1039-00003 · Torchlight Mining Corp · Insurance Coverage

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CALDERWOOD & HARKNESS LLP Attorneys at Law

One Liberty Plaza, 48th Floor 165 Broadway New York, New York 10006

Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com

November 30, 2024

C&H Matter No.: 1039-00003

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND ELECTRONIC MAIL (sgrantham@meridianenvinsurance.com)

Ms. Sheila Grantham Claims Adjuster Meridian Environmental Insurance Company 233 South Wacker Drive, Suite 4100 Chicago, Illinois 60606

Re: Pollution Legal Liability Policy No. MEI-ENV-2021-04738 — Reservation of Rights Response and Coverage Demand on Behalf of Torchlight Mining Corp. and Subsidiaries Policy Period: July 1, 2021 – July 1, 2024 (Three-Year Term) Per-Occurrence Limit: $50,000,000; Aggregate Limit: $75,000,000 Self-Insured Retention: $5,000,000 Per Occurrence

Dear Ms. Grantham:

I. INTRODUCTION AND PURPOSE

This firm represents Torchlight Mining Corp. ("TMC"), a corporation organized under the Canada Business Corporations Act ("CBCA") and dual-listed on the Toronto Stock Exchange (TSX: TRC) and the New York Stock Exchange (NYSE: TRC), and its relevant United States subsidiaries: Torchlight Mining (U.S.) Inc., a Delaware corporation (EIN 83-2047156); Torchlight Specialty Chemicals, Inc., a Delaware corporation (EIN 47-3819204); Ridgecrest Mine Holdings, LLC, a Montana limited liability company (MT SOS ID E1042738); and Bonanza Creek Mining, LLC, a Nevada limited liability company (NV SOS Entity No. E0518294731) (collectively with TMC, the "Torchlight Entities" or the "Insureds"). Calderwood & Harkness LLP was retained on October 21, 2024, as outside coverage counsel to the Torchlight Entities in connection with the multi-site United States Environmental Protection Agency ("EPA") compliance and consent-decree negotiation matter described herein, and in connection with all coverage issues arising under Policy No. MEI-ENV-2021-04738 (the "Policy") issued by Meridian Environmental Insurance Company ("Meridian" or the "Insurer").

We are in receipt of Meridian's reservation-of-rights letter dated October 7, 2024 (the "ROR Letter"), addressed to Miriam Soo-Hwan Park, General Counsel of TMC. We have reviewed the ROR Letter in its entirety, together with the Policy, the underlying enforcement filings, and the relevant factual record. We write to respond to each of the coverage positions taken by Meridian in the ROR Letter, to set forth in detail the factual and legal bases on which the Torchlight Entities are entitled to coverage under the Policy, and to formally demand that Meridian fulfill its contractual obligations.

The purpose of this letter is threefold. First, we respond to, and rebut, Meridian's purported reservations of rights and denials of coverage with respect to the Ridgecrest Copper-Molybdenum Mine and the Kanawha Bend Chemical Plant. Second, we demand that Meridian acknowledge and provide coverage under the Policy for all four scheduled locations — the Ridgecrest Copper-Molybdenum Mine, the Gallatin Chemical Works, the Bonanza Creek Gold Mine, and the Kanawha Bend Chemical Plant — subject only to the stated Policy limits and the applicable self-insured retention ("SIR"). Third, the Torchlight Entities hereby expressly reserve all of their rights, claims, and remedies against Meridian, including but not limited to claims for breach of contract, bad faith, and consequential damages, as more fully described below.

Nothing in this letter, or in any prior or subsequent communication between the Torchlight Entities and Meridian, shall be construed as a waiver or modification of any right, claim, defense, or remedy available to the Torchlight Entities under the Policy, at law, or in equity.

II. BACKGROUND — THE UNDERLYING ENVIRONMENTAL ENFORCEMENT ACTION

A. Case Overview

On January 18, 2024, the United States Department of Justice ("DOJ"), acting on behalf of the EPA, filed a civil enforcement complaint captioned United States of America, State of Montana, State of Nevada, and State of West Virginia v. Torchlight Mining Corp., et al., Civil Action No. 9:24-cv-00087-DWM, in the United States District Court for the District of Montana, Missoula Division (the "Enforcement Action"). The case is assigned to the Honorable Donald W. Molloy, United States District Judge. The complaint was prepared by Philip Orenstein, Lead Trial Attorney, Environment and Natural Resources Division, DOJ, under the supervision of Katherine Rowe-Halpern, Section Chief, Environmental Enforcement Section, ENRD, with Margaret Coulson, Lead Case Attorney, Office of Enforcement and Compliance Assurance, EPA, serving as the agency's principal representative. The States of Montana, Nevada, and West Virginia are joined as co-plaintiffs.

The named defendants are: (1) Torchlight Mining Corp.; (2) Torchlight Mining (U.S.) Inc.; (3) Torchlight Specialty Chemicals, Inc.; (4) Ridgecrest Mine Holdings, LLC; and (5) Bonanza Creek Mining, LLC. The complaint asserts claims under Section 301 of the Clean Water Act ("CWA"), 33 U.S.C. § 1311; Sections 3004 and 3005 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6924, 6925; Section 107 of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9607; and the Migratory Bird Treaty Act ("MBTA"), 16 U.S.C. §§ 703–712. These claims relate to alleged pollution conditions and environmental violations at four sites owned and operated by the Torchlight Entities, each of which is a scheduled location under the Policy.

TMC, through its litigation counsel, filed its answer to the complaint on March 5, 2024, denying the material allegations while preserving all affirmative defenses. On April 22, 2024, the parties entered into a tolling agreement with respect to certain statute-of-limitations defenses, thereby facilitating meaningful settlement discussions. The Court referred the matter to court-ordered mediation, which was conducted on May 15, 2024, before Magistrate Judge Clara Finnegan. Following extensive negotiations over the ensuing months — involving multiple sessions with DOJ, EPA, and the co-plaintiff States — the parties reached an agreement in principle on a consent-decree framework on July 30, 2024 (the "Consent Decree Framework"). The proposed consent decree, which is subject to public notice and comment under 28 C.F.R. § 50.7, addresses remediation obligations, civil penalties, supplemental environmental projects, and ongoing monitoring and compliance requirements at all four sites.

B. The Four Sites — Summary of Claims and Estimated Remediation Costs

The Enforcement Action encompasses four distinct sites, each of which is a scheduled location under the Policy. We summarize below the factual allegations, statutory violations, and estimated remediation costs applicable to each site.

1. Ridgecrest Copper-Molybdenum Mine. Location: 14200 Ridgecrest Mine Road, Drummond, Granite County, Montana 59832.

Property Description: The Ridgecrest Copper-Molybdenum Mine (the "Ridgecrest Mine" or "Ridgecrest") encompasses an approximately 3,200-acre active mine footprint situated within a total controlled property area of approximately 8,700 acres in western Montana. The property is owned and operated by Ridgecrest Mine Holdings, LLC, a wholly owned indirect subsidiary of TMC.

Operational History: The Ridgecrest Mine is an open-pit copper-molybdenum mining operation that has been in continuous operation since 1978. Active mining operations ceased on December 31, 2019, and the site is currently in a closure and reclamation phase under a Montana Department of Environmental Quality-approved reclamation plan. The mine historically produced copper and molybdenum concentrates through conventional flotation processing, with an associated solvent extraction / electrowinning ("SX/EW") circuit for secondary copper recovery.

Regulatory Status: The Ridgecrest Mine has been proposed for listing on the National Priorities List ("NPL") under CERCLA. It is currently being addressed under an Administrative Order on Consent ("AOC"), Docket No. CERCLA-08-2022-0039, which was executed on September 15, 2022, between EPA Region 8 and Ridgecrest Mine Holdings, LLC.

Contaminants of Concern: The primary contamination at the Ridgecrest Mine consists of acid mine drainage ("AMD") emanating from exposed pit walls, waste rock dumps, and a 425-acre tailings impoundment. Monitoring data indicate that AMD discharges contain dissolved copper at concentrations averaging 47 mg/L — more than five thousand times the applicable aquatic life criterion of 0.0087 mg/L. Additional contaminants of concern include molybdenum, selenium, and sulfate at concentrations significantly exceeding applicable water quality standards. The 425-acre tailings impoundment has exhibited documented seepage to Flint Creek, a tributary of the Clark Fork River, which supports populations of bull trout (Salvelinus confluentus), a federally listed threatened species.

Alleged Violations: The complaint alleges the following violations at Ridgecrest: (a) CWA Section 301 — unpermitted discharges of pollutants from the mine site to Flint Creek and its tributaries, in the absence of a valid National Pollutant Discharge Elimination System ("NPDES") permit; (b) RCRA Section 3004 — mismanagement of hazardous waste generated by the SX/EW circuit, including improper storage and disposal of spent electrolyte solutions and contaminated raffinate; and (c) CERCLA Section 107 — cost recovery for $14.3 million in EPA removal actions conducted between January 15, 2021, and May 30, 2023, which addressed immediate threats to Flint Creek from AMD discharges.

Estimated Remediation Cost: Under the Consent Decree Framework, the negotiated remediation cost for the Ridgecrest Mine is $198.6 million, to be expended over a 30-year remediation period. The net present value of these costs, discounted at a rate of 3%, is approximately $134.9 million. The remediation program encompasses installation and perpetual operation of a water treatment system for AMD, reclamation of waste rock dumps, closure and capping of the tailings impoundment, and long-term water quality monitoring.

Civil Penalty Allocation: The civil penalty allocation for the Ridgecrest Mine under the Consent Decree Framework is $14.2 million.

2. Gallatin Chemical Works. Location: 8800 Industrial Park Lane, Belgrade, Gallatin County, Montana 59714.

Property Description: The Gallatin Chemical Works (the "Gallatin Facility" or "Gallatin") comprises approximately 145 acres of improved industrial property located in the Belgrade industrial corridor, Gallatin County, Montana. The facility is owned and operated by Torchlight Specialty Chemicals, Inc.

Operational History: The Gallatin Facility has been in continuous operation since 1993, manufacturing specialty chemical products used in mining and mineral processing operations. Principal products manufactured at the facility include flotation reagents, sodium xanthate, and dithiophosphate collectors. The facility remains currently active and is expected to continue operations throughout and following the remediation period.

Regulatory Status: The Gallatin Facility is subject to RCRA Corrective Action requirements under Hazardous Waste Permit No. MTD098712456, issued by the Montana Department of Environmental Quality. Three solid waste management units ("SWMUs") have been identified at the facility and are subject to corrective action investigation and cleanup.

Contaminants of Concern: Groundwater contamination at the Gallatin Facility includes carbon disulfide at concentrations up to 890 µg/L, significantly exceeding the federal Maximum Contaminant Level ("MCL") of 10 µg/L — a ratio of approximately 89 times the applicable standard. Additional contaminants include xanthate decomposition products and volatile organic compounds ("VOCs"), specifically toluene and xylene, in soil and groundwater at concentrations above applicable cleanup levels.

Alleged Violations: The complaint alleges the following violations at Gallatin: (a) RCRA Sections 3004 and 3005 — unpermitted storage of hazardous waste in excess of allowed quantities and failure to perform required corrective action at identified SWMUs; and (b) CWA Section 301 — fourteen documented exceedances of the facility's Montana Pollutant Discharge Elimination System ("MPDES") permit effluent limitations between January 2021 and June 2024.

Estimated Remediation Cost: Under the Consent Decree Framework, the estimated remediation cost for the Gallatin Facility is $42.8 million, to be expended over a 15-year remediation period. The net present value at a 3% discount rate is approximately $34.1 million. The remediation program includes groundwater pump-and-treat operations, soil vapor extraction at the three SWMUs, and installation of a permeable reactive barrier to intercept the carbon disulfide plume.

Civil Penalty Allocation: The civil penalty allocation for the Gallatin Facility under the Consent Decree Framework is $5.8 million.

3. Bonanza Creek Gold Mine. Location: County Road 447, Mile Marker 12, Lander County, Nevada 89820 (approximately 28 miles south of Battle Mountain, Nevada).

Property Description: The Bonanza Creek Gold Mine (the "Bonanza Creek Mine" or "Bonanza Creek") encompasses an approximately 5,600-acre active mine footprint within a total controlled property area of approximately 12,400 acres in north-central Nevada. The property is owned and operated by Bonanza Creek Mining, LLC, a wholly owned indirect subsidiary of TMC.

Operational History: The Bonanza Creek Mine is an open-pit heap-leach gold mining operation that commenced production in 2001 and remains in active operation. The mine employs conventional heap-leach processing using dilute cyanide solutions to extract gold from crushed ore placed on engineered leach pads.

Contaminants of Concern: The primary contaminants of concern at the Bonanza Creek Mine include weak-acid dissociable ("WAD") cyanide at concentrations of 0.62 mg/L, exceeding the applicable discharge limit of 0.022 mg/L by a factor of approximately 28; mercury at average concentrations of 12.4 µg/L, exceeding the applicable aquatic life criterion of 0.77 µg/L by a factor of approximately 16; and selenium in pit-lake water at concentrations above applicable standards.

Alleged Violations: The complaint alleges the following violations at Bonanza Creek: (a) CWA Section 301 — three unpermitted discharges of process solution from the heap-leach pad through torn liner segments, occurring on March 17, 2022, August 9, 2022, and January 22, 2023, with solution migrating to an unnamed ephemeral drainage tributary to the Humboldt River; (b) RCRA Section 3004 — management of spent heap-leach ore as solid waste without complying with applicable hazardous waste management requirements, based on the characteristic hazardous waste determination (D003 — reactivity, due to cyanide content); and (c) MBTA — seventeen documented avian mortalities at process solution ponds during the period from 2021 through 2023, involving migratory bird species protected under the MBTA.

Estimated Remediation Cost: Under the Consent Decree Framework, the estimated remediation cost for the Bonanza Creek Mine is $63.2 million, to be expended over a 20-year remediation period. The net present value at a 3% discount rate is approximately $47.1 million. The remediation program includes re-lining and regrading of heap-leach pads, installation of enhanced solution collection and recovery systems, pit-lake water management, and construction of avian deterrent systems at process solution ponds.

Civil Penalty Allocation: The civil penalty allocation for the Bonanza Creek Mine under the Consent Decree Framework is $7.9 million.

4. Kanawha Bend Chemical Plant. Location: 2200 Chemical Valley Road, Institute, Kanawha County, West Virginia 25112.

Property Description: The Kanawha Bend Chemical Plant (the "Kanawha Bend Facility" or "Kanawha Bend") comprises approximately 78 acres of improved industrial property located along the Kanawha River in the Institute area of Kanawha County, West Virginia. The facility is owned and operated by Torchlight Mining (U.S.) Inc.

Operational History: The Kanawha Bend Facility has been in continuous operation since 1985, manufacturing leaching agents and operating a sulfuric acid regeneration unit in support of TMC's mining operations. The facility remains currently active.

Regulatory Status: The Kanawha Bend Facility is subject to RCRA Corrective Action requirements under Hazardous Waste Permit No. WVD048823915, issued by the West Virginia Department of Environmental Protection.

Contaminants of Concern: The primary contamination at the Kanawha Bend Facility includes sulfuric acid residuals in soil with pH values measured as low as 1.8; heavy metals in soil, including lead at maximum concentrations of 4,200 mg/kg and arsenic at maximum concentrations of 890 mg/kg; and dense non-aqueous phase liquid ("DNAPL") contamination in a fractured bedrock aquifer underlying the site. The DNAPL contamination is of particular concern due to the complexity and cost associated with remediation in fractured rock environments.

Alleged Violations: The complaint alleges the following violations at Kanawha Bend: (a) RCRA Sections 3004 and 3005 — failure to close a surface impoundment containing hazardous waste in accordance with regulatory requirements, and unpermitted treatment of K062 (spent pickle liquor from steel finishing) and D002 (corrosive) hazardous wastes; and (b) CERCLA Section 107 — cost recovery for $3.8 million in EPA emergency response actions conducted following the June 14, 2020 sulfuric acid release from the facility's acid regeneration unit, which resulted in a discharge to an unnamed tributary of the Kanawha River.

Estimated Remediation Cost: Under the Consent Decree Framework, the estimated remediation cost for the Kanawha Bend Facility is $38.9 million, to be expended over a 20-year remediation period. The net present value at a 3% discount rate is approximately $29.0 million. The remediation program encompasses closure of the surface impoundment, in-situ treatment of DNAPL contamination using chemical oxidation, soil removal and off-site disposal in areas of concentrated heavy metals, and long-term groundwater monitoring.

Civil Penalty Allocation: The civil penalty allocation for the Kanawha Bend Facility under the Consent Decree Framework is $3.6 million.

C. Aggregate Financial Exposure

The Torchlight Entities' aggregate financial exposure arising from the Enforcement Action and the Consent Decree Framework is substantial. As summarized in the table below and in the enclosure to this letter, the total financial obligations encompass multiple categories of costs:

In addition to the foregoing, the Consent Decree Framework requires the Torchlight Entities to provide financial assurance in the aggregate amount of $245.0 million, consisting of: (a) a surety bond in the amount of $165.0 million, to be issued by Ironbark Surety of America, Inc.; and (b) a remediation trust funded in the amount of $80.0 million, to be held by Larchfield Trust Company, N.A. The financial assurance requirements further underscore the magnitude of the Torchlight Entities' remediation obligations and the critical importance of the coverage provided by the Policy.

III. THE POLICY — KEY TERMS AND COVERAGE PROVISIONS

The Policy at issue is Pollution Legal Liability Policy No. MEI-ENV-2021-04738, issued by Meridian Environmental Insurance Company to Torchlight Mining Corp. as the named insured. The scheduled subsidiaries designated under the Policy are Torchlight Mining (U.S.) Inc., Torchlight Specialty Chemicals, Inc., Ridgecrest Mine Holdings, LLC, and Bonanza Creek Mining, LLC. Each of these entities is an insured under the Policy.

The Policy has a three-year policy period running from July 1, 2021, through July 1, 2024. It is a Pollution Legal Liability ("PLL") policy, a specialized form of environmental insurance specifically designed and underwritten to provide coverage for losses arising from pollution conditions.

The Policy provides the following limits of liability:

• Per-Occurrence Limit: $50,000,000

• Aggregate Limit: $75,000,000

• Self-Insured Retention: $5,000,000 per occurrence

The Policy's insuring agreement provides coverage for "loss" arising from "pollution conditions" at "scheduled locations." As defined in the Policy, "loss" includes, without limitation: (a) "cleanup costs," defined to include costs incurred in the investigation, monitoring, containment, removal, treatment, neutralization, or disposal of pollutants, and any associated costs of regulatory compliance; (b) "defense costs," defined to include reasonable and necessary attorneys' fees, expert fees, and other costs incurred in the defense, investigation, or settlement of claims; and (c) "third-party claims," defined to include claims by governmental entities or private parties for damages, cost recovery, or injunctive relief arising from pollution conditions at scheduled locations.

All four sites that are the subject of the Enforcement Action — the Ridgecrest Copper-Molybdenum Mine, the Gallatin Chemical Works, the Bonanza Creek Gold Mine, and the Kanawha Bend Chemical Plant — are identified as "scheduled locations" under the Policy. There is no dispute that each site is a covered location. The Policy was specifically underwritten to provide coverage for environmental liabilities at these four sites, among others, and the premium charged by Meridian reflected the known operational and environmental characteristics of each site.

We note further that the Torchlight Entities completed and submitted a detailed Policy application in connection with the placement of the Policy, which included disclosure of the operational history, environmental conditions, and regulatory status of each scheduled location. The application was reviewed and accepted by Meridian's underwriting department, and the Policy was issued on the basis of the information provided.

IV. MERIDIAN'S RESERVATION OF RIGHTS — SUMMARY AND REBUTTAL

In its ROR Letter, Meridian raised certain coverage objections with respect to two of the four sites — the Ridgecrest Copper-Molybdenum Mine and the Kanawha Bend Chemical Plant — while acknowledging coverage for the Gallatin Chemical Works and the Bonanza Creek Gold Mine, subject to the SIR. We address each of Meridian's positions in turn and explain why each is without merit.

A. Ridgecrest Copper-Molybdenum Mine — Meridian's Denial Based on the Pollution Exclusion and/or Known-Conditions Exclusion

Meridian's Position: In the ROR Letter, Meridian asserted that coverage for the Ridgecrest Mine is denied, or at minimum reserved, based on the application of the Policy's pollution exclusion and/or known-conditions exclusion. Specifically, Meridian contended that TMC knew of the contamination conditions at the Ridgecrest Mine at or prior to the Policy inception date of July 1, 2021, and that the pollution conditions giving rise to the current claims therefore fall within the known-conditions exclusion. Meridian further suggested, without elaboration, that the pollution exclusion may apply to preclude coverage for contamination arising from the mine's historical operations.

Rebuttal: Meridian's position is legally untenable and factually unsupported. The Torchlight Entities respond as follows:

(a) The Pollution Exclusion Is Inapplicable in a Pollution Legal Liability Policy. It is well-established that a pollution legal liability policy is specifically designed and marketed to provide coverage for losses arising from pollution conditions. The very purpose of a PLL policy is to insure against the risks of environmental contamination that would be excluded under a standard commercial general liability policy. To the extent the Policy contains any provision characterized as a "pollution exclusion," such provision must be narrowly construed in light of the Policy's overarching purpose and insuring agreement. Courts have uniformly recognized that standard-form pollution exclusions cannot be applied in PLL policies to defeat the essential coverage bargained for by the insured. See, e.g., Harborline Insurance v. Space Sys./Loral, Inc., 710 F.3d 946, 958 (9th Cir. 2013) (recognizing that the reasonable expectations of the insured must govern interpretation of pollution coverage provisions); Outboard Marine Corp. v. Ashbury Specialty Insurance, 607 N.E.2d 1204 (Ill. 1992) (noting that the pollution exclusion must be read in context of the policy as a whole). Any attempt by Meridian to invoke a general pollution exclusion to deny coverage under a policy that was expressly purchased to cover pollution conditions would render the Policy illusory, an outcome that no court would countenance.

(b) The Known-Conditions Exclusion Does Not Apply. The Policy's known-conditions exclusion, by its terms, applies only to pollution conditions that were known to specified individuals within the insured's organization at or prior to the inception of the Policy and that were not disclosed in the policy application. This exclusion must be strictly construed against Meridian as the drafter of the Policy. The Torchlight Entities fully disclosed the historical mining operations and known environmental conditions at the Ridgecrest Mine in the Policy application submitted to Meridian. The application specifically referenced the site's operational history dating to 1978, the cessation of active mining in 2019, the ongoing closure and reclamation activities, and the known presence of AMD. Meridian's underwriting department reviewed this information, assessed the associated risks, and issued the Policy. Having accepted the premium with full knowledge of the site's environmental history, Meridian cannot now invoke the known-conditions exclusion to avoid its coverage obligations.

(c) The Specific Contamination Giving Rise to the Claims Was Identified During the Policy Period. While TMC disclosed the general presence of historical mining activities and associated environmental conditions in its application, the specific contamination that forms the basis of the current enforcement claims — including the quantified AMD seepage levels (copper at 47 mg/L), the RCRA violations at the SX/EW circuit, and the magnitude of contamination at the tailings impoundment — was first identified or quantified during the Policy period. The AOC (Docket No. CERCLA-08-2022-0039) was not executed until September 15, 2022, more than fourteen months after the Policy inception date. The AOC itself reflects EPA's determination, made during the Policy period, that conditions at the Ridgecrest Mine warranted formal remedial action. The evolution from general knowledge of historical mining operations to the specific, quantified contamination levels and regulatory violations alleged in the Enforcement Action occurred during the Policy period, and the known-conditions exclusion cannot properly be applied to bar coverage for these subsequently discovered or quantified conditions.

(d) The EPA Removal Actions Occurred During the Policy Period. The EPA removal actions at Ridgecrest for which CERCLA Section 107 cost recovery is sought commenced on January 15, 2021 — just two weeks before the Policy inception date — and continued through May 30, 2023. The vast majority of the $14.3 million in removal action costs was incurred well within the Policy period. The underlying pollution conditions that necessitated these removal actions manifested, were identified, and were addressed during the Policy period. There is no basis for Meridian's suggestion that these costs are excluded as arising from pre-inception conditions.

(e) Meridian's Denial Is Inconsistent with the Policy's Insuring Agreement and the Reasonable Expectations of the Insured. The Torchlight Entities purchased the Policy for the express purpose of obtaining coverage for environmental liabilities at their mining and chemical manufacturing operations, including the Ridgecrest Mine. Meridian underwrote the Policy with full knowledge of the Ridgecrest Mine's operational history and environmental conditions, charged a premium commensurate with the associated risks, and listed the Ridgecrest Mine as a scheduled location. The reasonable expectations of the insured — which are entitled to significant weight under the law of every relevant jurisdiction — are that the Policy provides coverage for losses arising from pollution conditions at the Ridgecrest Mine. Meridian's attempt to deny coverage for the very risks that the Policy was designed to cover is contrary to the fundamental principles of insurance law and the doctrine of reasonable expectations.

For all of the foregoing reasons, Meridian's denial of coverage for the Ridgecrest Mine is without legal or factual basis. We demand that Meridian withdraw its denial and acknowledge full coverage for the Ridgecrest Mine under the Policy.

B. Kanawha Bend Chemical Plant — Meridian's Denial Based on Alleged Late Notice

Meridian's Position: In the ROR Letter, Meridian asserted that coverage for the Kanawha Bend Facility is denied based on TMC's alleged failure to provide timely notice of the occurrence or claim. Meridian argued that the June 14, 2020 sulfuric acid release at the facility constituted an "occurrence" under the Policy and that TMC was required to report this event at or near the inception of the Policy period on July 1, 2021.

Rebuttal: Meridian's late-notice defense is without merit for the following reasons:

(a) The Sulfuric Acid Release Predates the Policy Period, But the Enforcement Claims Arose During the Policy Period. The June 14, 2020 sulfuric acid release and the initial EPA emergency response predated the Policy inception by approximately one year. However, the occurrence of a release event, standing alone, does not constitute a "claim" under the Policy. The EPA enforcement action and CERCLA Section 107 cost recovery demand that form the basis of the current claims against the Torchlight Entities did not arise until well within the Policy period. The EPA Notice of Violation was not issued until September 12, 2023, and the DOJ complaint was not filed until January 18, 2024 — both dates falling squarely within the Policy period. The Policy's notice provisions require the insured to provide notice of a "claim" or of circumstances that may give rise to a claim. TMC's notice obligations were triggered by the enforcement action, not by the underlying release event.

(b) TMC Provided Notice Within a Reasonable Time. TMC provided notice to Meridian within a reasonable time after becoming aware that the EPA enforcement action and CERCLA cost recovery demand would likely give rise to a covered claim under the Policy. The Torchlight Entities acted diligently in assessing the nature and scope of the enforcement claims, engaging legal counsel, and providing notice to Meridian. The timing of TMC's notice was reasonable under the circumstances, taking into account the complexity of the multi-site enforcement action, the ongoing consent-decree negotiations, and the need to evaluate the potential applicability of the Policy to the claims.

(c) The Notice-Prejudice Rule Applies. The laws of the jurisdictions most likely to govern this coverage dispute — including Montana, Illinois, and the jurisdictions of the insured's principal places of business — require an insurer to demonstrate actual prejudice from late notice before it may deny coverage on that basis. This well-established rule recognizes that late notice alone, without demonstrable harm to the insurer's ability to investigate or defend the claim, is insufficient to forfeit the insured's contractual rights. See, e.g., Harborline Casualty Group v. Burr, 551 U.S. 47 (2007) (discussing notice requirements); Adriatic Specialty Insurance v. Murphy, 538 A.2d 219 (Conn. 1988) (applying notice-prejudice rule); Strathmore Life Insurance v. Livorsi Marine, Inc., 856 N.E.2d 338, 347 (Ill. 2006) (holding that an insurer must show actual prejudice from late notice). The notice-prejudice rule reflects the fundamental principle that an insured should not lose the benefit of its coverage bargain absent a showing that the insurer was materially harmed by the timing of notice.

(d) Meridian Has Not Identified Any Specific Prejudice. Critically, the ROR Letter does not identify any specific prejudice that Meridian has suffered or will suffer as a result of the timing of TMC's notice. Meridian has not alleged that it was unable to investigate the Kanawha Bend claims, that evidence was lost or destroyed, that witnesses became unavailable, or that its ability to participate in the defense or settlement of the claims was in any way impaired. In the absence of any articulated prejudice, Meridian's late-notice defense is legally insufficient.

(e) We Demand That Meridian Identify Any Claimed Prejudice. If Meridian intends to continue to rely on its late-notice defense, we demand that Meridian provide a detailed written statement identifying the specific prejudice it claims to have suffered as a result of the timing of TMC's notice. The Torchlight Entities are confident that Meridian cannot make such a showing and that the late-notice defense must accordingly be withdrawn.

For all of the foregoing reasons, Meridian's denial of coverage for the Kanawha Bend Facility based on alleged late notice is without legal or factual basis. We demand that Meridian withdraw its denial and acknowledge full coverage for the Kanawha Bend Facility under the Policy.

C. Gallatin Chemical Works and Bonanza Creek Gold Mine — Meridian's Acknowledged Coverage

We note that in the ROR Letter, Meridian acknowledged coverage for the Gallatin Chemical Works and the Bonanza Creek Gold Mine, subject to the $5.0 million SIR per occurrence. The Torchlight Entities accept the applicability of the SIR as stated in the Policy.

However, the Torchlight Entities object to any attempt by Meridian — whether in the ROR Letter or in future communications — to characterize the environmental violations or remediation obligations at each site as constituting multiple separate "occurrences" for the purpose of imposing multiple SIRs per site. Unless the Policy language expressly and unambiguously supports the disaggregation of remediation obligations at a single scheduled location into multiple occurrences, the environmental contamination at each site should be treated as a single occurrence, subject to a single $5.0 million SIR per site. Any effort by Meridian to impose additional SIRs would be contrary to the Policy language and to the reasonable expectations of the insured.

The Torchlight Entities demand that Meridian promptly begin processing claims and reimbursing covered remediation costs for the Gallatin Facility and the Bonanza Creek Mine as such costs are incurred, net of the applicable SIR. The Consent Decree Framework contemplates the commencement of remediation activities at both sites in the near term, and any delay in Meridian's reimbursement of covered costs will cause material financial harm to the Torchlight Entities.

For purposes of calculating the maximum recovery under the Policy for the Gallatin and Bonanza Creek sites alone, the combined remediation costs total $106.0 million ($42.8 million for Gallatin plus $63.2 million for Bonanza Creek). After application of two SIRs ($5.0 million per site, totaling $10.0 million), the net claim amount is $96.0 million. However, the Policy's aggregate limit is $75.0 million. Accordingly, the maximum theoretical recovery for these two sites is limited to $75.0 million — the full aggregate limit of the Policy. We note, however, that if coverage is properly acknowledged for all four sites, as we demand, the aggregate limit will apply across all four sites, and the Torchlight Entities will expect Meridian to pay the full $75.0 million aggregate limit.

V. FORMAL DEMAND FOR COVERAGE — ALL FOUR SITES

Based on the foregoing analysis, and on behalf of the Torchlight Entities, we hereby make the following formal demands upon Meridian Environmental Insurance Company:

First, we demand that Meridian immediately withdraw its denial of coverage for the Ridgecrest Copper-Molybdenum Mine. As set forth in Section IV.A above, the grounds cited by Meridian for its denial — the pollution exclusion and/or known-conditions exclusion — are without legal or factual merit. The Ridgecrest Mine is a scheduled location under the Policy, the contamination giving rise to the current claims was identified and quantified during the Policy period, and the EPA removal actions occurred during the Policy period.

Second, we demand that Meridian immediately withdraw its denial of coverage for the Kanawha Bend Chemical Plant. As set forth in Section IV.B above, the late-notice defense asserted by Meridian is legally insufficient, particularly in light of the applicable notice-prejudice rule, and Meridian has failed to identify any specific prejudice resulting from the timing of TMC's notice.

Third, we demand that Meridian acknowledge full coverage for all four scheduled locations — the Ridgecrest Copper-Molybdenum Mine, the Gallatin Chemical Works, the Bonanza Creek Gold Mine, and the Kanawha Bend Chemical Plant — under Policy No. MEI-ENV-2021-04738, subject only to the stated Policy limits ($50.0 million per occurrence; $75.0 million aggregate) and the applicable SIR ($5.0 million per occurrence).

Fourth, we demand that Meridian commence the processing of claims and the reimbursement of covered remediation costs for the Gallatin Chemical Works and the Bonanza Creek Gold Mine without further delay. Covered costs are currently being incurred and will continue to be incurred as remediation activities proceed under the Consent Decree Framework. Any further delay in processing and paying these claims is unreasonable and will cause material harm to the Torchlight Entities.

Fifth, we demand that Meridian provide a written response to this letter within thirty (30) calendar days of the date hereof — i.e., no later than December 30, 2024 — either: (a) confirming full coverage for all four sites under the Policy, on the terms demanded herein; or (b) providing a detailed, point-by-point legal and factual basis for any continued denial or reservation of rights with respect to any site, including citation to specific Policy provisions, applicable legal authority, and supporting factual evidence.

The Torchlight Entities' total remediation exposure across all four sites is $343.5 million in nominal terms, far in excess of the Policy's $75.0 million aggregate limit. The Torchlight Entities expect and demand that Meridian pay the full aggregate limit of the Policy in respect of covered losses arising from the Enforcement Action and the Consent Decree Framework.

VI. RESERVATION OF RIGHTS — TORCHLIGHT MINING CORP.

The Torchlight Entities hereby expressly reserve all rights, claims, defenses, and remedies against Meridian Environmental Insurance Company, whether arising under the Policy, at common law, in equity, or by statute, including but not limited to the following:

(a) Breach of Contract. Claims for breach of Meridian's obligations under Policy No. MEI-ENV-2021-04738, including the obligation to pay covered losses, to reimburse cleanup costs and defense costs, and to process claims in good faith and in a timely manner.

(b) Bad Faith Denial of Coverage. Claims for bad faith denial of coverage, including claims under the common law of bad faith and, where applicable, statutory bad faith, arising from Meridian's unreasonable refusal to acknowledge coverage, unreasonable delay in the investigation and processing of claims, and failure to provide a reasonable basis for its coverage denials.

(c) Violation of Unfair Claims Settlement Practices Acts. Claims for violation of applicable state unfair claims settlement practices acts, including but not limited to the Montana Unfair Trade Practices Act, Mont. Code Ann. §§ 33-18-201 et seq.; the Illinois Insurance Claims Settlement Practices Act, 215 ILCS 5/154.6; the Nevada Unfair Claims Settlement Practices Act, Nev. Rev. Stat. §§ 686A.310 et seq.; and the West Virginia Unfair Trade Practices Act, W. Va. Code §§ 33-11-1 et seq., to the extent applicable.

(d) Consequential Damages. Claims for consequential damages arising from Meridian's unreasonable delay in payment of covered claims or wrongful denial of coverage, including but not limited to increased remediation costs, additional interest and financing costs, costs of procuring alternative financial assurance, and any impairment to the Torchlight Entities' business operations or financial condition resulting from Meridian's conduct.

(e) Interest on Unpaid Claims. Claims for pre-judgment and post-judgment interest on all unpaid claims at the maximum rates permitted by applicable law.

(f) Attorneys' Fees and Costs. Claims for recovery of all attorneys' fees and costs incurred by the Torchlight Entities in pursuing coverage under the Policy, including the fees and costs of Calderwood & Harkness LLP and any other counsel retained in connection with this coverage dispute.

Nothing in this letter, and no prior or subsequent communication between the Torchlight Entities and Meridian — whether oral or written — shall be construed as a waiver, modification, or release of any right, claim, defense, or remedy available to the Torchlight Entities. The making of this demand, the identification of specific grounds for coverage, and the engagement of the Torchlight Entities in any discussions or negotiations with Meridian regarding coverage shall not constitute a waiver of any Policy provision, coverage right, or legal remedy available to the Torchlight Entities under the Policy or under applicable law.

Similarly, this letter shall not be construed as an admission by the Torchlight Entities regarding the applicability or interpretation of any Policy provision, exclusion, condition, or limitation, except to the extent expressly stated herein.

VII. REQUEST FOR POLICY FILE AND CLAIMS DOCUMENTATION

Pursuant to the Torchlight Entities' rights as insureds under the Policy and under applicable law, we request that Meridian provide the following documentation within thirty (30) days of the date of this letter:

(a) A complete copy of Meridian's claims file related to Policy No. MEI-ENV-2021-04738 and the TMC claims, including but not limited to all coverage analyses, coverage opinions, internal memoranda, underwriting notes, and correspondence (both internal and external) regarding the Torchlight Entities' claims, the coverage determination, and the issuance of the ROR Letter.

(b) Identification of all coverage counsel retained by Meridian in connection with this matter, including the name of each law firm and each individual attorney, the date of retention, the scope of engagement, and copies of all written coverage opinions or memoranda prepared by such counsel.

(c) A detailed accounting of all amounts reserved by Meridian in connection with the TMC claims under Policy No. MEI-ENV-2021-04738, broken down by site, by coverage category (cleanup costs, defense costs, civil penalties, and third-party claims), and by policy year.

To the extent Meridian contends that any portion of the requested documentation is protected by attorney-client privilege, work-product doctrine, or any other privilege, we request that Meridian provide a privilege log identifying each withheld document by date, author, recipient, subject matter, and the specific privilege asserted. We note that the applicability of any privilege to documents in the insurer's claims file is subject to significant limitations, particularly where, as here, the insured is seeking disclosure of the insurer's coverage analysis and decision-making process.

VIII. DIRECTION FOR FURTHER COMMUNICATIONS

All further communications regarding the claims under Policy No. MEI-ENV-2021-04738, the coverage issues addressed in this letter, and any other matters related to the Enforcement Action or the Consent Decree Framework should be directed to the undersigned at the following address:

Harrison Wexford, Partner Calderwood & Harkness LLP One Liberty Plaza, 48th Floor 165 Broadway New York, New York 10006 Telephone: (212) 558-4127 Facsimile: (212) 558-3588

Email: hwexford@calderwoodharkness.com

C&H Matter No.: 1039-00003

All communications should include copies to:

Miriam Soo-Hwan Park General Counsel Torchlight Mining Corp. U.S. Headquarters 750 Copper Ridge Boulevard, Suite 200 Helena, Montana 59601 Telephone: (406) 442-7800

Email: mpark@torchlightmining.com

Please update your records accordingly and direct all future correspondence, notices, and communications exclusively to the above addresses. The Torchlight Entities will not accept service of any coverage-related communications at any other address unless expressly agreed in writing by the undersigned.

CONCLUSION

The Torchlight Entities have significant and well-founded expectations of coverage under Policy No. MEI-ENV-2021-04738 for the environmental liabilities arising from the Enforcement Action. Meridian underwrote this Policy with knowledge of the Torchlight Entities' operations, accepted the premium, and scheduled all four sites. The Torchlight Entities demand that Meridian honor its contractual obligations, withdraw its unsupported coverage denials, and promptly process and pay covered claims up to the Policy aggregate limit.

We trust that Meridian will give this matter the prompt and serious attention it deserves. The Torchlight Entities are prepared to engage in good-faith discussions with Meridian to resolve the coverage disputes identified herein. However, if Meridian fails to respond to this demand within the thirty-day period specified above, or if Meridian continues to deny or unreasonably delay coverage, the Torchlight Entities will pursue all available legal remedies without further notice.

We look forward to Meridian's prompt written response.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Harrison Wexford Partner

On behalf of Torchlight Mining Corp. and its scheduled subsidiaries

cc (via electronic mail):

Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp.

Carolyn Bracebridge, Chief Financial Officer, Torchlight Mining Corp.

Gareth Linford, Vice President, Environmental Health & Safety, Torchlight Mining Corp.

Vivian Okafor, Managing Director, Northspire Capital Markets, Inc. (financial advisor to TMC)

Enclosures:

1. Copy of EPA Notice of Violation dated September 12, 2023

2. Copy of DOJ Complaint, United States of America, et al. v. Torchlight Mining Corp., et al., Civil Action No. 9:24-cv-00087-DWM (filed January 18, 2024)

3. Summary Table of Site-by-Site Remediation Cost Estimates and Civil Penalty Allocations

Category	Amount
Total Remediation Costs (Nominal)	$343,500,000
— Ridgecrest Copper-Molybdenum Mine	$198,600,000
— Gallatin Chemical Works	$42,800,000
— Bonanza Creek Gold Mine	$63,200,000
— Kanawha Bend Chemical Plant	$38,900,000
Total Civil Penalties	$31,500,000
— Ridgecrest	$14,200,000
— Gallatin	$5,800,000
— Bonanza Creek	$7,900,000
— Kanawha Bend	$3,600,000
EPA Past-Costs Reimbursement (CERCLA § 107)	$18,100,000
— Ridgecrest (2021–2023 Removal Actions)	$14,300,000
— Kanawha Bend (2020 Emergency Response)	$3,800,000
Supplemental Environmental Projects ("SEPs")	$12,000,000
— Flint Creek Watershed Restoration (Ridgecrest)	$5,500,000
— Battle Mountain Community Water Supply (Bonanza Creek)	$3,500,000
— Institute Community Health Initiative (Kanawha Bend)	$3,000,000
Independent Monitor Costs (5-Year Estimate)	$4,800,000
— Annual Cost (~$960,000/year)	—
Grand Total (Nominal)	$409,900,000

CALDERWOOD & HARKNESS LLP Attorneys at Law
One Liberty Plaza, 48th Floor 165 Broadway New York, New York 10006
Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com
November 30, 2024
C&H Matter No.: 1039-00003
VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND ELECTRONIC MAIL (sgrantham@meridianenvinsurance.com)
Ms. Sheila Grantham Claims Adjuster Meridian Environmental Insurance Company 233 South Wacker Drive, Suite 4100 Chicago, Illinois 60606
Re: Pollution Legal Liability Policy No. MEI-ENV-2021-04738 — Reservation of Rights Response and Coverage Demand on Behalf of Torchlight Mining Corp. and Subsidiaries Policy Period: July 1, 2021 – July 1, 2024 (Three-Year Term) Per-Occurrence Limit: $50,000,000; Aggregate Limit: $75,000,000 Self-Insured Retention: $5,000,000 Per Occurrence
Dear Ms. Grantham:
I. INTRODUCTION AND PURPOSE
This firm represents Torchlight Mining Corp. ("TMC"), a corporation organized under the Canada Business Corporations Act ("CBCA") and dual-listed on the Toronto Stock Exchange (TSX: TRC) and the New York Stock Exchange (NYSE: TRC), and its relevant United States subsidiaries: Torchlight Mining (U.S.) Inc., a Delaware corporation (EIN 83-2047156); Torchlight Specialty Chemicals, Inc., a Delaware corporation (EIN 47-3819204); Ridgecrest Mine Holdings, LLC, a Montana limited liability company (MT SOS ID E1042738); and Bonanza Creek Mining, LLC, a Nevada limited liability company (NV SOS Entity No. E0518294731) (collectively with TMC, the "Torchlight Entities" or the "Insureds"). Calderwood & Harkness LLP was retained on October 21, 2024, as outside coverage counsel to the Torchlight Entities in connection with the multi-site United States Environmental Protection Agency ("EPA") compliance and consent-decree negotiation matter described herein, and in connection with all coverage issues arising under Policy No. MEI-ENV-2021-04738 (the "Policy") issued by Meridian Environmental Insurance Company ("Meridian" or the "Insurer").
We are in receipt of Meridian's reservation-of-rights letter dated October 7, 2024 (the "ROR Letter"), addressed to Miriam Soo-Hwan Park, General Counsel of TMC. We have reviewed the ROR Letter in its entirety, together with the Policy, the underlying enforcement filings, and the relevant factual record. We write to respond to each of the coverage positions taken by Meridian in the ROR Letter, to set forth in detail the factual and legal bases on which the Torchlight Entities are entitled to coverage under the Policy, and to formally demand that Meridian fulfill its contractual obligations.
The purpose of this letter is threefold. First, we respond to, and rebut, Meridian's purported reservations of rights and denials of coverage with respect to the Ridgecrest Copper-Molybdenum Mine and the Kanawha Bend Chemical Plant. Second, we demand that Meridian acknowledge and provide coverage under the Policy for all four scheduled locations — the Ridgecrest Copper-Molybdenum Mine, the Gallatin Chemical Works, the Bonanza Creek Gold Mine, and the Kanawha Bend Chemical Plant — subject only to the stated Policy limits and the applicable self-insured retention ("SIR"). Third, the Torchlight Entities hereby expressly reserve all of their rights, claims, and remedies against Meridian, including but not limited to claims for breach of contract, bad faith, and consequential damages, as more fully described below.
Nothing in this letter, or in any prior or subsequent communication between the Torchlight Entities and Meridian, shall be construed as a waiver or modification of any right, claim, defense, or remedy available to the Torchlight Entities under the Policy, at law, or in equity.
II. BACKGROUND — THE UNDERLYING ENVIRONMENTAL ENFORCEMENT ACTION
A. Case Overview
On January 18, 2024, the United States Department of Justice ("DOJ"), acting on behalf of the EPA, filed a civil enforcement complaint captioned United States of America, State of Montana, State of Nevada, and State of West Virginia v. Torchlight Mining Corp., et al., Civil Action No. 9:24-cv-00087-DWM, in the United States District Court for the District of Montana, Missoula Division (the "Enforcement Action"). The case is assigned to the Honorable Donald W. Molloy, United States District Judge. The complaint was prepared by Philip Orenstein, Lead Trial Attorney, Environment and Natural Resources Division, DOJ, under the supervision of Katherine Rowe-Halpern, Section Chief, Environmental Enforcement Section, ENRD, with Margaret Coulson, Lead Case Attorney, Office of Enforcement and Compliance Assurance, EPA, serving as the agency's principal representative. The States of Montana, Nevada, and West Virginia are joined as co-plaintiffs.
The named defendants are: (1) Torchlight Mining Corp.; (2) Torchlight Mining (U.S.) Inc.; (3) Torchlight Specialty Chemicals, Inc.; (4) Ridgecrest Mine Holdings, LLC; and (5) Bonanza Creek Mining, LLC. The complaint asserts claims under Section 301 of the Clean Water Act ("CWA"), 33 U.S.C. § 1311; Sections 3004 and 3005 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§ 6924, 6925; Section 107 of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9607; and the Migratory Bird Treaty Act ("MBTA"), 16 U.S.C. §§ 703–712. These claims relate to alleged pollution conditions and environmental violations at four sites owned and operated by the Torchlight Entities, each of which is a scheduled location under the Policy.
TMC, through its litigation counsel, filed its answer to the complaint on March 5, 2024, denying the material allegations while preserving all affirmative defenses. On April 22, 2024, the parties entered into a tolling agreement with respect to certain statute-of-limitations defenses, thereby facilitating meaningful settlement discussions. The Court referred the matter to court-ordered mediation, which was conducted on May 15, 2024, before Magistrate Judge Clara Finnegan. Following extensive negotiations over the ensuing months — involving multiple sessions with DOJ, EPA, and the co-plaintiff States — the parties reached an agreement in principle on a consent-decree framework on July 30, 2024 (the "Consent Decree Framework"). The proposed consent decree, which is subject to public notice and comment under 28 C.F.R. § 50.7, addresses remediation obligations, civil penalties, supplemental environmental projects, and ongoing monitoring and compliance requirements at all four sites.
B. The Four Sites — Summary of Claims and Estimated Remediation Costs
The Enforcement Action encompasses four distinct sites, each of which is a scheduled location under the Policy. We summarize below the factual allegations, statutory violations, and estimated remediation costs applicable to each site.
1. Ridgecrest Copper-Molybdenum Mine. Location: 14200 Ridgecrest Mine Road, Drummond, Granite County, Montana 59832.
Property Description: The Ridgecrest Copper-Molybdenum Mine (the "Ridgecrest Mine" or "Ridgecrest") encompasses an approximately 3,200-acre active mine footprint situated within a total controlled property area of approximately 8,700 acres in western Montana. The property is owned and operated by Ridgecrest Mine Holdings, LLC, a wholly owned indirect subsidiary of TMC.
Operational History: The Ridgecrest Mine is an open-pit copper-molybdenum mining operation that has been in continuous operation since 1978. Active mining operations ceased on December 31, 2019, and the site is currently in a closure and reclamation phase under a Montana Department of Environmental Quality-approved reclamation plan. The mine historically produced copper and molybdenum concentrates through conventional flotation processing, with an associated solvent extraction / electrowinning ("SX/EW") circuit for secondary copper recovery.
Regulatory Status: The Ridgecrest Mine has been proposed for listing on the National Priorities List ("NPL") under CERCLA. It is currently being addressed under an Administrative Order on Consent ("AOC"), Docket No. CERCLA-08-2022-0039, which was executed on September 15, 2022, between EPA Region 8 and Ridgecrest Mine Holdings, LLC.
Contaminants of Concern: The primary contamination at the Ridgecrest Mine consists of acid mine drainage ("AMD") emanating from exposed pit walls, waste rock dumps, and a 425-acre tailings impoundment. Monitoring data indicate that AMD discharges contain dissolved copper at concentrations averaging 47 mg/L — more than five thousand times the applicable aquatic life criterion of 0.0087 mg/L. Additional contaminants of concern include molybdenum, selenium, and sulfate at concentrations significantly exceeding applicable water quality standards. The 425-acre tailings impoundment has exhibited documented seepage to Flint Creek, a tributary of the Clark Fork River, which supports populations of bull trout (Salvelinus confluentus), a federally listed threatened species.
Alleged Violations: The complaint alleges the following violations at Ridgecrest: (a) CWA Section 301 — unpermitted discharges of pollutants from the mine site to Flint Creek and its tributaries, in the absence of a valid National Pollutant Discharge Elimination System ("NPDES") permit; (b) RCRA Section 3004 — mismanagement of hazardous waste generated by the SX/EW circuit, including improper storage and disposal of spent electrolyte solutions and contaminated raffinate; and (c) CERCLA Section 107 — cost recovery for $14.3 million in EPA removal actions conducted between January 15, 2021, and May 30, 2023, which addressed immediate threats to Flint Creek from AMD discharges.
Estimated Remediation Cost: Under the Consent Decree Framework, the negotiated remediation cost for the Ridgecrest Mine is $198.6 million, to be expended over a 30-year remediation period. The net present value of these costs, discounted at a rate of 3%, is approximately $134.9 million. The remediation program encompasses installation and perpetual operation of a water treatment system for AMD, reclamation of waste rock dumps, closure and capping of the tailings impoundment, and long-term water quality monitoring.
Civil Penalty Allocation: The civil penalty allocation for the Ridgecrest Mine under the Consent Decree Framework is $14.2 million.
2. Gallatin Chemical Works. Location: 8800 Industrial Park Lane, Belgrade, Gallatin County, Montana 59714.
Property Description: The Gallatin Chemical Works (the "Gallatin Facility" or "Gallatin") comprises approximately 145 acres of improved industrial property located in the Belgrade industrial corridor, Gallatin County, Montana. The facility is owned and operated by Torchlight Specialty Chemicals, Inc.
Operational History: The Gallatin Facility has been in continuous operation since 1993, manufacturing specialty chemical products used in mining and mineral processing operations. Principal products manufactured at the facility include flotation reagents, sodium xanthate, and dithiophosphate collectors. The facility remains currently active and is expected to continue operations throughout and following the remediation period.
Regulatory Status: The Gallatin Facility is subject to RCRA Corrective Action requirements under Hazardous Waste Permit No. MTD098712456, issued by the Montana Department of Environmental Quality. Three solid waste management units ("SWMUs") have been identified at the facility and are subject to corrective action investigation and cleanup.
Contaminants of Concern: Groundwater contamination at the Gallatin Facility includes carbon disulfide at concentrations up to 890 µg/L, significantly exceeding the federal Maximum Contaminant Level ("MCL") of 10 µg/L — a ratio of approximately 89 times the applicable standard. Additional contaminants include xanthate decomposition products and volatile organic compounds ("VOCs"), specifically toluene and xylene, in soil and groundwater at concentrations above applicable cleanup levels.
Alleged Violations: The complaint alleges the following violations at Gallatin: (a) RCRA Sections 3004 and 3005 — unpermitted storage of hazardous waste in excess of allowed quantities and failure to perform required corrective action at identified SWMUs; and (b) CWA Section 301 — fourteen documented exceedances of the facility's Montana Pollutant Discharge Elimination System ("MPDES") permit effluent limitations between January 2021 and June 2024.
Estimated Remediation Cost: Under the Consent Decree Framework, the estimated remediation cost for the Gallatin Facility is $42.8 million, to be expended over a 15-year remediation period. The net present value at a 3% discount rate is approximately $34.1 million. The remediation program includes groundwater pump-and-treat operations, soil vapor extraction at the three SWMUs, and installation of a permeable reactive barrier to intercept the carbon disulfide plume.
Civil Penalty Allocation: The civil penalty allocation for the Gallatin Facility under the Consent Decree Framework is $5.8 million.
3. Bonanza Creek Gold Mine. Location: County Road 447, Mile Marker 12, Lander County, Nevada 89820 (approximately 28 miles south of Battle Mountain, Nevada).
Property Description: The Bonanza Creek Gold Mine (the "Bonanza Creek Mine" or "Bonanza Creek") encompasses an approximately 5,600-acre active mine footprint within a total controlled property area of approximately 12,400 acres in north-central Nevada. The property is owned and operated by Bonanza Creek Mining, LLC, a wholly owned indirect subsidiary of TMC.
Operational History: The Bonanza Creek Mine is an open-pit heap-leach gold mining operation that commenced production in 2001 and remains in active operation. The mine employs conventional heap-leach processing using dilute cyanide solutions to extract gold from crushed ore placed on engineered leach pads.
Contaminants of Concern: The primary contaminants of concern at the Bonanza Creek Mine include weak-acid dissociable ("WAD") cyanide at concentrations of 0.62 mg/L, exceeding the applicable discharge limit of 0.022 mg/L by a factor of approximately 28; mercury at average concentrations of 12.4 µg/L, exceeding the applicable aquatic life criterion of 0.77 µg/L by a factor of approximately 16; and selenium in pit-lake water at concentrations above applicable standards.
Alleged Violations: The complaint alleges the following violations at Bonanza Creek: (a) CWA Section 301 — three unpermitted discharges of process solution from the heap-leach pad through torn liner segments, occurring on March 17, 2022, August 9, 2022, and January 22, 2023, with solution migrating to an unnamed ephemeral drainage tributary to the Humboldt River; (b) RCRA Section 3004 — management of spent heap-leach ore as solid waste without complying with applicable hazardous waste management requirements, based on the characteristic hazardous waste determination (D003 — reactivity, due to cyanide content); and (c) MBTA — seventeen documented avian mortalities at process solution ponds during the period from 2021 through 2023, involving migratory bird species protected under the MBTA.
Estimated Remediation Cost: Under the Consent Decree Framework, the estimated remediation cost for the Bonanza Creek Mine is $63.2 million, to be expended over a 20-year remediation period. The net present value at a 3% discount rate is approximately $47.1 million. The remediation program includes re-lining and regrading of heap-leach pads, installation of enhanced solution collection and recovery systems, pit-lake water management, and construction of avian deterrent systems at process solution ponds.
Civil Penalty Allocation: The civil penalty allocation for the Bonanza Creek Mine under the Consent Decree Framework is $7.9 million.
4. Kanawha Bend Chemical Plant. Location: 2200 Chemical Valley Road, Institute, Kanawha County, West Virginia 25112.
Property Description: The Kanawha Bend Chemical Plant (the "Kanawha Bend Facility" or "Kanawha Bend") comprises approximately 78 acres of improved industrial property located along the Kanawha River in the Institute area of Kanawha County, West Virginia. The facility is owned and operated by Torchlight Mining (U.S.) Inc.
Operational History: The Kanawha Bend Facility has been in continuous operation since 1985, manufacturing leaching agents and operating a sulfuric acid regeneration unit in support of TMC's mining operations. The facility remains currently active.
Regulatory Status: The Kanawha Bend Facility is subject to RCRA Corrective Action requirements under Hazardous Waste Permit No. WVD048823915, issued by the West Virginia Department of Environmental Protection.
Contaminants of Concern: The primary contamination at the Kanawha Bend Facility includes sulfuric acid residuals in soil with pH values measured as low as 1.8; heavy metals in soil, including lead at maximum concentrations of 4,200 mg/kg and arsenic at maximum concentrations of 890 mg/kg; and dense non-aqueous phase liquid ("DNAPL") contamination in a fractured bedrock aquifer underlying the site. The DNAPL contamination is of particular concern due to the complexity and cost associated with remediation in fractured rock environments.
Alleged Violations: The complaint alleges the following violations at Kanawha Bend: (a) RCRA Sections 3004 and 3005 — failure to close a surface impoundment containing hazardous waste in accordance with regulatory requirements, and unpermitted treatment of K062 (spent pickle liquor from steel finishing) and D002 (corrosive) hazardous wastes; and (b) CERCLA Section 107 — cost recovery for $3.8 million in EPA emergency response actions conducted following the June 14, 2020 sulfuric acid release from the facility's acid regeneration unit, which resulted in a discharge to an unnamed tributary of the Kanawha River.
Estimated Remediation Cost: Under the Consent Decree Framework, the estimated remediation cost for the Kanawha Bend Facility is $38.9 million, to be expended over a 20-year remediation period. The net present value at a 3% discount rate is approximately $29.0 million. The remediation program encompasses closure of the surface impoundment, in-situ treatment of DNAPL contamination using chemical oxidation, soil removal and off-site disposal in areas of concentrated heavy metals, and long-term groundwater monitoring.
Civil Penalty Allocation: The civil penalty allocation for the Kanawha Bend Facility under the Consent Decree Framework is $3.6 million.
C. Aggregate Financial Exposure
The Torchlight Entities' aggregate financial exposure arising from the Enforcement Action and the Consent Decree Framework is substantial. As summarized in the table below and in the enclosure to this letter, the total financial obligations encompass multiple categories of costs:
In addition to the foregoing, the Consent Decree Framework requires the Torchlight Entities to provide financial assurance in the aggregate amount of $245.0 million, consisting of: (a) a surety bond in the amount of $165.0 million, to be issued by Ironbark Surety of America, Inc.; and (b) a remediation trust funded in the amount of $80.0 million, to be held by Larchfield Trust Company, N.A. The financial assurance requirements further underscore the magnitude of the Torchlight Entities' remediation obligations and the critical importance of the coverage provided by the Policy.
III. THE POLICY — KEY TERMS AND COVERAGE PROVISIONS
The Policy at issue is Pollution Legal Liability Policy No. MEI-ENV-2021-04738, issued by Meridian Environmental Insurance Company to Torchlight Mining Corp. as the named insured. The scheduled subsidiaries designated under the Policy are Torchlight Mining (U.S.) Inc., Torchlight Specialty Chemicals, Inc., Ridgecrest Mine Holdings, LLC, and Bonanza Creek Mining, LLC. Each of these entities is an insured under the Policy.
The Policy has a three-year policy period running from July 1, 2021, through July 1, 2024. It is a Pollution Legal Liability ("PLL") policy, a specialized form of environmental insurance specifically designed and underwritten to provide coverage for losses arising from pollution conditions.
The Policy provides the following limits of liability:
• Per-Occurrence Limit: $50,000,000
• Aggregate Limit: $75,000,000
• Self-Insured Retention: $5,000,000 per occurrence
The Policy's insuring agreement provides coverage for "loss" arising from "pollution conditions" at "scheduled locations." As defined in the Policy, "loss" includes, without limitation: (a) "cleanup costs," defined to include costs incurred in the investigation, monitoring, containment, removal, treatment, neutralization, or disposal of pollutants, and any associated costs of regulatory compliance; (b) "defense costs," defined to include reasonable and necessary attorneys' fees, expert fees, and other costs incurred in the defense, investigation, or settlement of claims; and (c) "third-party claims," defined to include claims by governmental entities or private parties for damages, cost recovery, or injunctive relief arising from pollution conditions at scheduled locations.
All four sites that are the subject of the Enforcement Action — the Ridgecrest Copper-Molybdenum Mine, the Gallatin Chemical Works, the Bonanza Creek Gold Mine, and the Kanawha Bend Chemical Plant — are identified as "scheduled locations" under the Policy. There is no dispute that each site is a covered location. The Policy was specifically underwritten to provide coverage for environmental liabilities at these four sites, among others, and the premium charged by Meridian reflected the known operational and environmental characteristics of each site.
We note further that the Torchlight Entities completed and submitted a detailed Policy application in connection with the placement of the Policy, which included disclosure of the operational history, environmental conditions, and regulatory status of each scheduled location. The application was reviewed and accepted by Meridian's underwriting department, and the Policy was issued on the basis of the information provided.
IV. MERIDIAN'S RESERVATION OF RIGHTS — SUMMARY AND REBUTTAL
In its ROR Letter, Meridian raised certain coverage objections with respect to two of the four sites — the Ridgecrest Copper-Molybdenum Mine and the Kanawha Bend Chemical Plant — while acknowledging coverage for the Gallatin Chemical Works and the Bonanza Creek Gold Mine, subject to the SIR. We address each of Meridian's positions in turn and explain why each is without merit.
A. Ridgecrest Copper-Molybdenum Mine — Meridian's Denial Based on the Pollution Exclusion and/or Known-Conditions Exclusion
Meridian's Position: In the ROR Letter, Meridian asserted that coverage for the Ridgecrest Mine is denied, or at minimum reserved, based on the application of the Policy's pollution exclusion and/or known-conditions exclusion. Specifically, Meridian contended that TMC knew of the contamination conditions at the Ridgecrest Mine at or prior to the Policy inception date of July 1, 2021, and that the pollution conditions giving rise to the current claims therefore fall within the known-conditions exclusion. Meridian further suggested, without elaboration, that the pollution exclusion may apply to preclude coverage for contamination arising from the mine's historical operations.
Rebuttal: Meridian's position is legally untenable and factually unsupported. The Torchlight Entities respond as follows:
(a) The Pollution Exclusion Is Inapplicable in a Pollution Legal Liability Policy. It is well-established that a pollution legal liability policy is specifically designed and marketed to provide coverage for losses arising from pollution conditions. The very purpose of a PLL policy is to insure against the risks of environmental contamination that would be excluded under a standard commercial general liability policy. To the extent the Policy contains any provision characterized as a "pollution exclusion," such provision must be narrowly construed in light of the Policy's overarching purpose and insuring agreement. Courts have uniformly recognized that standard-form pollution exclusions cannot be applied in PLL policies to defeat the essential coverage bargained for by the insured. See, e.g., Harborline Insurance v. Space Sys./Loral, Inc., 710 F.3d 946, 958 (9th Cir. 2013) (recognizing that the reasonable expectations of the insured must govern interpretation of pollution coverage provisions); Outboard Marine Corp. v. Ashbury Specialty Insurance, 607 N.E.2d 1204 (Ill. 1992) (noting that the pollution exclusion must be read in context of the policy as a whole). Any attempt by Meridian to invoke a general pollution exclusion to deny coverage under a policy that was expressly purchased to cover pollution conditions would render the Policy illusory, an outcome that no court would countenance.
(b) The Known-Conditions Exclusion Does Not Apply. The Policy's known-conditions exclusion, by its terms, applies only to pollution conditions that were known to specified individuals within the insured's organization at or prior to the inception of the Policy and that were not disclosed in the policy application. This exclusion must be strictly construed against Meridian as the drafter of the Policy. The Torchlight Entities fully disclosed the historical mining operations and known environmental conditions at the Ridgecrest Mine in the Policy application submitted to Meridian. The application specifically referenced the site's operational history dating to 1978, the cessation of active mining in 2019, the ongoing closure and reclamation activities, and the known presence of AMD. Meridian's underwriting department reviewed this information, assessed the associated risks, and issued the Policy. Having accepted the premium with full knowledge of the site's environmental history, Meridian cannot now invoke the known-conditions exclusion to avoid its coverage obligations.
(c) The Specific Contamination Giving Rise to the Claims Was Identified During the Policy Period. While TMC disclosed the general presence of historical mining activities and associated environmental conditions in its application, the specific contamination that forms the basis of the current enforcement claims — including the quantified AMD seepage levels (copper at 47 mg/L), the RCRA violations at the SX/EW circuit, and the magnitude of contamination at the tailings impoundment — was first identified or quantified during the Policy period. The AOC (Docket No. CERCLA-08-2022-0039) was not executed until September 15, 2022, more than fourteen months after the Policy inception date. The AOC itself reflects EPA's determination, made during the Policy period, that conditions at the Ridgecrest Mine warranted formal remedial action. The evolution from general knowledge of historical mining operations to the specific, quantified contamination levels and regulatory violations alleged in the Enforcement Action occurred during the Policy period, and the known-conditions exclusion cannot properly be applied to bar coverage for these subsequently discovered or quantified conditions.
(d) The EPA Removal Actions Occurred During the Policy Period. The EPA removal actions at Ridgecrest for which CERCLA Section 107 cost recovery is sought commenced on January 15, 2021 — just two weeks before the Policy inception date — and continued through May 30, 2023. The vast majority of the $14.3 million in removal action costs was incurred well within the Policy period. The underlying pollution conditions that necessitated these removal actions manifested, were identified, and were addressed during the Policy period. There is no basis for Meridian's suggestion that these costs are excluded as arising from pre-inception conditions.
(e) Meridian's Denial Is Inconsistent with the Policy's Insuring Agreement and the Reasonable Expectations of the Insured. The Torchlight Entities purchased the Policy for the express purpose of obtaining coverage for environmental liabilities at their mining and chemical manufacturing operations, including the Ridgecrest Mine. Meridian underwrote the Policy with full knowledge of the Ridgecrest Mine's operational history and environmental conditions, charged a premium commensurate with the associated risks, and listed the Ridgecrest Mine as a scheduled location. The reasonable expectations of the insured — which are entitled to significant weight under the law of every relevant jurisdiction — are that the Policy provides coverage for losses arising from pollution conditions at the Ridgecrest Mine. Meridian's attempt to deny coverage for the very risks that the Policy was designed to cover is contrary to the fundamental principles of insurance law and the doctrine of reasonable expectations.
For all of the foregoing reasons, Meridian's denial of coverage for the Ridgecrest Mine is without legal or factual basis. We demand that Meridian withdraw its denial and acknowledge full coverage for the Ridgecrest Mine under the Policy.
B. Kanawha Bend Chemical Plant — Meridian's Denial Based on Alleged Late Notice
Meridian's Position: In the ROR Letter, Meridian asserted that coverage for the Kanawha Bend Facility is denied based on TMC's alleged failure to provide timely notice of the occurrence or claim. Meridian argued that the June 14, 2020 sulfuric acid release at the facility constituted an "occurrence" under the Policy and that TMC was required to report this event at or near the inception of the Policy period on July 1, 2021.
Rebuttal: Meridian's late-notice defense is without merit for the following reasons:
(a) The Sulfuric Acid Release Predates the Policy Period, But the Enforcement Claims Arose During the Policy Period. The June 14, 2020 sulfuric acid release and the initial EPA emergency response predated the Policy inception by approximately one year. However, the occurrence of a release event, standing alone, does not constitute a "claim" under the Policy. The EPA enforcement action and CERCLA Section 107 cost recovery demand that form the basis of the current claims against the Torchlight Entities did not arise until well within the Policy period. The EPA Notice of Violation was not issued until September 12, 2023, and the DOJ complaint was not filed until January 18, 2024 — both dates falling squarely within the Policy period. The Policy's notice provisions require the insured to provide notice of a "claim" or of circumstances that may give rise to a claim. TMC's notice obligations were triggered by the enforcement action, not by the underlying release event.
(b) TMC Provided Notice Within a Reasonable Time. TMC provided notice to Meridian within a reasonable time after becoming aware that the EPA enforcement action and CERCLA cost recovery demand would likely give rise to a covered claim under the Policy. The Torchlight Entities acted diligently in assessing the nature and scope of the enforcement claims, engaging legal counsel, and providing notice to Meridian. The timing of TMC's notice was reasonable under the circumstances, taking into account the complexity of the multi-site enforcement action, the ongoing consent-decree negotiations, and the need to evaluate the potential applicability of the Policy to the claims.
(c) The Notice-Prejudice Rule Applies. The laws of the jurisdictions most likely to govern this coverage dispute — including Montana, Illinois, and the jurisdictions of the insured's principal places of business — require an insurer to demonstrate actual prejudice from late notice before it may deny coverage on that basis. This well-established rule recognizes that late notice alone, without demonstrable harm to the insurer's ability to investigate or defend the claim, is insufficient to forfeit the insured's contractual rights. See, e.g., Harborline Casualty Group v. Burr, 551 U.S. 47 (2007) (discussing notice requirements); Adriatic Specialty Insurance v. Murphy, 538 A.2d 219 (Conn. 1988) (applying notice-prejudice rule); Strathmore Life Insurance v. Livorsi Marine, Inc., 856 N.E.2d 338, 347 (Ill. 2006) (holding that an insurer must show actual prejudice from late notice). The notice-prejudice rule reflects the fundamental principle that an insured should not lose the benefit of its coverage bargain absent a showing that the insurer was materially harmed by the timing of notice.
(d) Meridian Has Not Identified Any Specific Prejudice. Critically, the ROR Letter does not identify any specific prejudice that Meridian has suffered or will suffer as a result of the timing of TMC's notice. Meridian has not alleged that it was unable to investigate the Kanawha Bend claims, that evidence was lost or destroyed, that witnesses became unavailable, or that its ability to participate in the defense or settlement of the claims was in any way impaired. In the absence of any articulated prejudice, Meridian's late-notice defense is legally insufficient.
(e) We Demand That Meridian Identify Any Claimed Prejudice. If Meridian intends to continue to rely on its late-notice defense, we demand that Meridian provide a detailed written statement identifying the specific prejudice it claims to have suffered as a result of the timing of TMC's notice. The Torchlight Entities are confident that Meridian cannot make such a showing and that the late-notice defense must accordingly be withdrawn.
For all of the foregoing reasons, Meridian's denial of coverage for the Kanawha Bend Facility based on alleged late notice is without legal or factual basis. We demand that Meridian withdraw its denial and acknowledge full coverage for the Kanawha Bend Facility under the Policy.
C. Gallatin Chemical Works and Bonanza Creek Gold Mine — Meridian's Acknowledged Coverage
We note that in the ROR Letter, Meridian acknowledged coverage for the Gallatin Chemical Works and the Bonanza Creek Gold Mine, subject to the $5.0 million SIR per occurrence. The Torchlight Entities accept the applicability of the SIR as stated in the Policy.
However, the Torchlight Entities object to any attempt by Meridian — whether in the ROR Letter or in future communications — to characterize the environmental violations or remediation obligations at each site as constituting multiple separate "occurrences" for the purpose of imposing multiple SIRs per site. Unless the Policy language expressly and unambiguously supports the disaggregation of remediation obligations at a single scheduled location into multiple occurrences, the environmental contamination at each site should be treated as a single occurrence, subject to a single $5.0 million SIR per site. Any effort by Meridian to impose additional SIRs would be contrary to the Policy language and to the reasonable expectations of the insured.
The Torchlight Entities demand that Meridian promptly begin processing claims and reimbursing covered remediation costs for the Gallatin Facility and the Bonanza Creek Mine as such costs are incurred, net of the applicable SIR. The Consent Decree Framework contemplates the commencement of remediation activities at both sites in the near term, and any delay in Meridian's reimbursement of covered costs will cause material financial harm to the Torchlight Entities.
For purposes of calculating the maximum recovery under the Policy for the Gallatin and Bonanza Creek sites alone, the combined remediation costs total $106.0 million ($42.8 million for Gallatin plus $63.2 million for Bonanza Creek). After application of two SIRs ($5.0 million per site, totaling $10.0 million), the net claim amount is $96.0 million. However, the Policy's aggregate limit is $75.0 million. Accordingly, the maximum theoretical recovery for these two sites is limited to $75.0 million — the full aggregate limit of the Policy. We note, however, that if coverage is properly acknowledged for all four sites, as we demand, the aggregate limit will apply across all four sites, and the Torchlight Entities will expect Meridian to pay the full $75.0 million aggregate limit.
V. FORMAL DEMAND FOR COVERAGE — ALL FOUR SITES
Based on the foregoing analysis, and on behalf of the Torchlight Entities, we hereby make the following formal demands upon Meridian Environmental Insurance Company:
First, we demand that Meridian immediately withdraw its denial of coverage for the Ridgecrest Copper-Molybdenum Mine. As set forth in Section IV.A above, the grounds cited by Meridian for its denial — the pollution exclusion and/or known-conditions exclusion — are without legal or factual merit. The Ridgecrest Mine is a scheduled location under the Policy, the contamination giving rise to the current claims was identified and quantified during the Policy period, and the EPA removal actions occurred during the Policy period.
Second, we demand that Meridian immediately withdraw its denial of coverage for the Kanawha Bend Chemical Plant. As set forth in Section IV.B above, the late-notice defense asserted by Meridian is legally insufficient, particularly in light of the applicable notice-prejudice rule, and Meridian has failed to identify any specific prejudice resulting from the timing of TMC's notice.
Third, we demand that Meridian acknowledge full coverage for all four scheduled locations — the Ridgecrest Copper-Molybdenum Mine, the Gallatin Chemical Works, the Bonanza Creek Gold Mine, and the Kanawha Bend Chemical Plant — under Policy No. MEI-ENV-2021-04738, subject only to the stated Policy limits ($50.0 million per occurrence; $75.0 million aggregate) and the applicable SIR ($5.0 million per occurrence).
Fourth, we demand that Meridian commence the processing of claims and the reimbursement of covered remediation costs for the Gallatin Chemical Works and the Bonanza Creek Gold Mine without further delay. Covered costs are currently being incurred and will continue to be incurred as remediation activities proceed under the Consent Decree Framework. Any further delay in processing and paying these claims is unreasonable and will cause material harm to the Torchlight Entities.
Fifth, we demand that Meridian provide a written response to this letter within thirty (30) calendar days of the date hereof — i.e., no later than December 30, 2024 — either: (a) confirming full coverage for all four sites under the Policy, on the terms demanded herein; or (b) providing a detailed, point-by-point legal and factual basis for any continued denial or reservation of rights with respect to any site, including citation to specific Policy provisions, applicable legal authority, and supporting factual evidence.
The Torchlight Entities' total remediation exposure across all four sites is $343.5 million in nominal terms, far in excess of the Policy's $75.0 million aggregate limit. The Torchlight Entities expect and demand that Meridian pay the full aggregate limit of the Policy in respect of covered losses arising from the Enforcement Action and the Consent Decree Framework.
VI. RESERVATION OF RIGHTS — TORCHLIGHT MINING CORP.
The Torchlight Entities hereby expressly reserve all rights, claims, defenses, and remedies against Meridian Environmental Insurance Company, whether arising under the Policy, at common law, in equity, or by statute, including but not limited to the following:
(a) Breach of Contract. Claims for breach of Meridian's obligations under Policy No. MEI-ENV-2021-04738, including the obligation to pay covered losses, to reimburse cleanup costs and defense costs, and to process claims in good faith and in a timely manner.
(b) Bad Faith Denial of Coverage. Claims for bad faith denial of coverage, including claims under the common law of bad faith and, where applicable, statutory bad faith, arising from Meridian's unreasonable refusal to acknowledge coverage, unreasonable delay in the investigation and processing of claims, and failure to provide a reasonable basis for its coverage denials.
(c) Violation of Unfair Claims Settlement Practices Acts. Claims for violation of applicable state unfair claims settlement practices acts, including but not limited to the Montana Unfair Trade Practices Act, Mont. Code Ann. §§ 33-18-201 et seq.; the Illinois Insurance Claims Settlement Practices Act, 215 ILCS 5/154.6; the Nevada Unfair Claims Settlement Practices Act, Nev. Rev. Stat. §§ 686A.310 et seq.; and the West Virginia Unfair Trade Practices Act, W. Va. Code §§ 33-11-1 et seq., to the extent applicable.
(d) Consequential Damages. Claims for consequential damages arising from Meridian's unreasonable delay in payment of covered claims or wrongful denial of coverage, including but not limited to increased remediation costs, additional interest and financing costs, costs of procuring alternative financial assurance, and any impairment to the Torchlight Entities' business operations or financial condition resulting from Meridian's conduct.
(e) Interest on Unpaid Claims. Claims for pre-judgment and post-judgment interest on all unpaid claims at the maximum rates permitted by applicable law.
(f) Attorneys' Fees and Costs. Claims for recovery of all attorneys' fees and costs incurred by the Torchlight Entities in pursuing coverage under the Policy, including the fees and costs of Calderwood & Harkness LLP and any other counsel retained in connection with this coverage dispute.
Nothing in this letter, and no prior or subsequent communication between the Torchlight Entities and Meridian — whether oral or written — shall be construed as a waiver, modification, or release of any right, claim, defense, or remedy available to the Torchlight Entities. The making of this demand, the identification of specific grounds for coverage, and the engagement of the Torchlight Entities in any discussions or negotiations with Meridian regarding coverage shall not constitute a waiver of any Policy provision, coverage right, or legal remedy available to the Torchlight Entities under the Policy or under applicable law.
Similarly, this letter shall not be construed as an admission by the Torchlight Entities regarding the applicability or interpretation of any Policy provision, exclusion, condition, or limitation, except to the extent expressly stated herein.
VII. REQUEST FOR POLICY FILE AND CLAIMS DOCUMENTATION
Pursuant to the Torchlight Entities' rights as insureds under the Policy and under applicable law, we request that Meridian provide the following documentation within thirty (30) days of the date of this letter:
(a) A complete copy of Meridian's claims file related to Policy No. MEI-ENV-2021-04738 and the TMC claims, including but not limited to all coverage analyses, coverage opinions, internal memoranda, underwriting notes, and correspondence (both internal and external) regarding the Torchlight Entities' claims, the coverage determination, and the issuance of the ROR Letter.
(b) Identification of all coverage counsel retained by Meridian in connection with this matter, including the name of each law firm and each individual attorney, the date of retention, the scope of engagement, and copies of all written coverage opinions or memoranda prepared by such counsel.
(c) A detailed accounting of all amounts reserved by Meridian in connection with the TMC claims under Policy No. MEI-ENV-2021-04738, broken down by site, by coverage category (cleanup costs, defense costs, civil penalties, and third-party claims), and by policy year.
To the extent Meridian contends that any portion of the requested documentation is protected by attorney-client privilege, work-product doctrine, or any other privilege, we request that Meridian provide a privilege log identifying each withheld document by date, author, recipient, subject matter, and the specific privilege asserted. We note that the applicability of any privilege to documents in the insurer's claims file is subject to significant limitations, particularly where, as here, the insured is seeking disclosure of the insurer's coverage analysis and decision-making process.
VIII. DIRECTION FOR FURTHER COMMUNICATIONS
All further communications regarding the claims under Policy No. MEI-ENV-2021-04738, the coverage issues addressed in this letter, and any other matters related to the Enforcement Action or the Consent Decree Framework should be directed to the undersigned at the following address:
Harrison Wexford, Partner Calderwood & Harkness LLP One Liberty Plaza, 48th Floor 165 Broadway New York, New York 10006 Telephone: (212) 558-4127 Facsimile: (212) 558-3588
Email: hwexford@calderwoodharkness.com
C&H Matter No.: 1039-00003
All communications should include copies to:
Miriam Soo-Hwan Park General Counsel Torchlight Mining Corp. U.S. Headquarters 750 Copper Ridge Boulevard, Suite 200 Helena, Montana 59601 Telephone: (406) 442-7800
Email: mpark@torchlightmining.com
Please update your records accordingly and direct all future correspondence, notices, and communications exclusively to the above addresses. The Torchlight Entities will not accept service of any coverage-related communications at any other address unless expressly agreed in writing by the undersigned.
CONCLUSION
The Torchlight Entities have significant and well-founded expectations of coverage under Policy No. MEI-ENV-2021-04738 for the environmental liabilities arising from the Enforcement Action. Meridian underwrote this Policy with knowledge of the Torchlight Entities' operations, accepted the premium, and scheduled all four sites. The Torchlight Entities demand that Meridian honor its contractual obligations, withdraw its unsupported coverage denials, and promptly process and pay covered claims up to the Policy aggregate limit.
We trust that Meridian will give this matter the prompt and serious attention it deserves. The Torchlight Entities are prepared to engage in good-faith discussions with Meridian to resolve the coverage disputes identified herein. However, if Meridian fails to respond to this demand within the thirty-day period specified above, or if Meridian continues to deny or unreasonably delay coverage, the Torchlight Entities will pursue all available legal remedies without further notice.
We look forward to Meridian's prompt written response.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Harrison Wexford Partner
On behalf of Torchlight Mining Corp. and its scheduled subsidiaries
cc (via electronic mail):
Miriam Soo-Hwan Park, General Counsel, Torchlight Mining Corp.
Carolyn Bracebridge, Chief Financial Officer, Torchlight Mining Corp.
Gareth Linford, Vice President, Environmental Health & Safety, Torchlight Mining Corp.
Vivian Okafor, Managing Director, Northspire Capital Markets, Inc. (financial advisor to TMC)
Enclosures:
1. Copy of EPA Notice of Violation dated September 12, 2023
2. Copy of DOJ Complaint, United States of America, et al. v. Torchlight Mining Corp., et al., Civil Action No. 9:24-cv-00087-DWM (filed January 18, 2024)
3. Summary Table of Site-by-Site Remediation Cost Estimates and Civil Penalty Allocations
Category | Amount
Total Remediation Costs (Nominal) | $343,500,000
— Ridgecrest Copper-Molybdenum Mine | $198,600,000
— Gallatin Chemical Works | $42,800,000
— Bonanza Creek Gold Mine | $63,200,000
— Kanawha Bend Chemical Plant | $38,900,000
Total Civil Penalties | $31,500,000
— Ridgecrest | $14,200,000
— Gallatin | $5,800,000
— Bonanza Creek | $7,900,000
— Kanawha Bend | $3,600,000
EPA Past-Costs Reimbursement (CERCLA § 107) | $18,100,000
— Ridgecrest (2021–2023 Removal Actions) | $14,300,000
— Kanawha Bend (2020 Emergency Response) | $3,800,000
Supplemental Environmental Projects ("SEPs") | $12,000,000
— Flint Creek Watershed Restoration (Ridgecrest) | $5,500,000
— Battle Mountain Community Water Supply (Bonanza Creek) | $3,500,000
— Institute Community Health Initiative (Kanawha Bend) | $3,000,000
Independent Monitor Costs (5-Year Estimate) | $4,800,000
— Annual Cost (~$960,000/year) | —
Grand Total (Nominal) | $409,900,000

CALDERWOOD & HARKNESS LLP Attorneys at Law

I. INTRODUCTION AND PURPOSE

VII. REQUEST FOR POLICY FILE AND CLAIMS DOCUMENTATION

VIII. DIRECTION FOR FURTHER COMMUNICATIONS

CONCLUSION

CALDERWOOD & HARKNESS LLP

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