CALDERWOOD & HARKNESS LLP Attorneys at Law

CALDERWOOD & HARKNESS LLP Attorneys at Law
155 North Wacker Drive, Suite 4200 Chicago, Illinois 60606 Telephone: (312) 455-7800 Facsimile: (312) 455-7801 www.calderwoodharkness.com
August 5, 2022
Via Email and First Class Mail
Phillip Garza Senior Vice President, Executive Risk Practice Ashford Breckinridge LLP 321 South Plymouth Court, Suite 1500 Chicago, Illinois 60604
Re: Nexford Industrial Holdings Inc. — Outstanding Corrective Endorsements for 2022-2023 Renewal Towers (D&O and Product-Liability) Policy Period: July 1, 2022 – July 1, 2023 C&H Matter No. 1005-00003
Dear Mr. Garza:
As you are aware, Calderwood & Harkness LLP ("C&H" or the "Firm") serves as outside insurance counsel to Nexford Industrial Holdings Inc. ("Nexford" or "NIH") in connection with the comprehensive review and negotiation of Nexford's Directors & Officers liability insurance tower (the "D&O Tower") and product-liability insurance tower (the "PL Tower") for the 2022-2023 renewal cycle. This engagement is being conducted under C&H Matter No. 1005-00003. We write in our capacity as insurance counsel to Nexford and at Nexford's direction.
By way of background, on June 28, 2022, Ashford Breckinridge LLP ("Ashford Breckinridge"), acting as Nexford's broker of record, bound both the D&O Tower and the PL Tower for the policy period commencing July 1, 2022 and expiring July 1, 2023. Following the binding, Calderwood & Harkness undertook its customary post-bind policy wording reviews. The initial Renewal Binding Confirmation Review Letter, dated July 8, 2022, was the first document in which our office identified certain discrepancies between the negotiated terms reflected in the binders and the preliminary policy documentation received from the respective carriers. Subsequently, Calderwood & Harkness delivered its detailed Post-Bind Policy Wording Review for the D&O Tower on July 22, 2022, and its corresponding review for the PL Tower on July 25, 2022. Each of those reviews confirmed and further detailed the discrepancies initially flagged in the July 8, 2022 letter.
As a result of the foregoing review process, two endorsement discrepancies have been identified and remain outstanding as of the date of this letter. The purpose of this correspondence is to formally request that Ashford Breckinridge, in its capacity as Nexford's broker of record, promptly obtain corrective endorsements from the respective carriers to bring the issued policy forms into conformity with the terms negotiated and agreed upon during the renewal process. Each discrepancy is described in detail below, together with the specific corrective action requested.
I. Discrepancy No. 1: Vandermeer National Insurance Company — D&O Primary Layer — Definition of "Claim"
A. Identification of the Policy
The first discrepancy pertains to the primary layer of the D&O Tower, which is underwritten by Vandermeer National Insurance Company, a Connecticut-domiciled insurer. The relevant policy details are as follows:
B. Description of the Discrepancy
During the renewal negotiation process for the 2022-2023 D&O Tower, Calderwood & Harkness, working in coordination with Ashford Breckinridge, negotiated with Vandermeer National Insurance Company to broaden the definition of "Claim" in the primary D&O policy. This negotiation was undertaken to ensure that the definition of "Claim" would encompass informal regulatory inquiries, investigations, and information requests initiated by governmental or regulatory authorities. The rationale for this broadened definition was set forth in detail in Calderwood & Harkness's Regulatory Investigation Coverage Memorandum dated June 14, 2022, which was provided to both Nexford's risk management team and to Ashford Breckinridge during the course of the renewal negotiations.
The negotiation of this broader definition was driven by the particular regulatory exposure profile of Nexford and its three operating subsidiaries — Nexford Conveyor Systems, LLC; Triton Fastener Corp.; and Marlowe Asset Management Precision Machining, Inc. Given the nature of Nexford's manufacturing operations and its significant product-safety exposure across these subsidiaries, it was critical to ensure that the D&O primary policy would respond to informal inquiries by regulators such as the Occupational Safety and Health Administration ("OSHA"), the Consumer Product Safety Commission ("CPSC"), and various state attorneys general, which often precede formal investigations or proceedings. As our June 14, 2022 memorandum explained, the failure to capture such informal inquiries within the definition of "Claim" could result in material gaps in coverage precisely when early-stage regulatory engagement is most likely to generate defense costs for Nexford's directors and officers.
During the negotiation, Vandermeer agreed to the broader definition, and the binder issued by Vandermeer upon binding on June 28, 2022 reflected the negotiated language — specifically, a definition of "Claim" that expressly included informal regulatory inquiries, investigations, and information requests by governmental or regulatory authorities, without requiring the issuance of a formal subpoena, civil investigative demand, or analogous compulsory process.
However, upon Calderwood & Harkness's review of the final issued policy form under Policy No. VNI-DO-2022-91205, as detailed in our Post-Bind Policy Wording Review dated July 22, 2022, we confirmed that the definition of "Claim" contained in the issued policy is narrower than the terms agreed during the renewal negotiation and reflected in the binder. Specifically, the issued policy's definition of "Claim" omits the language encompassing informal regulatory inquiries and appears to revert to Vandermeer's standard form definition, which requires the initiation of a formal investigation or the service of formal process before a regulatory matter qualifies as a "Claim" under the policy. This discrepancy was first noted in Calderwood & Harkness's Renewal Binding Confirmation Review Letter dated July 8, 2022, and was confirmed and analyzed in further detail in the July 22, 2022 Post-Bind Policy Wording Review.
In short, the binder issued by Vandermeer reflected the broader negotiated definition; the final policy form does not conform to the binder terms. This non-conformity creates a potentially significant gap in coverage for Nexford's directors and officers with respect to the early stages of regulatory engagement, which is precisely the coverage enhancement that was specifically negotiated and agreed upon as part of the 2022-2023 renewal.
C. Requested Corrective Action
Calderwood & Harkness, on behalf of Nexford, respectfully requests that Ashford Breckinridge take the following corrective action with respect to this discrepancy:
1.  Contact Vandermeer National Insurance Company and request that Vandermeer issue a corrective endorsement to Policy No. VNI-DO-2022-91205 amending the definition of "Claim" to conform to the language agreed during the renewal negotiations and reflected in the binder issued on June 28, 2022.
2.  The corrective endorsement should expressly include within the definition of "Claim" informal regulatory inquiries, investigations, and information requests by governmental or regulatory authorities, consistent with the negotiated terms and the analysis set forth in Calderwood & Harkness's Regulatory Investigation Coverage Memorandum dated June 14, 2022.
3.  The corrective endorsement must be effective as of the policy inception date, July 1, 2022, so as to avoid any gap in coverage from the commencement of the policy period through the date on which the endorsement is formally issued and attached to the policy.
We would appreciate your prompt attention to this matter. As noted above, the binder terms clearly reflect the agreed-upon definition, and this endorsement should be a straightforward conforming amendment to bring the issued policy into alignment with the binding agreement.
II. Discrepancy No. 2: Midland Casualty & Surety Company — PL Primary Layer — Product Recall Sub-Limit Endorsement
A. Identification of the Policy
The second discrepancy pertains to the primary layer of the PL Tower, which is underwritten by Midland Casualty & Surety Company, an Illinois-domiciled insurer. The relevant policy details are as follows:
B. Description of the Discrepancy
At Calderwood & Harkness's recommendation, as set forth in the Product Recall Sub-Limit Adequacy Memorandum dated June 7, 2022, Nexford negotiated through Ashford Breckinridge with Midland Casualty & Surety Company to increase the product recall sub-limit under the PL primary policy from the expiring sub-limits of $2,500,000 per occurrence / $5,000,000 aggregate to enhanced sub-limits of $5,000,000 per occurrence / $10,000,000 aggregate. Midland Casualty agreed to the increased sub-limits at an incremental premium of $67,000 over the base renewal premium for the PL primary layer.
The recommendation to increase the product recall sub-limits was driven by several factors, as detailed in the June 7, 2022 memorandum:
•  Nexford's recall history. In March 2020, Triton Fastener Corp. initiated a voluntary product recall that ultimately resulted in approximately $1,100,000 in combined recall-related costs, including notification expenses, product retrieval and disposal costs, and associated consulting fees. In August 2020, Nexford Conveyor Systems, LLC issued a product advisory notice that generated approximately $340,000 in costs. In the aggregate, these two events resulted in $1,440,000 in combined recall-related costs within a single eighteen-month period, approaching the per-occurrence sub-limit then in effect.
•  Industry benchmarking data. Calderwood & Harkness's analysis of available industry benchmarking data indicated that the prior sub-limits of $2,500,000 per occurrence / $5,000,000 aggregate were inadequate for a manufacturer of Nexford's scale. Nexford ships approximately 42,000 stock-keeping units ("SKUs") annually across its three operating subsidiaries and generated approximately $1.42 billion in consolidated revenue for the most recent fiscal year. Manufacturers of comparable size and product-safety exposure profiles in the industrial manufacturing sector typically maintain product recall sub-limits at or above the enhanced levels negotiated for the 2022-2023 renewal.
Calderwood & Harkness's Post-Bind Policy Wording Review dated July 25, 2022 confirmed that the body of the Midland Casualty renewal policy (Policy No. MCS-GL-2022-58904) — including the policy declarations page and the schedule of coverages — reflects the increased product recall sub-limits of $5,000,000 per occurrence / $10,000,000 aggregate. The policy declarations page references the product recall sub-limit endorsement by endorsement number.
However, the formal endorsement documenting the product recall sub-limit increase has not been attached to, or issued with, the policy package as delivered by the carrier. The endorsement referenced in the policy declarations and schedule of coverages is listed but is physically absent from the policy documentation provided to Nexford. In other words, while the policy declarations acknowledge the existence and effect of the endorsement, the endorsement itself — the stand-alone document amending the policy terms to effectuate the sub-limit increase — was not included in the policy package and does not appear to have been formally executed or issued by Midland Casualty.
This is a matter of concern notwithstanding the fact that the policy declarations reflect the correct sub-limits. The absence of the formal endorsement introduces ambiguity into the policy documentation and could create complications in the event of a claim, particularly if there is any dispute regarding the applicable sub-limits or the specific terms and conditions governing the recall coverage. Additionally, we note that the incremental premium of $67,000 attributable to the product recall sub-limit increase has been invoiced by Midland Casualty and paid by Nexford. Having paid the additional premium for the enhanced sub-limits, Nexford is entitled to receive the formal endorsement documenting the coverage for which it has paid.
C. Requested Corrective Action
Calderwood & Harkness, on behalf of Nexford, respectfully requests that Ashford Breckinridge take the following corrective action with respect to this discrepancy:
1.  Contact Midland Casualty & Surety Company and request that Midland Casualty formally issue and execute the product recall sub-limit endorsement referenced in the declarations page and schedule of coverages of Policy No. MCS-GL-2022-58904, reflecting the increased sub-limits of $5,000,000 per occurrence / $10,000,000 aggregate.
2.  The endorsement, once issued, should be formally attached to the policy package for Policy No. MCS-GL-2022-58904 and delivered to Nexford, with a copy to Calderwood & Harkness.
3.  The endorsement should be effective as of the policy inception date, July 1, 2022, consistent with the terms reflected in the binder and the policy declarations.
4.  The endorsement should be consistent in all respects with the terms reflected in the binder issued upon binding on June 28, 2022 and with the policy declarations and schedule of coverages already issued under Policy No. MCS-GL-2022-58904.
We trust that, because the policy declarations already reflect the increased sub-limits and the incremental premium has been paid, Midland Casualty's issuance of the formal endorsement should be a ministerial matter. Nonetheless, we emphasize the importance of receiving the fully executed endorsement to ensure the completeness and integrity of Nexford's policy documentation.
III. Response Deadline and Tracking
We respectfully request that Ashford Breckinridge take the following steps with respect to both of the corrective endorsements described in Sections I and II above:
1.  Acknowledgment of Receipt. Please provide written confirmation to Calderwood & Harkness and to Nexford (at the contact addresses set forth below) acknowledging receipt of this letter and confirming that Ashford Breckinridge has submitted the corrective endorsement requests to Vandermeer National Insurance Company and Midland Casualty & Surety Company, respectively.
2.  Response Deadline. We request that Ashford Breckinridge obtain and deliver to Nexford, with copies to Calderwood & Harkness, the executed corrective endorsements no later than August 31, 2022. This timeline provides approximately four weeks from the date of this letter, which we believe is a reasonable period for the carriers to process what should be straightforward corrective or conforming endorsements.
3.  Escalation in the Event of Carrier Objection. In the event that either Vandermeer National Insurance Company or Midland Casualty & Surety Company declines to issue the corrective endorsement in the form requested, or proposes alternative or modified language, we ask that Ashford Breckinridge immediately notify both Nexford and Calderwood & Harkness so that the matter can be reviewed and, if necessary, escalated. Notices to Nexford regarding any such carrier objection or proposed alternative language should be directed to Trevor Haines, Vice President, Risk Management, and Donna Kowalski, Director of Insurance and Claims, at the addresses set forth in Section IV below. Notices to Calderwood & Harkness should be directed to the undersigned at the contact information provided below.
We note that these two corrective endorsements represent the final outstanding items from Calderwood & Harkness's post-bind review of Nexford's 2022-2023 D&O and PL renewal towers. Once both endorsements have been received and confirmed to be in conformity with the negotiated terms, Calderwood & Harkness anticipates that the post-bind review process for this renewal cycle will be complete.
IV. Contact Information and Copies
Please direct any questions or correspondence regarding this letter, or regarding the status of the corrective endorsement requests, to the undersigned:
Douglas Fairchild, Partner Calderwood & Harkness LLP 155 North Wacker Drive, Suite 4200 Chicago, Illinois 60606 Telephone: (312) 455-7824
Email: dfairchild@calderwoodharkness.com
In addition, please copy the following individual on all correspondence and endorsement deliveries related to this matter:
Naomi Petersen, Lead Associate Calderwood & Harkness LLP 600 Lexington Avenue, 30th Floor New York, New York 10022 Telephone: (212) 309-6140
Email: npetersen@calderwoodharkness.com
Copies of this letter are being sent simultaneously to the following individuals:
•  Priya Sundaram, General Counsel & Corporate Secretary, Nexford Industrial Holdings Inc., 2200 Corporate Center Drive, Suite 800, Schaumburg, Illinois 60173
•  Trevor Haines, Vice President, Risk Management, Nexford Industrial Holdings Inc., 2200 Corporate Center Drive, Suite 800, Schaumburg, Illinois 60173
•  Donna Kowalski, Director of Insurance and Claims, Nexford Industrial Holdings Inc., 2200 Corporate Center Drive, Suite 800, Schaumburg, Illinois 60173
•  Tamara Fisk, Account Executive, Manufacturing & Industrial, Ashford Breckinridge LLP, 321 South Plymouth Court, Suite 1500, Chicago, Illinois 60604
We thank you and the Ashford Breckinridge team for your continued attention to these items and for your ongoing work on behalf of Nexford throughout the 2022-2023 renewal process. The renewal negotiations were extensive, and we appreciate the collaborative effort that resulted in the placement of both towers on favorable terms. Upon receipt and confirmation of both corrective endorsements described herein, Calderwood & Harkness anticipates concluding its active work on C&H Matter No. 1005-00003 with respect to the post-bind review phase of the engagement.
We look forward to your prompt response and to the resolution of these remaining items.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Douglas Fairchild Partner
cc: (via email)
Priya Sundaram, General Counsel & Corporate Secretary, Nexford Industrial Holdings Inc. Trevor Haines, Vice President, Risk Management, Nexford Industrial Holdings Inc. Donna Kowalski, Director of Insurance and Claims, Nexford Industrial Holdings Inc. Tamara Fisk, Ashford Breckinridge LLP Naomi Petersen, Calderwood & Harkness LLP Angela Fontaine, Calderwood & Harkness LLP (billing partner)
Enclosures: None. References to prior correspondence and memoranda are as cited in the body of this letter.
Item | Detail
Carrier | Vandermeer National Insurance Company (Connecticut domicile)
Layer | D&O Primary
Renewal Policy No. | VNI-DO-2022-91205
Limits of Liability | $10,000,000 per claim / $10,000,000 aggregate
Annual Premium | Component of the $1,498,200 D&O Tower renewal premium
Self-Insured Retention | $1,000,000 (entity coverage); no SIR applicable to Side-A insuring agreement
Policy Period | July 1, 2022 – July 1, 2023
Item | Detail
Carrier | Midland Casualty & Surety Company (Illinois domicile)
Layer | PL/GL Primary
Renewal Policy No. | MCS-GL-2022-58904
Limits of Liability | $5,000,000 per occurrence / $10,000,000 aggregate
Annual Premium | Component of the $2,985,500 PL Tower renewal premium
Self-Insured Retention | $500,000 per occurrence
Policy Period | July 1, 2022 – July 1, 2023