1022-00005 · Hargrove, Deluca & Stein LLP · Insurance

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP 425 Park Avenue, 33rd Floor New York, NY 10022

Telephone: (212) 506-7000 Facsimile: (212) 506-7001

Linda Osei Partner Direct Dial: (212) 506-7144

Email: losei@calderwoodharkness.com

September 12, 2024

Via Email and Sundial Data Systems

Rachel Solomons, Esq. Partner Pemberton Fox LLP 600 Third Avenue, 15th Floor New York, NY 10016

Re: Coverage Coordination — Meridian Infrastructure Partners LLC v. Northgate Fiber Americas Inc., Index No. 654321/2024 (Supreme Court of the State of New York, New York County, Commercial Division)

C&H Matter No.: 1022-00005

Dear Rachel:

I. Purpose of This Letter

This firm represents Northgate Telecommunications PLC ("Northgate" or "NTP") and its wholly owned United States subsidiary, Northgate Fiber Americas Inc. ("NFA"), a corporation organized and existing under the laws of the State of Delaware (File No. 7182934), in the defense of a breach-of-contract action filed by Meridian Infrastructure Partners LLC ("Meridian"), captioned Meridian Infrastructure Partners LLC v. Northgate Fiber Americas Inc., Index No. 654321/2024, currently pending before the Honorable Eleanor M. Ricci in Part 49 of the Supreme Court of the State of New York, New York County, Commercial Division. Calderwood & Harkness LLP ("C&H") was engaged as defense counsel on August 19, 2024.

We understand that your firm, Pemberton Fox LLP, has been retained as coverage counsel by Albion Specialty Insurance Ltd. ("Albion") and Keystone National Insurance Company ("Keystone Insurance"), the carriers underwriting the directors' and officers' liability ("D&O") and commercial general liability ("CGL") policies, respectively, that are potentially implicated by Meridian's claims.

The purpose of this letter is threefold. First, we write to initiate coordination between defense counsel and coverage counsel regarding potential coverage under the applicable D&O and CGL policies. Second, we are transmitting the Verified Complaint, the Answer with Affirmative Defenses and Counterclaims, and other key litigation and policy documents to facilitate your coverage analysis. Third, we wish to establish a framework for ongoing communication between our respective firms so that coverage issues can be addressed in a timely and efficient manner as the litigation proceeds.

II. Summary of the Litigation

A. The Parties

Plaintiff. Meridian Infrastructure Partners LLC is a limited liability company organized under the laws of the State of Delaware (File No. 6439821), with its principal office located at 1800 Post Oak Boulevard, Suite 1200, Houston, Texas 77056. Meridian is a specialty infrastructure contractor focused on telecommunications network construction. In this action, Meridian is represented by Hargrove, Deluca & Stein LLP, with Thomas Deluca serving as lead partner. Mr. Deluca and his team are located at 51 West 52nd Street, 40th Floor, New York, New York 10019.

Defendant. Northgate Fiber Americas Inc. is a wholly owned subsidiary of Northgate Telecommunications PLC, a publicly traded company organized under the laws of England and Wales. NFA maintains its principal place of business at 600 Lexington Avenue, 28th Floor, New York, New York 10022, and is the contracting party under the relevant construction agreement at issue in this matter.

B. Background and the Master Construction Agreement

The dispute arises from NFA's termination, effective April 1, 2024, of a five-year, $1.2 billion Master Construction Agreement dated March 15, 2020 (the "MCA"). Under the MCA, Meridian was engaged for the design, engineering, permitting, and construction of approximately 18,500 route miles of fiber-optic cable spanning a seven-state footprint in the northeastern United States, encompassing New York, New Jersey, Connecticut, Massachusetts, Pennsylvania, Maryland, and Virginia. The MCA was a critical component of Northgate's broader strategy to establish a competitive fiber-optic infrastructure network across major metropolitan and suburban corridors in the northeastern region.

C. Basis for Termination

NFA terminated the MCA for cause pursuant to Section 14.1 thereof, asserting that Meridian had committed material breaches of its contractual obligations in three principal respects:

1. Persistent Schedule Delays. Meridian failed to meet contractually specified milestone dates for Milestones 3, 5, 6, 7, and 8, resulting in cumulative delays that materially impaired the overall project schedule and NFA's ability to bring network segments into commercial service on time.

2. Substandard Workmanship. Over the course of the project, NFA's quality assurance and quality control team issued a total of 287 non-conformance reports ("NCRs") against Meridian's work. Of these, 43 were classified as critical NCRs, reflecting deficiencies that posed risks to the structural integrity, operational reliability, or regulatory compliance of the installed fiber-optic infrastructure.

3. Failure to Cure. NFA issued two formal Cure Notices to Meridian — the first on January 18, 2024, and the second on February 19, 2024 — each specifying in detail the breaches identified and providing Meridian with contractually required cure periods. Meridian failed to cure the identified deficiencies within the time frames specified in either notice.

D. Procedural History

Meridian filed its Verified Complaint on July 15, 2024. Service of process on NFA was completed on August 5, 2024. NFA, through this firm, filed its Answer with Affirmative Defenses and Counterclaims on September 3, 2024. Meridian subsequently filed its Reply to Counterclaims on September 18, 2024. The matter has been assigned to Justice Ricci's docket in the Commercial Division, and a Preliminary Conference is scheduled for October 1, 2024.

III. Summary of Meridian's Claims

Meridian asserts four causes of action in its Verified Complaint, seeking aggregate damages of approximately $200 million. The claims are summarized below.

Count I — Breach of Contract (Wrongful Termination): $92,400,000. Meridian alleges that NFA's termination of the MCA for cause was pretextual and therefore constituted a breach of contract. Meridian contends that the termination did not satisfy the requirements of MCA § 14.1 and that, as a consequence, it should be treated as a termination for convenience under MCA § 14.3. Under that provision, Meridian claims it would have been entitled to a termination-for-convenience fee equal to eight percent (8%) of the remaining unperformed contract value. With a remaining unperformed contract value of $630.3 million, this fee amounts to $50,424,000. In addition, Meridian seeks lost profits on unperformed work in the amount of $41,976,000, bringing the total claim under Count I to $92,400,000.

Count II — Breach of Contract (Unpaid Invoices): $16,500,000. Meridian alleges that NFA breached the MCA by declining to approve and pay certain Phase 3 payment applications totaling approximately $16,500,000. NFA withheld payment on the grounds that the underlying work was defective and that Meridian had submitted inflated unit counts in its payment applications. Meridian disputes these characterizations and contends the payment applications were properly submitted and due.

Count III — Breach of Contract (Wrongful Withholding of Retainage): $56,966,667. Meridian alleges that NFA has wrongfully withheld the full retainage balance accumulated over the life of the project. The MCA provided for a retainage withholding of ten percent (10%) of all gross certified work. With gross certified work totaling $569,666,670, the retainage balance at issue is $56,966,667. Meridian contends that it is entitled to release of the full retainage amount.

Count IV — Breach of Implied Covenant of Good Faith and Fair Dealing: $34,133,333. Meridian alleges that NFA acted in bad faith in terminating the MCA and that NFA's conduct has caused Meridian consequential damages, including loss of bonding capacity and reputational harm in the telecommunications construction industry. Meridian quantifies these consequential damages at $34,133,333.

Total Claimed Damages: $200,000,000.

It is important to note that a central element of Meridian's litigation theory — articulated in detail throughout the Verified Complaint and reiterated in its Reply to Counterclaims — is that NFA's true motivation for terminating the MCA was not Meridian's alleged performance failures, but rather Northgate's strategic decision to bring fiber construction operations in-house or to re-procure the remaining scope of work at a lower cost, taking advantage of favorable market shifts in construction pricing that occurred during 2023 and early 2024. This "pretext" theory directly implicates the decision-making of NFA's and Northgate's executive leadership, a point we address further in Section VII below in connection with D&O coverage considerations.

IV. Summary of Northgate's Affirmative Defenses and Counterclaims

A. Affirmative Defenses

NFA has asserted the following affirmative defenses in its Answer:

• Justified Termination. NFA's termination of the MCA was properly effected for cause under MCA § 14.1 based on Meridian's material breaches, and therefore Meridian's claims for wrongful termination are without merit.

• Consequential Damages Waiver. MCA § 20.1 contains a mutual waiver of consequential damages, which bars Meridian's claims for lost profits (Count I) and for reputational harm and loss of bonding capacity (Count IV).

• Failure to Mitigate. Meridian failed to take reasonable steps to mitigate its alleged damages following termination of the MCA.

• Comparative Fault. To the extent any damages are found, they should be reduced by the extent to which Meridian's own conduct contributed to the losses it claims.

• Set-Off Rights. NFA is entitled to set off any amounts owed to Meridian against the amounts owed by Meridian to NFA on the counterclaims.

B. Counterclaims. NFA has asserted three counterclaims, seeking aggregate damages of $149,000,000.

Counterclaim I — Liquidated Damages: $49,000,000. NFA seeks liquidated damages assessed across Milestones 3, 5, 6, 7, and 8 at a rate of $175,000 per day of delay, as provided under the liquidated damages provisions of the MCA. The total assessed liquidated damages of $49,000,000 fall within both the per-milestone cap of ten percent (10%) of the applicable milestone value and the aggregate cap of $60,000,000 (equal to five percent (5%) of the total $1.2 billion contract value).

Counterclaim II — Excess Completion Costs: $81,700,000. Following the termination of the MCA, NFA entered into a replacement construction contract with Crestline Construction Group Inc. ("Crestline"), executed on June 10, 2024, for the completion of the remaining scope of work at a contract price of $712,000,000. The excess of the Crestline contract price over the remaining MCA value of $630,300,000 amounts to $81,700,000, which NFA seeks to recover as excess completion costs attributable to Meridian's breaches.

Counterclaim III — Remediation of Defective Work: $18,300,000. NFA seeks damages for the cost of remediating the defective work identified in the 287 NCRs issued during the course of the project. Based on an engineering assessment conducted by NFA's independent consultants, the estimated remediation cost is $18,300,000. This figure comprises approximately $11,825,000 for the 43 critical NCRs (at an average remediation cost of approximately $275,000 per critical NCR) and approximately $6,466,000 for the 244 non-critical NCRs (at an average remediation cost of approximately $26,500 per non-critical NCR).

Total Counterclaims: $149,000,000.

V. Identification of Applicable Insurance Policies

Based on our review of the insurance program maintained by Northgate and NFA, we have identified two policies that may be implicated by Meridian's claims in this action.

A. Directors' and Officers' Liability Policy — Albion Specialty Insurance Ltd.

Insurer: Albion Specialty Insurance Ltd. (Lloyd's syndicate, organized under the laws of England and Wales)

Policy Number: ALB-DO-2023-4782

Named Insured: Northgate Telecommunications PLC (and all subsidiaries, including Northgate Fiber Americas Inc.)

As discussed in Section III above, Meridian's pretext theory is centered on allegations that Northgate's executive leadership made a strategic corporate decision to terminate the MCA not because of genuine performance failures, but in order to bring fiber construction operations in-house or to re-procure the remaining work at reduced cost. The Verified Complaint specifically references decision-making by senior Northgate executives, including Sir Malcolm Ashford (Chief Executive Officer), Helena Bright (Chief Financial Officer), and Dame Catherine Elsworth (Board Chair). To the extent that this theory is pursued through discovery and at trial, it may give rise to claims — or at least allegations — that implicate the conduct of individual directors and officers in their capacities as such.

We particularly note that Count IV (breach of the implied covenant of good faith and fair dealing), which asserts consequential damages for reputational harm and loss of bonding capacity, alleges a pattern of bad-faith corporate decision-making. We request that Pemberton Fox provide its analysis of whether Count IV or any aspect of Meridian's wrongful termination theory under Count I implicates coverage under the D&O policy, particularly to the extent that individual directors or officers may be drawn into the litigation as the case develops — whether through third-party claims, cross-claims, or targeted discovery that could give rise to personal liability exposure.

B. Commercial General Liability Policy — Keystone National Insurance Company

Insurer: Keystone National Insurance Company (a corporation organized under the laws of the Commonwealth of Pennsylvania)

Policy Number: KNIC-CGL-2022-99301

Named Insured: Northgate Fiber Americas Inc. and/or Northgate Telecommunications PLC

We recognize that this dispute is primarily contractual in nature, and we are mindful that breach-of-contract claims are typically excluded from CGL coverage. However, we note that Meridian's claims include allegations that arguably touch upon CGL coverage triggers. Specifically, Meridian's Verified Complaint references property damage in the context of defective remediation work and unpaid invoices under Count II, and Count IV's consequential-damage theory asserts harm to Meridian's business reputation and bonding capacity, which may implicate "personal and advertising injury" coverage or other non-standard coverage provisions.

We request that Pemberton Fox undertake a thorough analysis of whether any of the four Counts asserted by Meridian fall within CGL coverage triggers — including "occurrence," "property damage," and "personal injury" as those terms are defined in the policy — and identify any applicable exclusions. We also ask that Pemberton Fox evaluate whether any potential "advertising injury" theory or other non-standard coverage angle may be available under the Keystone Insurance policy.

VI. Coverage Questions for Pemberton Fox's Analysis

We respectfully request that Pemberton Fox prepare and deliver a formal coverage opinion addressing the following questions:

1. Duty to Defend and Duty to Indemnify. Whether any of Meridian's four Counts (wrongful termination, unpaid invoices, wrongful withholding of retainage, and breach of the implied covenant of good faith and fair dealing) trigger a duty to defend and/or a duty to indemnify under either the Albion D&O policy (Policy No. ALB-DO-2023-4782) or the Keystone Insurance CGL policy (Policy No. KNIC-CGL-2022-99301), or both.

2. Policy Exclusions. The applicability of specific policy exclusions to Meridian's claims, including but not limited to: (a) the contract exclusion; (b) the professional services exclusion; (c) the known-loss exclusion; and (d) the insured-versus-insured exclusion, to the extent it may be relevant given the corporate relationship between NFA and Northgate's individual directors and officers.

3. Coverage for Counterclaims. Whether NFA's counterclaims (liquidated damages, excess completion costs, and remediation of defective work) or the defense thereof have any coverage implications under either policy — including whether the costs of prosecuting the counterclaims are covered as part of the defense of the underlying action.

4. Surety Bond Interaction. Whether the surety bond issued in connection with the MCA — specifically, Performance Bond No. ISG-2020-NE-04417, in the amount of $120,000,000, issued by Ironclad Surety Group Inc. — interacts with or otherwise affects the insurance coverage analysis under either policy. We note that Meridian filed a demand on Ironclad on April 15, 2024 under a disputed subcontractor protection endorsement to the performance bond, and the status of that demand remains unresolved.

5. Ironclad's Defense Cost Contribution. Whether Ironclad Surety Group Inc.'s agreement to contribute up to $2,000,000 toward NFA's defense costs, under its own reservation of rights, affects the carriers' obligations under the D&O and CGL policies or creates coordination issues among the various indemnitors. We are particularly interested in understanding whether the surety's contribution should be credited against the carriers' defense obligations or treated as a separate and independent source of defense funding.

6. Allocation Between Policies. In the event that both the Albion D&O policy and the Keystone Insurance CGL policy respond to one or more of Meridian's claims, we request Pemberton Fox's analysis of potential allocation issues between the two policies, including the application of "other insurance" clauses and any priority-of-coverage provisions.

7. Reservation of Rights and Coverage Litigation Risk. We request a summary of the current reservation-of-rights status for each carrier, including identification of any coverage defenses that Albion or Keystone Insurance has reserved or may reserve. We also ask for Pemberton Fox's preliminary assessment of the risk that coverage disputes could escalate into declaratory judgment actions or other coverage litigation.

VII. Key Individuals and Potential D&O Exposure

The following individuals are centrally involved in the factual matters at issue in this litigation and may be relevant to Pemberton Fox's D&O coverage analysis. We provide this information to assist in your evaluation of the scope of potential D&O exposure.

• Renata Voss, Vice President of US Network Infrastructure, NFA. Ms. Voss oversaw the fiber build-out program on behalf of NFA and is a key fact witness. Her depositions have been scheduled for November 12–13, 2024.

• Sean Calloway, Director of Construction Management, NFA. Mr. Calloway served as the day-to-day contract administrator for the MCA and was the principal point of contact between NFA and Meridian on construction-related matters. His deposition has been scheduled for November 19, 2024.

• Dominic Hale, General Counsel, Northgate Telecommunications PLC. Mr. Hale is the primary client contact for this matter at the parent company level. Meridian has noticed his deposition for February 25, 2025. We have raised privilege objections to certain areas of anticipated questioning, and those objections are currently pending resolution.

• Helena Bright, Chief Financial Officer, Northgate Telecommunications PLC. Ms. Bright's deposition has been scheduled for February 18, 2025, to be conducted by commission in London, England.

• Sir Malcolm Ashford, Chief Executive Officer, Northgate Telecommunications PLC. Sir Malcolm is referenced throughout Meridian's Verified Complaint in connection with the pretext theory and the alleged strategic decision to bring fiber construction in-house.

• Dame Catherine Elsworth, Board Chair, Northgate Telecommunications PLC. Dame Catherine is similarly referenced in the Verified Complaint and may be subject to deposition requests as discovery proceeds.

We note that Meridian's pretext theory is likely to focus discovery on Northgate's internal financial models, strategic planning documents, and board-level presentations concerning the decision to bring fiber construction operations in-house or to re-procure the remaining scope of work. To date, NFA has withheld 214 documents on the basis of attorney-client privilege and work product protection. These withheld documents are the subject of a Motion to Compel filed by Meridian on November 22, 2024, which is currently sub judice. The outcome of that motion may significantly affect the scope of discovery as it relates to the conduct of Northgate's directors and officers and, in turn, the potential D&O exposure in this case.

VIII. Enclosed Documents

Together with this letter, we are transmitting the following documents for Pemberton Fox's review and use in connection with the coverage analysis:

1. Verified Complaint of Meridian Infrastructure Partners LLC, filed July 15, 2024;

2. Answer with Affirmative Defenses and Counterclaims of Northgate Fiber Americas Inc., filed September 3, 2024;

3. Meridian's Reply to Counterclaims, filed September 18, 2024;

4. Copy of D&O Policy No. ALB-DO-2023-4782 (Albion Specialty Insurance Ltd.);

5. Copy of CGL Policy No. KNIC-CGL-2022-99301 (Keystone National Insurance Company);

6. Calderwood & Harkness LLP's Preliminary Case Assessment Memorandum, dated September 10, 2024 (privileged and confidential — transmitted to coverage counsel for review under the common-interest privilege);

7. Notice of Termination for Cause, dated April 1, 2024; and

8. Cure Notice No. 1, dated January 18, 2024, and Cure Notice No. 2, dated February 19, 2024.

IX. Financial Context and Exposure Summary

To provide Pemberton Fox with a complete picture of the financial stakes in this matter, we set forth the following summary of the exposure and anticipated litigation costs:

Total Meridian Claim: $200,000,000

Total Northgate Counterclaims: $149,000,000

Net Exposure Range: In a worst-case scenario for Northgate — where Meridian's claims succeed in full and Northgate's counterclaims are dismissed entirely — the net exposure could be as high as $200,000,000. Conversely, if Northgate prevails on its counterclaims and Meridian's claims are denied, the net result would be an affirmative recovery for Northgate of up to $149,000,000. Realistic outcomes will likely fall within a range between these two extremes, and we intend to provide Pemberton Fox with a more refined exposure analysis as discovery develops.

Estimated Litigation Budget: Based on our current case plan, we estimate total legal fees through trial in the range of $8,500,000 to $11,200,000, with additional expert costs estimated at $2,400,000 to $3,100,000. These estimates assume a six-week trial and a full scope of fact and expert discovery.

Trial Date: The matter is scheduled for a six-week trial window commencing in November 2025 before Justice Ricci.

Plaintiff's Litigation Funding. We note that Ridgepoint Capital Group LP, a private equity fund, is Meridian's financial sponsor, having acquired a 55% stake in Meridian in 2018 for approximately $285,000,000. It is our understanding that Ridgepoint is funding Meridian's litigation costs, which are estimated at approximately $12,000,000. This financial backing indicates that Meridian has substantial resources and staying power to pursue aggressive litigation through trial, and we do not anticipate that cost pressure alone will drive Meridian toward an early or discounted settlement.

X. Proposed Coordination Framework

To ensure effective communication between defense counsel and coverage counsel as this litigation proceeds, we propose the following coordination framework:

1. Regular Status Calls. We propose that representatives of C&H and Pemberton Fox hold regular status calls on a monthly basis, or more frequently as circumstances warrant, to discuss litigation developments, discovery issues, and their potential coverage implications.

2. Designated Contact. We request that Pemberton Fox designate a primary contact for day-to-day communications regarding this matter. We would welcome Rachel Solomons in that role or a designee of her choosing. On our end, the day-to-day contacts will be Priya Anand and Jeffrey Park, both of whom are copied on this letter.

3. Reservation-of-Rights Letters. We request that Pemberton Fox share with C&H any reservation-of-rights letters that have already been issued by Albion and/or Keystone Insurance in connection with Meridian's claims or NFA's counterclaims. An understanding of the carriers' current coverage positions is essential for our litigation strategy and for any settlement discussions that may arise.

4. Ongoing Case Updates. C&H will keep Pemberton Fox informed of all major case developments, including deposition outcomes, motion practice, expert retention and work product, and any settlement communications or demands received from Meridian or its counsel.

5. Unified Coverage Positions. We understand that Pemberton Fox represents both Albion and Keystone Insurance in this matter. To the extent possible, we request that Pemberton Fox coordinate with both carriers and provide unified coverage positions, particularly on issues of overlapping or shared coverage responsibility.

6. Surety Coordination. C&H is separately coordinating with Ironclad Surety Group Inc. through its Vice President of Claims, Patricia Dwyer, regarding the performance bond (Performance Bond No. ISG-2020-NE-04417) and Ironclad's agreement to contribute up to $2,000,000 toward NFA's defense costs under its own reservation of rights. We request Pemberton Fox's view on how the surety's defense cost contribution should be tracked and allocated relative to any obligations that may arise under the Albion and Keystone Insurance policies. We believe it is important to establish a clear tracking mechanism at the outset to avoid disputes among the various indemnitors regarding credits, offsets, and priority of payment.

XI. Confidentiality and Privilege

The enclosed materials and this letter, together with all communications between C&H and Pemberton Fox regarding this matter, are protected by the attorney-client privilege and the work product doctrine. The sharing of privileged and work product materials between defense counsel and coverage counsel is made pursuant to and in reliance upon the common-interest privilege, as both parties share a common interest in the evaluation and defense of the claims asserted by Meridian and the analysis of applicable insurance coverage.

We request that Pemberton Fox maintain all materials received in connection with this matter in strict confidence and refrain from sharing any such materials with third parties — including, without limitation, any co-insurers, reinsurers, or other entities — without the prior written consent of Calderwood & Harkness LLP.

XII. Request for Prompt Response

Given the pace at which this litigation is proceeding, we respectfully request that Pemberton Fox provide its initial coverage assessment and any existing reservation-of-rights correspondence within thirty (30) days of the date of this letter — that is, by no later than October 12, 2024.

We note that the discovery schedule is accelerating. The Preliminary Conference is scheduled for October 1, 2024, at which time we expect Justice Ricci to enter a Case Management Order establishing firm discovery deadlines. Depositions of key witnesses are scheduled to begin in November 2024, and expert reports are due on March 31, 2025. It is important that coverage issues be identified and addressed promptly so that they can be factored into our litigation strategy and, in particular, our approach to document production, privilege assertions, and settlement posture.

We are, of course, available and willing to schedule an introductory call at Pemberton Fox's earliest convenience to discuss the matters raised in this letter and to answer any preliminary questions your team may have.

We appreciate your firm's engagement on coverage matters in this case and look forward to a productive and cooperative working relationship. Please do not hesitate to reach out to me directly at (212) 506-7144 or at losei@calderwoodharkness.com, or to Priya Anand or Jeffrey Park, should you wish to discuss any aspect of this letter or the enclosed materials.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Linda Osei Partner

cc:

Dominic Hale, General Counsel, Northgate Telecommunications PLC (via email) Priya Anand, Calderwood & Harkness LLP Jeffrey Park, Calderwood & Harkness LLP

Enclosures (8)

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 425 Park Avenue, 33rd Floor New York, NY 10022
Telephone: (212) 506-7000 Facsimile: (212) 506-7001
Linda Osei Partner Direct Dial: (212) 506-7144
Email: losei@calderwoodharkness.com
September 12, 2024
Via Email and Sundial Data Systems
Rachel Solomons, Esq. Partner Pemberton Fox LLP 600 Third Avenue, 15th Floor New York, NY 10016
Re: Coverage Coordination — Meridian Infrastructure Partners LLC v. Northgate Fiber Americas Inc., Index No. 654321/2024 (Supreme Court of the State of New York, New York County, Commercial Division)
C&H Matter No.: 1022-00005
Dear Rachel:
I. Purpose of This Letter
This firm represents Northgate Telecommunications PLC ("Northgate" or "NTP") and its wholly owned United States subsidiary, Northgate Fiber Americas Inc. ("NFA"), a corporation organized and existing under the laws of the State of Delaware (File No. 7182934), in the defense of a breach-of-contract action filed by Meridian Infrastructure Partners LLC ("Meridian"), captioned Meridian Infrastructure Partners LLC v. Northgate Fiber Americas Inc., Index No. 654321/2024, currently pending before the Honorable Eleanor M. Ricci in Part 49 of the Supreme Court of the State of New York, New York County, Commercial Division. Calderwood & Harkness LLP ("C&H") was engaged as defense counsel on August 19, 2024.
We understand that your firm, Pemberton Fox LLP, has been retained as coverage counsel by Albion Specialty Insurance Ltd. ("Albion") and Keystone National Insurance Company ("Keystone Insurance"), the carriers underwriting the directors' and officers' liability ("D&O") and commercial general liability ("CGL") policies, respectively, that are potentially implicated by Meridian's claims.
The purpose of this letter is threefold. First, we write to initiate coordination between defense counsel and coverage counsel regarding potential coverage under the applicable D&O and CGL policies. Second, we are transmitting the Verified Complaint, the Answer with Affirmative Defenses and Counterclaims, and other key litigation and policy documents to facilitate your coverage analysis. Third, we wish to establish a framework for ongoing communication between our respective firms so that coverage issues can be addressed in a timely and efficient manner as the litigation proceeds.
II. Summary of the Litigation
A. The Parties
Plaintiff. Meridian Infrastructure Partners LLC is a limited liability company organized under the laws of the State of Delaware (File No. 6439821), with its principal office located at 1800 Post Oak Boulevard, Suite 1200, Houston, Texas 77056. Meridian is a specialty infrastructure contractor focused on telecommunications network construction. In this action, Meridian is represented by Hargrove, Deluca & Stein LLP, with Thomas Deluca serving as lead partner. Mr. Deluca and his team are located at 51 West 52nd Street, 40th Floor, New York, New York 10019.
Defendant. Northgate Fiber Americas Inc. is a wholly owned subsidiary of Northgate Telecommunications PLC, a publicly traded company organized under the laws of England and Wales. NFA maintains its principal place of business at 600 Lexington Avenue, 28th Floor, New York, New York 10022, and is the contracting party under the relevant construction agreement at issue in this matter.
B. Background and the Master Construction Agreement
The dispute arises from NFA's termination, effective April 1, 2024, of a five-year, $1.2 billion Master Construction Agreement dated March 15, 2020 (the "MCA"). Under the MCA, Meridian was engaged for the design, engineering, permitting, and construction of approximately 18,500 route miles of fiber-optic cable spanning a seven-state footprint in the northeastern United States, encompassing New York, New Jersey, Connecticut, Massachusetts, Pennsylvania, Maryland, and Virginia. The MCA was a critical component of Northgate's broader strategy to establish a competitive fiber-optic infrastructure network across major metropolitan and suburban corridors in the northeastern region.
C. Basis for Termination
NFA terminated the MCA for cause pursuant to Section 14.1 thereof, asserting that Meridian had committed material breaches of its contractual obligations in three principal respects:
1. Persistent Schedule Delays. Meridian failed to meet contractually specified milestone dates for Milestones 3, 5, 6, 7, and 8, resulting in cumulative delays that materially impaired the overall project schedule and NFA's ability to bring network segments into commercial service on time.
2. Substandard Workmanship. Over the course of the project, NFA's quality assurance and quality control team issued a total of 287 non-conformance reports ("NCRs") against Meridian's work. Of these, 43 were classified as critical NCRs, reflecting deficiencies that posed risks to the structural integrity, operational reliability, or regulatory compliance of the installed fiber-optic infrastructure.
3. Failure to Cure. NFA issued two formal Cure Notices to Meridian — the first on January 18, 2024, and the second on February 19, 2024 — each specifying in detail the breaches identified and providing Meridian with contractually required cure periods. Meridian failed to cure the identified deficiencies within the time frames specified in either notice.
D. Procedural History
Meridian filed its Verified Complaint on July 15, 2024. Service of process on NFA was completed on August 5, 2024. NFA, through this firm, filed its Answer with Affirmative Defenses and Counterclaims on September 3, 2024. Meridian subsequently filed its Reply to Counterclaims on September 18, 2024. The matter has been assigned to Justice Ricci's docket in the Commercial Division, and a Preliminary Conference is scheduled for October 1, 2024.
III. Summary of Meridian's Claims
Meridian asserts four causes of action in its Verified Complaint, seeking aggregate damages of approximately $200 million. The claims are summarized below.
Count I — Breach of Contract (Wrongful Termination): $92,400,000. Meridian alleges that NFA's termination of the MCA for cause was pretextual and therefore constituted a breach of contract. Meridian contends that the termination did not satisfy the requirements of MCA § 14.1 and that, as a consequence, it should be treated as a termination for convenience under MCA § 14.3. Under that provision, Meridian claims it would have been entitled to a termination-for-convenience fee equal to eight percent (8%) of the remaining unperformed contract value. With a remaining unperformed contract value of $630.3 million, this fee amounts to $50,424,000. In addition, Meridian seeks lost profits on unperformed work in the amount of $41,976,000, bringing the total claim under Count I to $92,400,000.
Count II — Breach of Contract (Unpaid Invoices): $16,500,000. Meridian alleges that NFA breached the MCA by declining to approve and pay certain Phase 3 payment applications totaling approximately $16,500,000. NFA withheld payment on the grounds that the underlying work was defective and that Meridian had submitted inflated unit counts in its payment applications. Meridian disputes these characterizations and contends the payment applications were properly submitted and due.
Count III — Breach of Contract (Wrongful Withholding of Retainage): $56,966,667. Meridian alleges that NFA has wrongfully withheld the full retainage balance accumulated over the life of the project. The MCA provided for a retainage withholding of ten percent (10%) of all gross certified work. With gross certified work totaling $569,666,670, the retainage balance at issue is $56,966,667. Meridian contends that it is entitled to release of the full retainage amount.
Count IV — Breach of Implied Covenant of Good Faith and Fair Dealing: $34,133,333. Meridian alleges that NFA acted in bad faith in terminating the MCA and that NFA's conduct has caused Meridian consequential damages, including loss of bonding capacity and reputational harm in the telecommunications construction industry. Meridian quantifies these consequential damages at $34,133,333.
Total Claimed Damages: $200,000,000.
It is important to note that a central element of Meridian's litigation theory — articulated in detail throughout the Verified Complaint and reiterated in its Reply to Counterclaims — is that NFA's true motivation for terminating the MCA was not Meridian's alleged performance failures, but rather Northgate's strategic decision to bring fiber construction operations in-house or to re-procure the remaining scope of work at a lower cost, taking advantage of favorable market shifts in construction pricing that occurred during 2023 and early 2024. This "pretext" theory directly implicates the decision-making of NFA's and Northgate's executive leadership, a point we address further in Section VII below in connection with D&O coverage considerations.
IV. Summary of Northgate's Affirmative Defenses and Counterclaims
A. Affirmative Defenses
NFA has asserted the following affirmative defenses in its Answer:
• Justified Termination. NFA's termination of the MCA was properly effected for cause under MCA § 14.1 based on Meridian's material breaches, and therefore Meridian's claims for wrongful termination are without merit.
• Consequential Damages Waiver. MCA § 20.1 contains a mutual waiver of consequential damages, which bars Meridian's claims for lost profits (Count I) and for reputational harm and loss of bonding capacity (Count IV).
• Failure to Mitigate. Meridian failed to take reasonable steps to mitigate its alleged damages following termination of the MCA.
• Comparative Fault. To the extent any damages are found, they should be reduced by the extent to which Meridian's own conduct contributed to the losses it claims.
• Set-Off Rights. NFA is entitled to set off any amounts owed to Meridian against the amounts owed by Meridian to NFA on the counterclaims.
B. Counterclaims. NFA has asserted three counterclaims, seeking aggregate damages of $149,000,000.
Counterclaim I — Liquidated Damages: $49,000,000. NFA seeks liquidated damages assessed across Milestones 3, 5, 6, 7, and 8 at a rate of $175,000 per day of delay, as provided under the liquidated damages provisions of the MCA. The total assessed liquidated damages of $49,000,000 fall within both the per-milestone cap of ten percent (10%) of the applicable milestone value and the aggregate cap of $60,000,000 (equal to five percent (5%) of the total $1.2 billion contract value).
Counterclaim II — Excess Completion Costs: $81,700,000. Following the termination of the MCA, NFA entered into a replacement construction contract with Crestline Construction Group Inc. ("Crestline"), executed on June 10, 2024, for the completion of the remaining scope of work at a contract price of $712,000,000. The excess of the Crestline contract price over the remaining MCA value of $630,300,000 amounts to $81,700,000, which NFA seeks to recover as excess completion costs attributable to Meridian's breaches.
Counterclaim III — Remediation of Defective Work: $18,300,000. NFA seeks damages for the cost of remediating the defective work identified in the 287 NCRs issued during the course of the project. Based on an engineering assessment conducted by NFA's independent consultants, the estimated remediation cost is $18,300,000. This figure comprises approximately $11,825,000 for the 43 critical NCRs (at an average remediation cost of approximately $275,000 per critical NCR) and approximately $6,466,000 for the 244 non-critical NCRs (at an average remediation cost of approximately $26,500 per non-critical NCR).
Total Counterclaims: $149,000,000.
V. Identification of Applicable Insurance Policies
Based on our review of the insurance program maintained by Northgate and NFA, we have identified two policies that may be implicated by Meridian's claims in this action.
A. Directors' and Officers' Liability Policy — Albion Specialty Insurance Ltd.
Insurer: Albion Specialty Insurance Ltd. (Lloyd's syndicate, organized under the laws of England and Wales)
Policy Number: ALB-DO-2023-4782
Named Insured: Northgate Telecommunications PLC (and all subsidiaries, including Northgate Fiber Americas Inc.)
As discussed in Section III above, Meridian's pretext theory is centered on allegations that Northgate's executive leadership made a strategic corporate decision to terminate the MCA not because of genuine performance failures, but in order to bring fiber construction operations in-house or to re-procure the remaining work at reduced cost. The Verified Complaint specifically references decision-making by senior Northgate executives, including Sir Malcolm Ashford (Chief Executive Officer), Helena Bright (Chief Financial Officer), and Dame Catherine Elsworth (Board Chair). To the extent that this theory is pursued through discovery and at trial, it may give rise to claims — or at least allegations — that implicate the conduct of individual directors and officers in their capacities as such.
We particularly note that Count IV (breach of the implied covenant of good faith and fair dealing), which asserts consequential damages for reputational harm and loss of bonding capacity, alleges a pattern of bad-faith corporate decision-making. We request that Pemberton Fox provide its analysis of whether Count IV or any aspect of Meridian's wrongful termination theory under Count I implicates coverage under the D&O policy, particularly to the extent that individual directors or officers may be drawn into the litigation as the case develops — whether through third-party claims, cross-claims, or targeted discovery that could give rise to personal liability exposure.
B. Commercial General Liability Policy — Keystone National Insurance Company
Insurer: Keystone National Insurance Company (a corporation organized under the laws of the Commonwealth of Pennsylvania)
Policy Number: KNIC-CGL-2022-99301
Named Insured: Northgate Fiber Americas Inc. and/or Northgate Telecommunications PLC
We recognize that this dispute is primarily contractual in nature, and we are mindful that breach-of-contract claims are typically excluded from CGL coverage. However, we note that Meridian's claims include allegations that arguably touch upon CGL coverage triggers. Specifically, Meridian's Verified Complaint references property damage in the context of defective remediation work and unpaid invoices under Count II, and Count IV's consequential-damage theory asserts harm to Meridian's business reputation and bonding capacity, which may implicate "personal and advertising injury" coverage or other non-standard coverage provisions.
We request that Pemberton Fox undertake a thorough analysis of whether any of the four Counts asserted by Meridian fall within CGL coverage triggers — including "occurrence," "property damage," and "personal injury" as those terms are defined in the policy — and identify any applicable exclusions. We also ask that Pemberton Fox evaluate whether any potential "advertising injury" theory or other non-standard coverage angle may be available under the Keystone Insurance policy.
VI. Coverage Questions for Pemberton Fox's Analysis
We respectfully request that Pemberton Fox prepare and deliver a formal coverage opinion addressing the following questions:
1. Duty to Defend and Duty to Indemnify. Whether any of Meridian's four Counts (wrongful termination, unpaid invoices, wrongful withholding of retainage, and breach of the implied covenant of good faith and fair dealing) trigger a duty to defend and/or a duty to indemnify under either the Albion D&O policy (Policy No. ALB-DO-2023-4782) or the Keystone Insurance CGL policy (Policy No. KNIC-CGL-2022-99301), or both.
2. Policy Exclusions. The applicability of specific policy exclusions to Meridian's claims, including but not limited to: (a) the contract exclusion; (b) the professional services exclusion; (c) the known-loss exclusion; and (d) the insured-versus-insured exclusion, to the extent it may be relevant given the corporate relationship between NFA and Northgate's individual directors and officers.
3. Coverage for Counterclaims. Whether NFA's counterclaims (liquidated damages, excess completion costs, and remediation of defective work) or the defense thereof have any coverage implications under either policy — including whether the costs of prosecuting the counterclaims are covered as part of the defense of the underlying action.
4. Surety Bond Interaction. Whether the surety bond issued in connection with the MCA — specifically, Performance Bond No. ISG-2020-NE-04417, in the amount of $120,000,000, issued by Ironclad Surety Group Inc. — interacts with or otherwise affects the insurance coverage analysis under either policy. We note that Meridian filed a demand on Ironclad on April 15, 2024 under a disputed subcontractor protection endorsement to the performance bond, and the status of that demand remains unresolved.
5. Ironclad's Defense Cost Contribution. Whether Ironclad Surety Group Inc.'s agreement to contribute up to $2,000,000 toward NFA's defense costs, under its own reservation of rights, affects the carriers' obligations under the D&O and CGL policies or creates coordination issues among the various indemnitors. We are particularly interested in understanding whether the surety's contribution should be credited against the carriers' defense obligations or treated as a separate and independent source of defense funding.
6. Allocation Between Policies. In the event that both the Albion D&O policy and the Keystone Insurance CGL policy respond to one or more of Meridian's claims, we request Pemberton Fox's analysis of potential allocation issues between the two policies, including the application of "other insurance" clauses and any priority-of-coverage provisions.
7. Reservation of Rights and Coverage Litigation Risk. We request a summary of the current reservation-of-rights status for each carrier, including identification of any coverage defenses that Albion or Keystone Insurance has reserved or may reserve. We also ask for Pemberton Fox's preliminary assessment of the risk that coverage disputes could escalate into declaratory judgment actions or other coverage litigation.
VII. Key Individuals and Potential D&O Exposure
The following individuals are centrally involved in the factual matters at issue in this litigation and may be relevant to Pemberton Fox's D&O coverage analysis. We provide this information to assist in your evaluation of the scope of potential D&O exposure.
• Renata Voss, Vice President of US Network Infrastructure, NFA. Ms. Voss oversaw the fiber build-out program on behalf of NFA and is a key fact witness. Her depositions have been scheduled for November 12–13, 2024.
• Sean Calloway, Director of Construction Management, NFA. Mr. Calloway served as the day-to-day contract administrator for the MCA and was the principal point of contact between NFA and Meridian on construction-related matters. His deposition has been scheduled for November 19, 2024.
• Dominic Hale, General Counsel, Northgate Telecommunications PLC. Mr. Hale is the primary client contact for this matter at the parent company level. Meridian has noticed his deposition for February 25, 2025. We have raised privilege objections to certain areas of anticipated questioning, and those objections are currently pending resolution.
• Helena Bright, Chief Financial Officer, Northgate Telecommunications PLC. Ms. Bright's deposition has been scheduled for February 18, 2025, to be conducted by commission in London, England.
• Sir Malcolm Ashford, Chief Executive Officer, Northgate Telecommunications PLC. Sir Malcolm is referenced throughout Meridian's Verified Complaint in connection with the pretext theory and the alleged strategic decision to bring fiber construction in-house.
• Dame Catherine Elsworth, Board Chair, Northgate Telecommunications PLC. Dame Catherine is similarly referenced in the Verified Complaint and may be subject to deposition requests as discovery proceeds.
We note that Meridian's pretext theory is likely to focus discovery on Northgate's internal financial models, strategic planning documents, and board-level presentations concerning the decision to bring fiber construction operations in-house or to re-procure the remaining scope of work. To date, NFA has withheld 214 documents on the basis of attorney-client privilege and work product protection. These withheld documents are the subject of a Motion to Compel filed by Meridian on November 22, 2024, which is currently sub judice. The outcome of that motion may significantly affect the scope of discovery as it relates to the conduct of Northgate's directors and officers and, in turn, the potential D&O exposure in this case.
VIII. Enclosed Documents
Together with this letter, we are transmitting the following documents for Pemberton Fox's review and use in connection with the coverage analysis:
1. Verified Complaint of Meridian Infrastructure Partners LLC, filed July 15, 2024;
2. Answer with Affirmative Defenses and Counterclaims of Northgate Fiber Americas Inc., filed September 3, 2024;
3. Meridian's Reply to Counterclaims, filed September 18, 2024;
4. Copy of D&O Policy No. ALB-DO-2023-4782 (Albion Specialty Insurance Ltd.);
5. Copy of CGL Policy No. KNIC-CGL-2022-99301 (Keystone National Insurance Company);
6. Calderwood & Harkness LLP's Preliminary Case Assessment Memorandum, dated September 10, 2024 (privileged and confidential — transmitted to coverage counsel for review under the common-interest privilege);
7. Notice of Termination for Cause, dated April 1, 2024; and
8. Cure Notice No. 1, dated January 18, 2024, and Cure Notice No. 2, dated February 19, 2024.
IX. Financial Context and Exposure Summary
To provide Pemberton Fox with a complete picture of the financial stakes in this matter, we set forth the following summary of the exposure and anticipated litigation costs:
Total Meridian Claim: $200,000,000
Total Northgate Counterclaims: $149,000,000
Net Exposure Range: In a worst-case scenario for Northgate — where Meridian's claims succeed in full and Northgate's counterclaims are dismissed entirely — the net exposure could be as high as $200,000,000. Conversely, if Northgate prevails on its counterclaims and Meridian's claims are denied, the net result would be an affirmative recovery for Northgate of up to $149,000,000. Realistic outcomes will likely fall within a range between these two extremes, and we intend to provide Pemberton Fox with a more refined exposure analysis as discovery develops.
Estimated Litigation Budget: Based on our current case plan, we estimate total legal fees through trial in the range of $8,500,000 to $11,200,000, with additional expert costs estimated at $2,400,000 to $3,100,000. These estimates assume a six-week trial and a full scope of fact and expert discovery.
Trial Date: The matter is scheduled for a six-week trial window commencing in November 2025 before Justice Ricci.
Plaintiff's Litigation Funding. We note that Ridgepoint Capital Group LP, a private equity fund, is Meridian's financial sponsor, having acquired a 55% stake in Meridian in 2018 for approximately $285,000,000. It is our understanding that Ridgepoint is funding Meridian's litigation costs, which are estimated at approximately $12,000,000. This financial backing indicates that Meridian has substantial resources and staying power to pursue aggressive litigation through trial, and we do not anticipate that cost pressure alone will drive Meridian toward an early or discounted settlement.
X. Proposed Coordination Framework
To ensure effective communication between defense counsel and coverage counsel as this litigation proceeds, we propose the following coordination framework:
1. Regular Status Calls. We propose that representatives of C&H and Pemberton Fox hold regular status calls on a monthly basis, or more frequently as circumstances warrant, to discuss litigation developments, discovery issues, and their potential coverage implications.
2. Designated Contact. We request that Pemberton Fox designate a primary contact for day-to-day communications regarding this matter. We would welcome Rachel Solomons in that role or a designee of her choosing. On our end, the day-to-day contacts will be Priya Anand and Jeffrey Park, both of whom are copied on this letter.
3. Reservation-of-Rights Letters. We request that Pemberton Fox share with C&H any reservation-of-rights letters that have already been issued by Albion and/or Keystone Insurance in connection with Meridian's claims or NFA's counterclaims. An understanding of the carriers' current coverage positions is essential for our litigation strategy and for any settlement discussions that may arise.
4. Ongoing Case Updates. C&H will keep Pemberton Fox informed of all major case developments, including deposition outcomes, motion practice, expert retention and work product, and any settlement communications or demands received from Meridian or its counsel.
5. Unified Coverage Positions. We understand that Pemberton Fox represents both Albion and Keystone Insurance in this matter. To the extent possible, we request that Pemberton Fox coordinate with both carriers and provide unified coverage positions, particularly on issues of overlapping or shared coverage responsibility.
6. Surety Coordination. C&H is separately coordinating with Ironclad Surety Group Inc. through its Vice President of Claims, Patricia Dwyer, regarding the performance bond (Performance Bond No. ISG-2020-NE-04417) and Ironclad's agreement to contribute up to $2,000,000 toward NFA's defense costs under its own reservation of rights. We request Pemberton Fox's view on how the surety's defense cost contribution should be tracked and allocated relative to any obligations that may arise under the Albion and Keystone Insurance policies. We believe it is important to establish a clear tracking mechanism at the outset to avoid disputes among the various indemnitors regarding credits, offsets, and priority of payment.
XI. Confidentiality and Privilege
The enclosed materials and this letter, together with all communications between C&H and Pemberton Fox regarding this matter, are protected by the attorney-client privilege and the work product doctrine. The sharing of privileged and work product materials between defense counsel and coverage counsel is made pursuant to and in reliance upon the common-interest privilege, as both parties share a common interest in the evaluation and defense of the claims asserted by Meridian and the analysis of applicable insurance coverage.
We request that Pemberton Fox maintain all materials received in connection with this matter in strict confidence and refrain from sharing any such materials with third parties — including, without limitation, any co-insurers, reinsurers, or other entities — without the prior written consent of Calderwood & Harkness LLP.
XII. Request for Prompt Response
Given the pace at which this litigation is proceeding, we respectfully request that Pemberton Fox provide its initial coverage assessment and any existing reservation-of-rights correspondence within thirty (30) days of the date of this letter — that is, by no later than October 12, 2024.
We note that the discovery schedule is accelerating. The Preliminary Conference is scheduled for October 1, 2024, at which time we expect Justice Ricci to enter a Case Management Order establishing firm discovery deadlines. Depositions of key witnesses are scheduled to begin in November 2024, and expert reports are due on March 31, 2025. It is important that coverage issues be identified and addressed promptly so that they can be factored into our litigation strategy and, in particular, our approach to document production, privilege assertions, and settlement posture.
We are, of course, available and willing to schedule an introductory call at Pemberton Fox's earliest convenience to discuss the matters raised in this letter and to answer any preliminary questions your team may have.
We appreciate your firm's engagement on coverage matters in this case and look forward to a productive and cooperative working relationship. Please do not hesitate to reach out to me directly at (212) 506-7144 or at losei@calderwoodharkness.com, or to Priya Anand or Jeffrey Park, should you wish to discuss any aspect of this letter or the enclosed materials.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Linda Osei Partner
cc:
Dominic Hale, General Counsel, Northgate Telecommunications PLC (via email) Priya Anand, Calderwood & Harkness LLP Jeffrey Park, Calderwood & Harkness LLP
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