ("Ironclad"). The undersigned, Elaine Forsythe, serves as the responsible partner on this engagement (file reference 1021-00003).

We write in response to Ironclad's reservation of rights letter dated October 12, 2022 (the "Reservation Letter"), which VHG received on October 14, 2022. VHG has carefully reviewed the Reservation Letter and, as set forth in detail below, disputes each and every basis upon which Ironclad has purported to reserve its rights. VHG's position is straightforward: the Hurricane Callista losses constitute a clear, covered occurrence under the Policy, and Ironclad's attempt to interpose meritless coverage defenses at this early stage is both legally unfounded and inconsistent with Ironclad's obligations as VHG's insurer.

VHG demands that Ironclad immediately commence a good-faith investigation and adjustment of VHG's claim without further delay. VHG further demands that Ironclad advance undisputed portions of VHG's claim while any purported coverage disputes are resolved, as required by Ironclad's contractual and statutory obligations under Florida law.

VHG expressly reserves all of its rights, claims, and remedies, including without limitation any rights arising from Ironclad's unreasonable delay, wrongful denial, or bad-faith handling of this claim under the Policy, applicable Florida statutes, and common law. Nothing in this letter shall be construed as a waiver of any right, claim, or defense available to VHG, whether or not specifically addressed herein.

II. Background — The Covered Loss

A. Hurricane Callista

Hurricane Callista was designated as a named tropical cyclone by the National Hurricane Center of the National Oceanic and Atmospheric Administration ("NOAA") on September 12, 2022. After rapidly intensifying over the warm waters of the western Caribbean Sea and the Straits of Florida, Hurricane Callista made landfall as a Category 4 hurricane on September 18, 2022, at approximately 1:30 PM EDT, near Big Pine Key in the Lower Florida Keys, with maximum sustained winds of approximately 145 miles per hour. The storm produced catastrophic wind damage across a wide swath of southwestern Florida and the Florida Keys, accompanied by devastating storm surge of 8 to 14 feet in Monroe County and 6 to 10 feet in Lee County, as documented by NOAA tide gauges and post-storm high-water mark surveys.

In response to the approaching storm, Monroe County issued a mandatory evacuation order for all residents and visitors on September 16, 2022. Lee County followed with its own mandatory evacuation order on September 17, 2022. Pinellas County, where VHG's Sunset Shores property is located, issued evacuation orders for barrier island zones on September 17, 2022 as well. These government-ordered evacuations forced the immediate closure of all three VHG properties and the departure of all guests and staff, compounding the already catastrophic physical damage caused by the storm itself.

Hurricane Callista is among the most destructive hurricanes to strike the State of Florida in recent decades, with preliminary insured loss estimates from industry sources exceeding $30 billion statewide.

B. VHG's Damaged Properties

VHG owns and operates three resort and hotel properties in Florida, each of which sustained catastrophic damage from Hurricane Callista. All three properties have remained continuously closed since September 18, 2022, and remain closed as of the date of this letter:

1. Verimark Grand Key Resort — Mile Marker 48, Marathon, Florida 33050. The Grand Key Resort is a 312-room luxury resort and full-service marina situated on the Gulf side of the Florida Keys. Prior to Hurricane Callista, the Grand Key Resort maintained an average daily rate ("ADR") of $389 and an average occupancy rate of 82%. The resort sustained catastrophic structural damage from sustained winds of 145 miles per hour, including widespread roof failure, destruction of multiple guest room buildings, collapse of the marina facility, and severe damage to common areas, restaurants, pool decks, and landscaping. The Grand Key Resort has been closed since September 18, 2022, and full reconstruction is expected to take twelve to eighteen months or longer given the severity of damage and the remote location's logistical constraints.

2. Verimark Harborview Hotel & Conference Center — 1400 Estero Boulevard, Fort Myers Beach, Florida 33931. The Harborview is a 224-room hotel with an adjoining 40,000-square-foot conference and convention facility located on Fort Myers Beach. Prior to Hurricane Callista, the Harborview maintained an ADR of $295 and an average occupancy rate of 74%. The property sustained extensive wind damage, including loss of roofing systems across both the hotel tower and conference facility, widespread water intrusion, destruction of mechanical and HVAC systems, and significant damage to the building envelope. The Harborview has been closed since September 18, 2022, and remains closed as of the date of this letter.

3. Verimark Sunset Shores — 7200 Gulf Boulevard, St. Pete Beach, Florida 33706. The Sunset Shores is a 186-room boutique resort located on the Gulf of Mexico in St. Pete Beach. Prior to Hurricane Callista, the Sunset Shores maintained an ADR of $342 and an average occupancy rate of 79%. The resort sustained extensive wind damage, including partial roof failure, exterior wall breaches, destruction of beachfront amenities, and severe water intrusion damage to guest rooms and public spaces. The Sunset Shores has been closed since September 18, 2022, and remains closed as of the date of this letter.

C. Timely Notice and Estimated Losses

VHG submitted timely written notice of loss to Ironclad on September 22, 2022 — just four days after Hurricane Callista's landfall — well within any notice period required under the Policy. That notice identified all three damaged properties, described the nature and extent of the losses in general terms based on information available at that time, and requested that Ironclad immediately assign adjusting resources to investigate and adjust VHG's claim.

VHG's estimated total business-interruption losses across the three properties are approximately $60,000,000, taking into account lost revenue, continuing fixed expenses, and extra expenses incurred as a result of the closures. This estimate is based on preliminary analysis by VHG's finance team under the direction of Chief Financial Officer Diane Calder, incorporating historical financial performance, seasonal booking trends, and projected restoration timelines. VHG is currently in the process of preparing a sworn statement in proof of loss, which will be submitted to Ironclad in the near future as additional information becomes available and the full scope of losses is quantified.

VHG's insurance broker of record, Tidewater Risk Advisors LLC, through Account Executive Franklin Orde, placed the comprehensive all-risk property and business-interruption insurance program under which the Policy was issued. Mr. Orde has been fully cooperative with Ironclad and its representatives throughout the claims process and remains available to assist with any inquiries regarding the program's placement and terms.

III. The Insurance Program

VHG maintains a comprehensive all-risk property and business-interruption insurance program (the "Program") structured as a layered tower with total aggregate limits of $60,000,000 per occurrence, above a $500,000 per-occurrence deductible. The Program was placed through Tidewater Risk Advisors LLC and was bound effective July 1, 2022, for the policy period July 1, 2022 through July 1, 2023. The structure of the Program is as follows:

Primary Layer: Ironclad Indemnity Corporation Policy No. IIC-PRP-2022-07541 Limit: $25,000,000 per occurrence (business interruption and property combined) Deductible: $500,000 per occurrence Premium: $980,000

First Excess Layer: Pinnacle Surplus Lines Inc. Policy No. PSL-XS1-2022-3390 Limit: $15,000,000 excess of $25,000,000 Follows form to the Ironclad primary policy

Second Excess Layer: Montclair Assurance Company Policy No. MAC-XS2-2022-09817 Limit: $10,000,000 excess of $40,000,000 Follows form to the Ironclad primary policy

Third Excess Layer: Sovereign Re Ltd. Policy No. SRL-XS3-2022-5102 Limit: $10,000,000 excess of $50,000,000 Follows form to the Ironclad primary policy

The total annual premium paid by VHG for the entire Program is $1,840,000, of which $980,000 was allocated to the Ironclad primary layer. VHG paid the full premium for all layers prior to the inception of the policy period, and all coverages were in full force and effect on the date of loss.

The Policy is an "all risks" policy covering direct physical loss of or damage to covered property, including coverage for business interruption and extra expense resulting from such loss or damage. As an all-risk policy, the Policy covers all risks of physical loss or damage unless specifically excluded by an applicable exclusion. Under well-established Florida law, the burden of proving the applicability of any exclusion falls squarely on Ironclad as the insurer. See Wallach v. Rosenberg, 527 So. 2d 1386 (Fla. 3d DCA 1988); U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871 (Fla. 2007). Ironclad cannot shift that burden to VHG through the mechanism of a reservation of rights letter.

IV. Ironclad's Reservation of Rights Is Without Merit

VHG has carefully reviewed each of the four purported bases for Ironclad's reservation of rights as articulated in the Reservation Letter and addresses each in turn below. As demonstrated, none of Ironclad's asserted coverage defenses has merit, and each should be withdrawn immediately.

A. The Named Windstorm Sub-Limit Does Not Apply

Ironclad's Reservation Letter asserts that the Policy contains a $15,000,000 named-windstorm sub-limit applicable to business-interruption coverage, which Ironclad contends would cap VHG's recovery under the primary layer at $15,000,000 rather than the full $25,000,000 per-occurrence limit. VHG categorically disputes this assertion, which is factually incorrect and contradicted by the negotiation history, the renewal documentation, and the terms of the Policy as bound.

During the July 2022 renewal negotiations for the Program, VHG — acting through its broker of record, Tidewater Risk Advisors LLC, and specifically through Account Executive Franklin Orde — expressly and specifically negotiated for the deletion of the named-windstorm sub-limit that had appeared in the prior policy year (July 1, 2021 – July 1, 2022). The prior-year policy had contained a $15,000,000 named-windstorm sub-limit, which VHG's risk management team — led by VP of Risk Management Sandra Pellegrini — identified as a material coverage gap, particularly given VHG's significant coastal property exposure in hurricane-prone regions of Florida.

Ironclad's underwriting department, through its representatives involved in the renewal process, agreed to delete the named-windstorm sub-limit in exchange for an increased premium. VHG accepted the increased premium and paid it in full. The $980,000 primary-layer premium for the current policy year represents a substantial increase over the prior-year premium, and a significant component of that increase was attributable to the deletion of the named-windstorm sub-limit, as documented in the renewal correspondence.

Broker correspondence between Tidewater Risk Advisors and Ironclad's underwriting team during the June and July 2022 renewal process confirms the parties' agreement to delete the named-windstorm sub-limit. VHG is prepared to produce this correspondence and, if necessary, to present testimony from Mr. Orde and Ms. Pellegrini to confirm the terms as negotiated and agreed upon.

Furthermore, the binder issued by Ironclad for the July 1, 2022 policy period does not reference or include a named-windstorm sub-limit. The binder confirms coverage at the full $25,000,000 per-occurrence limit without any sub-limit for named windstorm events. To the extent Ironclad now contends that the sub-limit was not deleted — or that the formal policy form issued after binding contains language inconsistent with the binder — any such discrepancy constitutes a unilateral error or unauthorized modification by Ironclad that is not binding on VHG.

Moreover, to the extent there is any ambiguity in the policy endorsements or declarations regarding whether the named-windstorm sub-limit was deleted during the July 2022 renewal, Florida law is well-settled that ambiguities in insurance policies are construed strictly against the insurer and in favor of coverage for the insured. See Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000) ("Insurance contracts are to be construed liberally in favor of the insured and strictly against the insurer who drafted the policy."); Excelsior Ins. Co. v. Pomona Park Bar & Package Store, 369 So. 2d 938, 942 (Fla. 1979). Any ambiguity created by Ironclad's own policy forms must be resolved in VHG's favor, particularly where, as here, the insured negotiated for and paid additional premium for enhanced coverage.

VHG demands that Ironclad immediately confirm in writing that the named-windstorm sub-limit does not apply to the current policy period and that Ironclad will adjust VHG's claim on the basis of the full $25,000,000 per-occurrence limit. Should Ironclad decline to do so, VHG demands that Ironclad produce all underwriting files, correspondence, memoranda, pricing worksheets, and internal communications relating to the July 2022 renewal of the Policy and the negotiation regarding the named-windstorm sub-limit, so that this issue can be resolved definitively and without further delay.

B. The Flood Exclusion Does Not Bar Coverage

Ironclad's Reservation Letter raises the Policy's flood exclusion in connection with storm-surge damage sustained at the Grand Key Resort property, suggesting that some portion of VHG's claim may be excluded on the basis that the damage was caused by flood or storm surge rather than wind. VHG disputes that the flood exclusion bars coverage for any portion of VHG's claim, for the following reasons.

First, Hurricane Callista was a named windstorm. The predominant and efficient proximate cause of the physical damage to all three VHG properties — and the resulting business interruption — was wind, which is a covered peril under the all-risk Policy. Hurricane Callista struck the Florida Keys and southwestern Florida with sustained winds of 145 miles per hour, a Category 4 hurricane on the Saffir-Veltason scale. Winds of that magnitude are inherently and independently destructive, causing catastrophic structural damage irrespective of any concurrent storm surge. The wind damage at each of VHG's properties was extensive, independent, and clearly constituted the primary and dominant cause of the property closures and resulting business interruption.

Second, while portions of the Grand Key Resort experienced storm surge consistent with the 8- to 14-foot surge levels documented in Monroe County, the wind damage at the Grand Key Resort was catastrophic and pervasive, affecting roofing systems, structural framing, exterior wall assemblies, guest room interiors, common areas, and the marina facility. Even in the complete absence of any storm surge, the Grand Key Resort would have sustained catastrophic damage from the 145-mph winds alone, and the property would have been rendered inoperable and closed for an extended period of restoration.

Third, under Florida law, the efficient proximate cause doctrine applies in cases involving concurrent causation by covered and excluded perils. Where a covered peril — here, wind — and an excluded peril — here, flood or storm surge — concurrently cause damage, coverage is triggered if the covered peril is the efficient proximate cause of the loss. See Glenrock Enterprises, Inc., 208 So. 3d 694 (Fla. 2016); Fayad v. Clarendon Nat'l Ins. Co., 899 So. 2d 1082 (Fla. 2005). Here, wind was indisputably the efficient proximate cause of VHG's losses.

Fourth, to the extent Ironclad intends to rely on an anti-concurrent causation ("ACC") clause in the Policy to avoid coverage for losses that were concurrently caused by wind and storm surge, VHG notes that ACC clauses are narrowly construed under Florida jurisprudence. Florida courts have consistently held that ACC clauses cannot be deployed as blanket mechanisms to defeat coverage for losses that were predominantly caused by a covered peril simply because an excluded peril contributed to some portion of the damage. See Mierzwa v. Florida Windstorm Underwriting Ass'n, 877 So. 2d 774 (Fla. 4th DCA 2004). To allow otherwise would render the Policy's wind coverage illusory for any hurricane event involving concurrent storm surge — a result that is inconsistent with the parties' reasonable expectations and the purpose of the all-risk coverage for which VHG paid nearly $1 million in annual premium.

Fifth, VHG has retained Caldwell Engineering Associates Inc. to perform a comprehensive forensic engineering analysis of each of the three VHG properties. Jeffrey Caldwell, P.E., a licensed professional engineer with extensive experience in hurricane damage assessment, is leading the analysis from Caldwell Engineering's offices at 7900 NW 25th Street, Suite 210, Doral, Florida 33122. Mr. Caldwell's team conducted on-site inspections of all three properties in early October 2022, and their preliminary findings strongly support VHG's position that wind was the dominant cause of structural damage at each location. Caldwell Engineering is preparing detailed reports with damage-differentiation analyses that will allocate losses between wind and any other contributing perils; VHG will share these reports with Ironclad upon completion.

Accordingly, VHG demands that Ironclad not invoke the flood exclusion as a basis for reducing or denying any portion of VHG's claim absent competent, substantial evidence establishing that specific, identifiable categories of damage were caused solely by flood or storm surge and not by the concurrent and dominant effects of the covered windstorm peril.

C. The Period of Restoration Defense Is Premature and Unfounded

Ironclad's Reservation Letter suggests that VHG's business-interruption coverage may be limited by the Policy's period-of-restoration clause, asserting that coverage terminates when repairs "could have been completed with reasonable speed" and implying that VHG may not be entitled to business-interruption coverage for the full duration of its actual closures. VHG vigorously disputes this characterization and notes that Ironclad's invocation of the period-of-restoration defense at this stage is premature, speculative, and indicative of a bad-faith approach to claims handling.

As of the date of this letter — barely five weeks after Hurricane Callista's landfall — all three VHG properties remain closed due to the severity and extent of the damage they sustained. The suggestion that VHG may be unreasonably delaying restoration is baseless on its face. VHG's properties sustained catastrophic damage from one of the most powerful hurricanes to strike Florida in recent years. The Grand Key Resort, in particular, suffered extensive structural damage from sustained winds of 145 miles per hour in a remote island location where infrastructure, utilities, and transportation access were themselves severely impacted by the storm. Restoration of the Grand Key Resort requires major reconstruction, including structural rebuilding, complete replacement of roofing systems and building envelope components, mechanical and electrical system replacement, interior finishing, and restoration of the marina facility. This work requires extensive permitting through Monroe County — a jurisdiction that is itself recovering from the hurricane and processing an unprecedented volume of building permit applications — and the mobilization of qualified contractors in a disaster zone where construction resources are severely constrained due to the overwhelming demand created by the storm.

The Harborview Hotel & Conference Center and Sunset Shores similarly sustained extensive wind damage requiring significant structural repair, envelope restoration, and interior reconstruction. Both properties require substantial permitting and contractor engagement in jurisdictions facing the same post-hurricane resource constraints.

Under Florida law, the period of restoration is measured by the time reasonably required to restore the property to substantially the same condition as existed immediately before the loss, taking into account the actual conditions prevailing after the loss event. See Fountain v. USAA, 2004 WL 5572085 (M.D. Fla. 2004). Courts have consistently recognized that "reasonable speed" must be evaluated in light of real-world circumstances, including post-disaster contractor shortages, material supply chain disruptions, building code compliance requirements, governmental permitting delays, and the logistical challenges inherent in large-scale reconstruction in hurricane-affected areas. An insurer cannot impose an artificial or hypothetical timeline that ignores these realities.

VHG is proceeding with all reasonable speed to restore its properties. VHG has already retained qualified general contractors for each property, engaged architectural and engineering consultants to develop restoration plans, initiated the permitting process with the relevant local jurisdictions, and begun emergency stabilization and demolition work where necessary to facilitate reconstruction. Any suggestion to the contrary is baseless, and Ironclad has offered no factual basis whatsoever for its premature assertion of this defense.

D. The Failure-to-Mitigate Defense Is Without Basis

Ironclad's Reservation Letter references VHG's alleged failure to take reasonable steps to mitigate its business-interruption losses. VHG emphatically rejects this allegation. Not only has VHG undertaken extensive and diligent mitigation efforts since Hurricane Callista's landfall, but Ironclad has failed to identify any specific act or omission by VHG that purportedly constitutes a failure to mitigate. A generalized and unsupported assertion of failure to mitigate in a reservation of rights letter, issued before the insurer has even completed its initial investigation, does not satisfy Ironclad's burden and is insufficient as a matter of law.

Since Hurricane Callista's landfall on September 18, 2022, VHG has undertaken the following mitigation measures, among others:

• Immediately securing and boarding up all three properties following the storm to prevent further damage from weather exposure, unauthorized entry, and vandalism;

• Engaging qualified emergency restoration contractors to begin water extraction, debris removal, mold prevention, and structural stabilization at each property;

• Coordinating with Monroe County, Lee County, and Pinellas County authorities and emergency management officials to obtain property access in evacuation zones and restricted areas as quickly as possible following the storm;

• Evaluating options for temporary or partial reopening of those portions of each property that may be safely and operationally viable, including analysis of whether undamaged sections can be isolated and reopened while reconstruction of damaged sections proceeds;

• Communicating proactively with guests who had existing reservations, corporate clients with scheduled conference bookings at the Harborview, and travel industry partners to minimize reputational damage and customer attrition, including offering rebooking accommodations at VHG's non-affected properties where available;

• Initiating insurance claim documentation efforts, including comprehensive photographic and video documentation of damage at each property, preservation of financial records, and engagement of forensic accountants to quantify business-interruption losses;

• Retaining Caldwell Engineering Associates Inc. to perform forensic engineering assessments, as described above, to support the claims process and to inform the restoration planning effort.

These efforts have been directed and overseen by VHG's senior management team, including Chief Executive Officer Marcus Ellsworth, Chief Financial Officer Diane Calder, and Vice President of Risk Management Sandra Pellegrini, all of whom have dedicated substantial time and resources to accelerating the restoration process and minimizing VHG's losses.

VHG flatly rejects any suggestion that it has failed to mitigate its losses and notes that under Florida law, the burden of proving any failure to mitigate rests entirely with the insurer. See Peninsular Fire Ins. Co. v. Wells, 438 So. 2d 46 (Fla. 1st DCA 1983). Ironclad has not identified, and cannot identify, any specific failure by VHG to take reasonable steps to reduce its losses. This defense should be withdrawn immediately.

V. Ironclad's Obligation to Investigate and Adjust in Good Faith

VHG is deeply concerned by the manner in which Ironclad has handled this claim to date. Ironclad retained Arbor Claims Services LLC as an independent adjuster, and the lead adjuster assigned to VHG's claim, Denise Whitford, conducted an initial inspection of VHG's three properties on October 5, 2022, from Arbor Claims' offices at 3300 W. Cypress Street, Suite 400, Tampa, Florida 33607. Despite this inspection having occurred nearly three weeks prior to the date of this letter, VHG has received no substantive communication from either Ironclad or Arbor Claims Services regarding the status of the adjustment of VHG's claim. VHG has not been provided with any preliminary findings, damage estimates, coverage analyses, or timelines for the completion of the investigation. Instead, the only substantive communication VHG has received from Ironclad is the Reservation Letter itself — a document that seeks to limit or deny VHG's coverage rather than to adjust VHG's loss.

Ironclad's decision to issue a reservation of rights letter just one week after its adjuster's initial inspection — and well before completing any meaningful investigation, analysis, or adjustment of the claim — raises serious and legitimate concerns about Ironclad's good-faith handling of this matter. The timing and content of the Reservation Letter suggest that Ironclad may be prioritizing its coverage defenses over its fundamental obligation to investigate and adjust VHG's substantial claim in good faith and with reasonable promptness.

Under Florida law, insurers have a duty to conduct a prompt, thorough, and good-faith investigation of claims and to reach a fair claims decision within a reasonable time. See Fla. Stat. § 624.155 (civil remedy for bad-faith insurance practices); Fla. Stat. § 626.9541(1)(i) (unfair claims settlement practices). An insurer may not unreasonably delay the investigation or payment of a claim, and the issuance of a blanket reservation of rights letter asserting multiple meritless defenses — without conducting a meaningful investigation — may itself constitute evidence of bad faith under Florida law. See Harborline Industries, 658 So. 2d 55 (Fla. 1995).

VHG demands that Ironclad immediately take the following actions:

1. Assign adequate adjusting resources to complete a thorough, competent, and timely investigation of VHG's claim across all three properties, including the retention of qualified structural engineers, forensic accountants, and other necessary experts;

2. Communicate substantively with VHG and its representatives — including this firm, VHG's General Counsel Nathaniel Driscoll, VHG's VP of Risk Management Sandra Pellegrini, and VHG's broker Franklin Orde at Tidewater Risk Advisors — regarding the status of the claim, Ironclad's investigation activities, and any additional information or documentation Ironclad requires from VHG;

3. Advance undisputed portions of VHG's claim pending the resolution of any coverage disputes Ironclad may assert. Even under Ironclad's own reservation of rights, substantial portions of VHG's business-interruption and property damage losses are undisputed and should be paid promptly. VHG should not be required to wait months — while its properties remain shuttered and it continues to incur ongoing losses — for Ironclad to resolve coverage positions that are themselves without merit;

4. Refrain from asserting meritless coverage defenses as a pretext for delaying or denying the payment of VHG's claim. The defenses raised in the Reservation Letter, as addressed in detail above, are each without merit and should not serve as a basis for Ironclad to withhold payment on a catastrophic loss claim from a longstanding policyholder.

VI. Notice to Excess Carriers

VHG notes that Ironclad's handling of this claim as lead carrier on the primary layer of the Program directly affects VHG's rights and interests under the three excess layers, each of which follows form to the Ironclad primary policy:

• Pinnacle Surplus Lines Inc. (Policy No. PSL-XS1-2022-3390; $15M xs $25M)

• Montclair Assurance Company (Policy No. MAC-XS2-2022-09817; $10M xs $40M)

• Sovereign Re Ltd. (Policy No. SRL-XS3-2022-5102; $10M xs $50M)

Given VHG's estimated total business-interruption losses of approximately $60,000,000, which would exhaust all layers of the Program, the manner in which Ironclad adjusts and resolves VHG's primary-layer claim will have direct and material consequences for VHG's recovery under the excess layers. VHG expects Ironclad, as lead carrier, to promptly notify the excess carriers of the claim and to coordinate the adjustment in a manner consistent with Ironclad's obligations and customary industry practice for lead carriers under layered programs.

VHG reserves all rights against the excess carriers — Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd. — and will correspond with each excess carrier separately as appropriate to protect its interests. VHG's engagement of this firm extends to the pursuit of VHG's rights under the entire Program, including all excess layers.

VII. Reservation of Rights by VHG

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

• Claims for breach of the implied covenant of good faith and fair dealing arising from Ironclad's handling of VHG's Hurricane Callista claim;

• Statutory bad-faith claims under Florida Statutes § 624.155 and related provisions, should Ironclad fail to promptly and fairly investigate, adjust, and pay VHG's claim;

• Claims for consequential damages arising from Ironclad's unreasonable delay in adjusting or paying VHG's claim, or from any wrongful denial of coverage, including without limitation damages for lost business opportunities, reputational harm, increased borrowing costs, and other foreseeable consequential losses;

• Claims for attorneys' fees and costs incurred by VHG in connection with the prosecution of its claim, as permitted under applicable Florida law; and

• Any and all other rights, claims, and remedies available to VHG under the Policy, the laws of the State of Florida, federal law, or principles of equity.

This letter does not constitute a waiver of any right, claim, or defense available to VHG, whether or not such right, claim, or defense is specifically referenced herein. VHG's enumeration of certain rights and remedies above is not intended to be exhaustive and shall not be construed as limiting VHG's available remedies in any respect.

Furthermore, nothing in this letter shall be construed as limiting VHG's claimed losses to the amounts referenced herein. VHG's estimated losses of approximately $60,000,000 are based on preliminary analysis; VHG's actual losses are ongoing and continue to accrue daily as VHG's three properties remain closed. VHG's losses are subject to further quantification as restoration timelines become more definite, financial impact analyses are completed, and the full scope of the business interruption is determined. VHG reserves the right to supplement and amend its loss estimates at any time.

VIII. Demand for Immediate Action

VHG demands that Ironclad respond in writing to this letter within ten (10) business days of the date hereof — i.e., no later than November 8, 2022 — confirming the following:

1. That Ironclad will immediately commence a good-faith adjustment of VHG's Hurricane Callista claim, including the assignment of adequate adjusting and expert resources and the establishment of a reasonable timeline for completing the investigation;

2. That Ironclad withdraws its assertion that a named-windstorm sub-limit of $15,000,000 applies to the current policy period, or, in the alternative, that Ironclad provides specific documentary evidence — including underwriting files, renewal correspondence, binder documentation, and policy endorsements — supporting its position that the named-windstorm sub-limit was not deleted at the July 2022 renewal as negotiated by the parties;

3. That Ironclad will advance interim payments for undisputed portions of VHG's claim, including at a minimum the undisputed property damage and business-interruption losses attributable to covered wind damage, pending the resolution of any coverage issues Ironclad may raise; and

4. A specific timeline for the completion of Ironclad's investigation and the issuance of a final coverage determination on VHG's claim.

Failure by Ironclad to respond to this letter within the time specified, or to commence a good-faith adjustment of VHG's claim, will be considered further evidence of bad faith in the handling of this claim and may result in VHG pursuing all available legal remedies — including but not limited to the filing of a civil remedy notice under Florida Statutes § 624.155 and the commencement of litigation for breach of contract, bad faith, and consequential damages — without further notice to Ironclad.

VHG looks forward to Ironclad's prompt and substantive response to this letter and to a cooperative and good-faith resolution of this claim. VHG remains willing to work collaboratively with Ironclad and its adjusters to facilitate the investigation and adjustment process, provided that Ironclad demonstrates a genuine commitment to fulfilling its contractual and legal obligations to its policyholder.

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

Elaine Forsythe, Partner Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 884-7200

Email: eforsythe@calderwoodharkness.com

Please also copy all correspondence to Nathaniel Driscoll, General Counsel of Verimark Hospitality Group Inc., at the address provided below.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Elaine Forsythe Partner

Date: October 25, 2022

cc:

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

Sandra Pellegrini Vice President, 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

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
October 25, 2022
VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED, AND EMAIL
Mr. Victor Haddon Senior Vice President, Claims Ironclad Indemnity Corporation 55 Constitution Boulevard Hartford, CT 06103
Re: Verimark Hospitality Group Inc. — Hurricane Callista Claim Policy No.: IIC-PRP-2022-07541 Policy Period: July 1, 2022 – July 1, 2023 Date of Loss: September 18, 2022 Our File No.: 1021-00003
Dear Mr. Haddon:
I. Introduction and Purpose
This firm represents Verimark Hospitality Group Inc. ("VHG"), a Delaware corporation publicly traded on the Nasdaq Stock Market (ticker symbol: VMRK), with its principal offices located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129, in connection with VHG's claim for business-interruption and property losses arising from Hurricane Callista under the above-referenced all-risk commercial property policy (the "Policy") issued by Ironclad Indemnity Corporation ("Ironclad"). The undersigned, Elaine Forsythe, serves as the responsible partner on this engagement (file reference 1021-00003).
We write in response to Ironclad's reservation of rights letter dated October 12, 2022 (the "Reservation Letter"), which VHG received on October 14, 2022. VHG has carefully reviewed the Reservation Letter and, as set forth in detail below, disputes each and every basis upon which Ironclad has purported to reserve its rights. VHG's position is straightforward: the Hurricane Callista losses constitute a clear, covered occurrence under the Policy, and Ironclad's attempt to interpose meritless coverage defenses at this early stage is both legally unfounded and inconsistent with Ironclad's obligations as VHG's insurer.
VHG demands that Ironclad immediately commence a good-faith investigation and adjustment of VHG's claim without further delay. VHG further demands that Ironclad advance undisputed portions of VHG's claim while any purported coverage disputes are resolved, as required by Ironclad's contractual and statutory obligations under Florida law.
VHG expressly reserves all of its rights, claims, and remedies, including without limitation any rights arising from Ironclad's unreasonable delay, wrongful denial, or bad-faith handling of this claim under the Policy, applicable Florida statutes, and common law. Nothing in this letter shall be construed as a waiver of any right, claim, or defense available to VHG, whether or not specifically addressed herein.
II. Background — The Covered Loss
A. Hurricane Callista
Hurricane Callista was designated as a named tropical cyclone by the National Hurricane Center of the National Oceanic and Atmospheric Administration ("NOAA") on September 12, 2022. After rapidly intensifying over the warm waters of the western Caribbean Sea and the Straits of Florida, Hurricane Callista made landfall as a Category 4 hurricane on September 18, 2022, at approximately 1:30 PM EDT, near Big Pine Key in the Lower Florida Keys, with maximum sustained winds of approximately 145 miles per hour. The storm produced catastrophic wind damage across a wide swath of southwestern Florida and the Florida Keys, accompanied by devastating storm surge of 8 to 14 feet in Monroe County and 6 to 10 feet in Lee County, as documented by NOAA tide gauges and post-storm high-water mark surveys.
In response to the approaching storm, Monroe County issued a mandatory evacuation order for all residents and visitors on September 16, 2022. Lee County followed with its own mandatory evacuation order on September 17, 2022. Pinellas County, where VHG's Sunset Shores property is located, issued evacuation orders for barrier island zones on September 17, 2022 as well. These government-ordered evacuations forced the immediate closure of all three VHG properties and the departure of all guests and staff, compounding the already catastrophic physical damage caused by the storm itself.
Hurricane Callista is among the most destructive hurricanes to strike the State of Florida in recent decades, with preliminary insured loss estimates from industry sources exceeding $30 billion statewide.
B. VHG's Damaged Properties
VHG owns and operates three resort and hotel properties in Florida, each of which sustained catastrophic damage from Hurricane Callista. All three properties have remained continuously closed since September 18, 2022, and remain closed as of the date of this letter:
1.  Verimark Grand Key Resort — Mile Marker 48, Marathon, Florida 33050. The Grand Key Resort is a 312-room luxury resort and full-service marina situated on the Gulf side of the Florida Keys. Prior to Hurricane Callista, the Grand Key Resort maintained an average daily rate ("ADR") of $389 and an average occupancy rate of 82%. The resort sustained catastrophic structural damage from sustained winds of 145 miles per hour, including widespread roof failure, destruction of multiple guest room buildings, collapse of the marina facility, and severe damage to common areas, restaurants, pool decks, and landscaping. The Grand Key Resort has been closed since September 18, 2022, and full reconstruction is expected to take twelve to eighteen months or longer given the severity of damage and the remote location's logistical constraints.
2.  Verimark Harborview Hotel & Conference Center — 1400 Estero Boulevard, Fort Myers Beach, Florida 33931. The Harborview is a 224-room hotel with an adjoining 40,000-square-foot conference and convention facility located on Fort Myers Beach. Prior to Hurricane Callista, the Harborview maintained an ADR of $295 and an average occupancy rate of 74%. The property sustained extensive wind damage, including loss of roofing systems across both the hotel tower and conference facility, widespread water intrusion, destruction of mechanical and HVAC systems, and significant damage to the building envelope. The Harborview has been closed since September 18, 2022, and remains closed as of the date of this letter.
3.  Verimark Sunset Shores — 7200 Gulf Boulevard, St. Pete Beach, Florida 33706. The Sunset Shores is a 186-room boutique resort located on the Gulf of Mexico in St. Pete Beach. Prior to Hurricane Callista, the Sunset Shores maintained an ADR of $342 and an average occupancy rate of 79%. The resort sustained extensive wind damage, including partial roof failure, exterior wall breaches, destruction of beachfront amenities, and severe water intrusion damage to guest rooms and public spaces. The Sunset Shores has been closed since September 18, 2022, and remains closed as of the date of this letter.
C. Timely Notice and Estimated Losses
VHG submitted timely written notice of loss to Ironclad on September 22, 2022 — just four days after Hurricane Callista's landfall — well within any notice period required under the Policy. That notice identified all three damaged properties, described the nature and extent of the losses in general terms based on information available at that time, and requested that Ironclad immediately assign adjusting resources to investigate and adjust VHG's claim.
VHG's estimated total business-interruption losses across the three properties are approximately $60,000,000, taking into account lost revenue, continuing fixed expenses, and extra expenses incurred as a result of the closures. This estimate is based on preliminary analysis by VHG's finance team under the direction of Chief Financial Officer Diane Calder, incorporating historical financial performance, seasonal booking trends, and projected restoration timelines. VHG is currently in the process of preparing a sworn statement in proof of loss, which will be submitted to Ironclad in the near future as additional information becomes available and the full scope of losses is quantified.
VHG's insurance broker of record, Tidewater Risk Advisors LLC, through Account Executive Franklin Orde, placed the comprehensive all-risk property and business-interruption insurance program under which the Policy was issued. Mr. Orde has been fully cooperative with Ironclad and its representatives throughout the claims process and remains available to assist with any inquiries regarding the program's placement and terms.
III. The Insurance Program
VHG maintains a comprehensive all-risk property and business-interruption insurance program (the "Program") structured as a layered tower with total aggregate limits of $60,000,000 per occurrence, above a $500,000 per-occurrence deductible. The Program was placed through Tidewater Risk Advisors LLC and was bound effective July 1, 2022, for the policy period July 1, 2022 through July 1, 2023. The structure of the Program is as follows:
Primary Layer: Ironclad Indemnity Corporation Policy No. IIC-PRP-2022-07541 Limit: $25,000,000 per occurrence (business interruption and property combined) Deductible: $500,000 per occurrence Premium: $980,000
First Excess Layer: Pinnacle Surplus Lines Inc. Policy No. PSL-XS1-2022-3390 Limit: $15,000,000 excess of $25,000,000 Follows form to the Ironclad primary policy
Second Excess Layer: Montclair Assurance Company Policy No. MAC-XS2-2022-09817 Limit: $10,000,000 excess of $40,000,000 Follows form to the Ironclad primary policy
Third Excess Layer: Sovereign Re Ltd. Policy No. SRL-XS3-2022-5102 Limit: $10,000,000 excess of $50,000,000 Follows form to the Ironclad primary policy
The total annual premium paid by VHG for the entire Program is $1,840,000, of which $980,000 was allocated to the Ironclad primary layer. VHG paid the full premium for all layers prior to the inception of the policy period, and all coverages were in full force and effect on the date of loss.
The Policy is an "all risks" policy covering direct physical loss of or damage to covered property, including coverage for business interruption and extra expense resulting from such loss or damage. As an all-risk policy, the Policy covers all risks of physical loss or damage unless specifically excluded by an applicable exclusion. Under well-established Florida law, the burden of proving the applicability of any exclusion falls squarely on Ironclad as the insurer. See Wallach v. Rosenberg, 527 So. 2d 1386 (Fla. 3d DCA 1988); U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871 (Fla. 2007). Ironclad cannot shift that burden to VHG through the mechanism of a reservation of rights letter.
IV. Ironclad's Reservation of Rights Is Without Merit
VHG has carefully reviewed each of the four purported bases for Ironclad's reservation of rights as articulated in the Reservation Letter and addresses each in turn below. As demonstrated, none of Ironclad's asserted coverage defenses has merit, and each should be withdrawn immediately.
A. The Named Windstorm Sub-Limit Does Not Apply
Ironclad's Reservation Letter asserts that the Policy contains a $15,000,000 named-windstorm sub-limit applicable to business-interruption coverage, which Ironclad contends would cap VHG's recovery under the primary layer at $15,000,000 rather than the full $25,000,000 per-occurrence limit. VHG categorically disputes this assertion, which is factually incorrect and contradicted by the negotiation history, the renewal documentation, and the terms of the Policy as bound.
During the July 2022 renewal negotiations for the Program, VHG — acting through its broker of record, Tidewater Risk Advisors LLC, and specifically through Account Executive Franklin Orde — expressly and specifically negotiated for the deletion of the named-windstorm sub-limit that had appeared in the prior policy year (July 1, 2021 – July 1, 2022). The prior-year policy had contained a $15,000,000 named-windstorm sub-limit, which VHG's risk management team — led by VP of Risk Management Sandra Pellegrini — identified as a material coverage gap, particularly given VHG's significant coastal property exposure in hurricane-prone regions of Florida.
Ironclad's underwriting department, through its representatives involved in the renewal process, agreed to delete the named-windstorm sub-limit in exchange for an increased premium. VHG accepted the increased premium and paid it in full. The $980,000 primary-layer premium for the current policy year represents a substantial increase over the prior-year premium, and a significant component of that increase was attributable to the deletion of the named-windstorm sub-limit, as documented in the renewal correspondence.
Broker correspondence between Tidewater Risk Advisors and Ironclad's underwriting team during the June and July 2022 renewal process confirms the parties' agreement to delete the named-windstorm sub-limit. VHG is prepared to produce this correspondence and, if necessary, to present testimony from Mr. Orde and Ms. Pellegrini to confirm the terms as negotiated and agreed upon.
Furthermore, the binder issued by Ironclad for the July 1, 2022 policy period does not reference or include a named-windstorm sub-limit. The binder confirms coverage at the full $25,000,000 per-occurrence limit without any sub-limit for named windstorm events. To the extent Ironclad now contends that the sub-limit was not deleted — or that the formal policy form issued after binding contains language inconsistent with the binder — any such discrepancy constitutes a unilateral error or unauthorized modification by Ironclad that is not binding on VHG.
Moreover, to the extent there is any ambiguity in the policy endorsements or declarations regarding whether the named-windstorm sub-limit was deleted during the July 2022 renewal, Florida law is well-settled that ambiguities in insurance policies are construed strictly against the insurer and in favor of coverage for the insured. See Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000) ("Insurance contracts are to be construed liberally in favor of the insured and strictly against the insurer who drafted the policy."); Excelsior Ins. Co. v. Pomona Park Bar & Package Store, 369 So. 2d 938, 942 (Fla. 1979). Any ambiguity created by Ironclad's own policy forms must be resolved in VHG's favor, particularly where, as here, the insured negotiated for and paid additional premium for enhanced coverage.
VHG demands that Ironclad immediately confirm in writing that the named-windstorm sub-limit does not apply to the current policy period and that Ironclad will adjust VHG's claim on the basis of the full $25,000,000 per-occurrence limit. Should Ironclad decline to do so, VHG demands that Ironclad produce all underwriting files, correspondence, memoranda, pricing worksheets, and internal communications relating to the July 2022 renewal of the Policy and the negotiation regarding the named-windstorm sub-limit, so that this issue can be resolved definitively and without further delay.
B. The Flood Exclusion Does Not Bar Coverage
Ironclad's Reservation Letter raises the Policy's flood exclusion in connection with storm-surge damage sustained at the Grand Key Resort property, suggesting that some portion of VHG's claim may be excluded on the basis that the damage was caused by flood or storm surge rather than wind. VHG disputes that the flood exclusion bars coverage for any portion of VHG's claim, for the following reasons.
First, Hurricane Callista was a named windstorm. The predominant and efficient proximate cause of the physical damage to all three VHG properties — and the resulting business interruption — was wind, which is a covered peril under the all-risk Policy. Hurricane Callista struck the Florida Keys and southwestern Florida with sustained winds of 145 miles per hour, a Category 4 hurricane on the Saffir-Veltason scale. Winds of that magnitude are inherently and independently destructive, causing catastrophic structural damage irrespective of any concurrent storm surge. The wind damage at each of VHG's properties was extensive, independent, and clearly constituted the primary and dominant cause of the property closures and resulting business interruption.
Second, while portions of the Grand Key Resort experienced storm surge consistent with the 8- to 14-foot surge levels documented in Monroe County, the wind damage at the Grand Key Resort was catastrophic and pervasive, affecting roofing systems, structural framing, exterior wall assemblies, guest room interiors, common areas, and the marina facility. Even in the complete absence of any storm surge, the Grand Key Resort would have sustained catastrophic damage from the 145-mph winds alone, and the property would have been rendered inoperable and closed for an extended period of restoration.
Third, under Florida law, the efficient proximate cause doctrine applies in cases involving concurrent causation by covered and excluded perils. Where a covered peril — here, wind — and an excluded peril — here, flood or storm surge — concurrently cause damage, coverage is triggered if the covered peril is the efficient proximate cause of the loss. See Glenrock Enterprises, Inc., 208 So. 3d 694 (Fla. 2016); Fayad v. Clarendon Nat'l Ins. Co., 899 So. 2d 1082 (Fla. 2005). Here, wind was indisputably the efficient proximate cause of VHG's losses.
Fourth, to the extent Ironclad intends to rely on an anti-concurrent causation ("ACC") clause in the Policy to avoid coverage for losses that were concurrently caused by wind and storm surge, VHG notes that ACC clauses are narrowly construed under Florida jurisprudence. Florida courts have consistently held that ACC clauses cannot be deployed as blanket mechanisms to defeat coverage for losses that were predominantly caused by a covered peril simply because an excluded peril contributed to some portion of the damage. See Mierzwa v. Florida Windstorm Underwriting Ass'n, 877 So. 2d 774 (Fla. 4th DCA 2004). To allow otherwise would render the Policy's wind coverage illusory for any hurricane event involving concurrent storm surge — a result that is inconsistent with the parties' reasonable expectations and the purpose of the all-risk coverage for which VHG paid nearly $1 million in annual premium.
Fifth, VHG has retained Caldwell Engineering Associates Inc. to perform a comprehensive forensic engineering analysis of each of the three VHG properties. Jeffrey Caldwell, P.E., a licensed professional engineer with extensive experience in hurricane damage assessment, is leading the analysis from Caldwell Engineering's offices at 7900 NW 25th Street, Suite 210, Doral, Florida 33122. Mr. Caldwell's team conducted on-site inspections of all three properties in early October 2022, and their preliminary findings strongly support VHG's position that wind was the dominant cause of structural damage at each location. Caldwell Engineering is preparing detailed reports with damage-differentiation analyses that will allocate losses between wind and any other contributing perils; VHG will share these reports with Ironclad upon completion.
Accordingly, VHG demands that Ironclad not invoke the flood exclusion as a basis for reducing or denying any portion of VHG's claim absent competent, substantial evidence establishing that specific, identifiable categories of damage were caused solely by flood or storm surge and not by the concurrent and dominant effects of the covered windstorm peril.
C. The Period of Restoration Defense Is Premature and Unfounded
Ironclad's Reservation Letter suggests that VHG's business-interruption coverage may be limited by the Policy's period-of-restoration clause, asserting that coverage terminates when repairs "could have been completed with reasonable speed" and implying that VHG may not be entitled to business-interruption coverage for the full duration of its actual closures. VHG vigorously disputes this characterization and notes that Ironclad's invocation of the period-of-restoration defense at this stage is premature, speculative, and indicative of a bad-faith approach to claims handling.
As of the date of this letter — barely five weeks after Hurricane Callista's landfall — all three VHG properties remain closed due to the severity and extent of the damage they sustained. The suggestion that VHG may be unreasonably delaying restoration is baseless on its face. VHG's properties sustained catastrophic damage from one of the most powerful hurricanes to strike Florida in recent years. The Grand Key Resort, in particular, suffered extensive structural damage from sustained winds of 145 miles per hour in a remote island location where infrastructure, utilities, and transportation access were themselves severely impacted by the storm. Restoration of the Grand Key Resort requires major reconstruction, including structural rebuilding, complete replacement of roofing systems and building envelope components, mechanical and electrical system replacement, interior finishing, and restoration of the marina facility. This work requires extensive permitting through Monroe County — a jurisdiction that is itself recovering from the hurricane and processing an unprecedented volume of building permit applications — and the mobilization of qualified contractors in a disaster zone where construction resources are severely constrained due to the overwhelming demand created by the storm.
The Harborview Hotel & Conference Center and Sunset Shores similarly sustained extensive wind damage requiring significant structural repair, envelope restoration, and interior reconstruction. Both properties require substantial permitting and contractor engagement in jurisdictions facing the same post-hurricane resource constraints.
Under Florida law, the period of restoration is measured by the time reasonably required to restore the property to substantially the same condition as existed immediately before the loss, taking into account the actual conditions prevailing after the loss event. See Fountain v. USAA, 2004 WL 5572085 (M.D. Fla. 2004). Courts have consistently recognized that "reasonable speed" must be evaluated in light of real-world circumstances, including post-disaster contractor shortages, material supply chain disruptions, building code compliance requirements, governmental permitting delays, and the logistical challenges inherent in large-scale reconstruction in hurricane-affected areas. An insurer cannot impose an artificial or hypothetical timeline that ignores these realities.
VHG is proceeding with all reasonable speed to restore its properties. VHG has already retained qualified general contractors for each property, engaged architectural and engineering consultants to develop restoration plans, initiated the permitting process with the relevant local jurisdictions, and begun emergency stabilization and demolition work where necessary to facilitate reconstruction. Any suggestion to the contrary is baseless, and Ironclad has offered no factual basis whatsoever for its premature assertion of this defense.
D. The Failure-to-Mitigate Defense Is Without Basis
Ironclad's Reservation Letter references VHG's alleged failure to take reasonable steps to mitigate its business-interruption losses. VHG emphatically rejects this allegation. Not only has VHG undertaken extensive and diligent mitigation efforts since Hurricane Callista's landfall, but Ironclad has failed to identify any specific act or omission by VHG that purportedly constitutes a failure to mitigate. A generalized and unsupported assertion of failure to mitigate in a reservation of rights letter, issued before the insurer has even completed its initial investigation, does not satisfy Ironclad's burden and is insufficient as a matter of law.
Since Hurricane Callista's landfall on September 18, 2022, VHG has undertaken the following mitigation measures, among others:
•  Immediately securing and boarding up all three properties following the storm to prevent further damage from weather exposure, unauthorized entry, and vandalism;
•  Engaging qualified emergency restoration contractors to begin water extraction, debris removal, mold prevention, and structural stabilization at each property;
•  Coordinating with Monroe County, Lee County, and Pinellas County authorities and emergency management officials to obtain property access in evacuation zones and restricted areas as quickly as possible following the storm;
•  Evaluating options for temporary or partial reopening of those portions of each property that may be safely and operationally viable, including analysis of whether undamaged sections can be isolated and reopened while reconstruction of damaged sections proceeds;
•  Communicating proactively with guests who had existing reservations, corporate clients with scheduled conference bookings at the Harborview, and travel industry partners to minimize reputational damage and customer attrition, including offering rebooking accommodations at VHG's non-affected properties where available;
•  Initiating insurance claim documentation efforts, including comprehensive photographic and video documentation of damage at each property, preservation of financial records, and engagement of forensic accountants to quantify business-interruption losses;
•  Retaining Caldwell Engineering Associates Inc. to perform forensic engineering assessments, as described above, to support the claims process and to inform the restoration planning effort.
These efforts have been directed and overseen by VHG's senior management team, including Chief Executive Officer Marcus Ellsworth, Chief Financial Officer Diane Calder, and Vice President of Risk Management Sandra Pellegrini, all of whom have dedicated substantial time and resources to accelerating the restoration process and minimizing VHG's losses.
VHG flatly rejects any suggestion that it has failed to mitigate its losses and notes that under Florida law, the burden of proving any failure to mitigate rests entirely with the insurer. See Peninsular Fire Ins. Co. v. Wells, 438 So. 2d 46 (Fla. 1st DCA 1983). Ironclad has not identified, and cannot identify, any specific failure by VHG to take reasonable steps to reduce its losses. This defense should be withdrawn immediately.
V. Ironclad's Obligation to Investigate and Adjust in Good Faith
VHG is deeply concerned by the manner in which Ironclad has handled this claim to date. Ironclad retained Arbor Claims Services LLC as an independent adjuster, and the lead adjuster assigned to VHG's claim, Denise Whitford, conducted an initial inspection of VHG's three properties on October 5, 2022, from Arbor Claims' offices at 3300 W. Cypress Street, Suite 400, Tampa, Florida 33607. Despite this inspection having occurred nearly three weeks prior to the date of this letter, VHG has received no substantive communication from either Ironclad or Arbor Claims Services regarding the status of the adjustment of VHG's claim. VHG has not been provided with any preliminary findings, damage estimates, coverage analyses, or timelines for the completion of the investigation. Instead, the only substantive communication VHG has received from Ironclad is the Reservation Letter itself — a document that seeks to limit or deny VHG's coverage rather than to adjust VHG's loss.
Ironclad's decision to issue a reservation of rights letter just one week after its adjuster's initial inspection — and well before completing any meaningful investigation, analysis, or adjustment of the claim — raises serious and legitimate concerns about Ironclad's good-faith handling of this matter. The timing and content of the Reservation Letter suggest that Ironclad may be prioritizing its coverage defenses over its fundamental obligation to investigate and adjust VHG's substantial claim in good faith and with reasonable promptness.
Under Florida law, insurers have a duty to conduct a prompt, thorough, and good-faith investigation of claims and to reach a fair claims decision within a reasonable time. See Fla. Stat. § 624.155 (civil remedy for bad-faith insurance practices); Fla. Stat. § 626.9541(1)(i) (unfair claims settlement practices). An insurer may not unreasonably delay the investigation or payment of a claim, and the issuance of a blanket reservation of rights letter asserting multiple meritless defenses — without conducting a meaningful investigation — may itself constitute evidence of bad faith under Florida law. See Harborline Industries, 658 So. 2d 55 (Fla. 1995).
VHG demands that Ironclad immediately take the following actions:
1.  Assign adequate adjusting resources to complete a thorough, competent, and timely investigation of VHG's claim across all three properties, including the retention of qualified structural engineers, forensic accountants, and other necessary experts;
2.  Communicate substantively with VHG and its representatives — including this firm, VHG's General Counsel Nathaniel Driscoll, VHG's VP of Risk Management Sandra Pellegrini, and VHG's broker Franklin Orde at Tidewater Risk Advisors — regarding the status of the claim, Ironclad's investigation activities, and any additional information or documentation Ironclad requires from VHG;
3.  Advance undisputed portions of VHG's claim pending the resolution of any coverage disputes Ironclad may assert. Even under Ironclad's own reservation of rights, substantial portions of VHG's business-interruption and property damage losses are undisputed and should be paid promptly. VHG should not be required to wait months — while its properties remain shuttered and it continues to incur ongoing losses — for Ironclad to resolve coverage positions that are themselves without merit;
4.  Refrain from asserting meritless coverage defenses as a pretext for delaying or denying the payment of VHG's claim. The defenses raised in the Reservation Letter, as addressed in detail above, are each without merit and should not serve as a basis for Ironclad to withhold payment on a catastrophic loss claim from a longstanding policyholder.
VI. Notice to Excess Carriers
VHG notes that Ironclad's handling of this claim as lead carrier on the primary layer of the Program directly affects VHG's rights and interests under the three excess layers, each of which follows form to the Ironclad primary policy:
•  Pinnacle Surplus Lines Inc. (Policy No. PSL-XS1-2022-3390; $15M xs $25M)
•  Montclair Assurance Company (Policy No. MAC-XS2-2022-09817; $10M xs $40M)
•  Sovereign Re Ltd. (Policy No. SRL-XS3-2022-5102; $10M xs $50M)
Given VHG's estimated total business-interruption losses of approximately $60,000,000, which would exhaust all layers of the Program, the manner in which Ironclad adjusts and resolves VHG's primary-layer claim will have direct and material consequences for VHG's recovery under the excess layers. VHG expects Ironclad, as lead carrier, to promptly notify the excess carriers of the claim and to coordinate the adjustment in a manner consistent with Ironclad's obligations and customary industry practice for lead carriers under layered programs.
VHG reserves all rights against the excess carriers — Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd. — and will correspond with each excess carrier separately as appropriate to protect its interests. VHG's engagement of this firm extends to the pursuit of VHG's rights under the entire Program, including all excess layers.
VII. Reservation of Rights by VHG
VHG expressly reserves all rights and remedies available to it under the Policy, Florida law, and equity, including but not limited to:
•  Claims for breach of the implied covenant of good faith and fair dealing arising from Ironclad's handling of VHG's Hurricane Callista claim;
•  Statutory bad-faith claims under Florida Statutes § 624.155 and related provisions, should Ironclad fail to promptly and fairly investigate, adjust, and pay VHG's claim;
•  Claims for consequential damages arising from Ironclad's unreasonable delay in adjusting or paying VHG's claim, or from any wrongful denial of coverage, including without limitation damages for lost business opportunities, reputational harm, increased borrowing costs, and other foreseeable consequential losses;
•  Claims for attorneys' fees and costs incurred by VHG in connection with the prosecution of its claim, as permitted under applicable Florida law; and
•  Any and all other rights, claims, and remedies available to VHG under the Policy, the laws of the State of Florida, federal law, or principles of equity.
This letter does not constitute a waiver of any right, claim, or defense available to VHG, whether or not such right, claim, or defense is specifically referenced herein. VHG's enumeration of certain rights and remedies above is not intended to be exhaustive and shall not be construed as limiting VHG's available remedies in any respect.
Furthermore, nothing in this letter shall be construed as limiting VHG's claimed losses to the amounts referenced herein. VHG's estimated losses of approximately $60,000,000 are based on preliminary analysis; VHG's actual losses are ongoing and continue to accrue daily as VHG's three properties remain closed. VHG's losses are subject to further quantification as restoration timelines become more definite, financial impact analyses are completed, and the full scope of the business interruption is determined. VHG reserves the right to supplement and amend its loss estimates at any time.
VIII. Demand for Immediate Action
VHG demands that Ironclad respond in writing to this letter within ten (10) business days of the date hereof — i.e., no later than November 8, 2022 — confirming the following:
1.  That Ironclad will immediately commence a good-faith adjustment of VHG's Hurricane Callista claim, including the assignment of adequate adjusting and expert resources and the establishment of a reasonable timeline for completing the investigation;
2.  That Ironclad withdraws its assertion that a named-windstorm sub-limit of $15,000,000 applies to the current policy period, or, in the alternative, that Ironclad provides specific documentary evidence — including underwriting files, renewal correspondence, binder documentation, and policy endorsements — supporting its position that the named-windstorm sub-limit was not deleted at the July 2022 renewal as negotiated by the parties;
3.  That Ironclad will advance interim payments for undisputed portions of VHG's claim, including at a minimum the undisputed property damage and business-interruption losses attributable to covered wind damage, pending the resolution of any coverage issues Ironclad may raise; and
4.  A specific timeline for the completion of Ironclad's investigation and the issuance of a final coverage determination on VHG's claim.
Failure by Ironclad to respond to this letter within the time specified, or to commence a good-faith adjustment of VHG's claim, will be considered further evidence of bad faith in the handling of this claim and may result in VHG pursuing all available legal remedies — including but not limited to the filing of a civil remedy notice under Florida Statutes § 624.155 and the commencement of litigation for breach of contract, bad faith, and consequential damages — without further notice to Ironclad.
VHG looks forward to Ironclad's prompt and substantive response to this letter and to a cooperative and good-faith resolution of this claim. VHG remains willing to work collaboratively with Ironclad and its adjusters to facilitate the investigation and adjustment process, provided that Ironclad demonstrates a genuine commitment to fulfilling its contractual and legal obligations to its policyholder.
All correspondence and communications regarding this matter should be directed to the undersigned at:
Elaine Forsythe, Partner Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 884-7200
Email: eforsythe@calderwoodharkness.com
Please also copy all correspondence to Nathaniel Driscoll, General Counsel of Verimark Hospitality Group Inc., at the address provided below.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Elaine Forsythe Partner
Date: October 25, 2022
cc:
Nathaniel Driscoll, Esq. General Counsel Verimark Hospitality Group Inc. 1900 Brickell Avenue, Suite 3200 Miami, FL 33129
Sandra Pellegrini Vice President, 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

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