1005-00003 · Calderwood & Harkness LLP · Post-Bind Review

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

FROM: Naomi Petersen, Lead Associate, Mergers & Acquisitions Department Calderwood & Harkness LLP 600 Lexington Avenue, 30th Floor New York, NY 10022

Yuki Nakamura, Working Associate, Litigation (General) Department Calderwood & Harkness LLP 155 North Wacker Drive, Suite 4200 Chicago, IL 60606

TO: Douglas Fairchild, Responsible Partner Calderwood & Harkness LLP (Chicago)

CC: Angela Fontaine, Billing Partner, Calderwood & Harkness LLP (Chicago) 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.

DATE: July 25, 2022

RE: Post-Bind Policy Wording Review — Product-Liability Insurance Tower (Renewal Period: July 1, 2022 – July 1, 2023)

MATTER NO.: 1005-00003

This memorandum is a privileged and confidential attorney-client communication and attorney work product. It is intended solely for the use of the addressees and copy recipients listed above. This memorandum contains legal analysis, opinions, and recommendations that are protected by the attorney-client privilege and the work-product doctrine. Any unauthorized disclosure, distribution, or copying of this memorandum is strictly prohibited. If you have received this memorandum in error, please notify the sender immediately and destroy all copies.

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I. Purpose and Scope

The purpose of this memorandum is to compare the final issued policy forms for the renewed product-liability and general-liability insurance tower (the "PL Tower") against the negotiated terms reflected in the binders issued at the time the renewal was bound on June 28, 2022. This post-bind review is performed in accordance with our standard practice of confirming that the policy forms, as ultimately issued by the carriers, accurately incorporate the coverage terms, conditions, exclusions, endorsements, and limits that were agreed upon during the renewal negotiation process and memorialized in the binding documentation. The objective is to identify any discrepancies — whether material or immaterial — between the binder terms and the final issued policy language, and to flag any items that may require corrective endorsements, broker follow-up, or further client attention.

The scope of this review encompasses all four layers of the PL Tower, as follows:

(a) Primary GL/PL: Midland Casualty & Surety Company, Renewal Policy No. MCS-GL-2022-58904;

(b) 1st Excess / Umbrella: Great Basin Insurance Company;

(d) 3rd Excess: Allegheny Pacific Underwriters, Inc.

In conducting this review, we compared the final issued policy forms against three principal reference documents: (i) the Renewal Negotiation Points Memorandum dated June 13, 2022, which identified eight specific PL-related negotiation items that were resolved in the course of the renewal process; (ii) the carrier quote comparison matrices dated June 10, 2022, which set forth the competing terms and pricing offered by participating carriers; and (iii) the renewal binders received from Ashford Breckinridge LLP, the broker of record for the Nexford PL Tower program (Phillip Garza, Senior Vice President, placing broker; Tamara Fisk, Account Executive). We also cross-referenced the final issued policy forms against the prior-year policy forms to confirm that no inadvertent narrowing of coverage has occurred.

The named insureds have been confirmed across all four layers of the PL Tower and are as follows:

(i) Nexford Industrial Holdings Inc., a Delaware corporation, with its headquarters at 2200 Corporate Center Drive, Suite 800, Schaumburg, Illinois 60173 (the "Parent" or "Nexford");

(ii) Nexford Conveyor Systems, LLC, a Delaware limited liability company, with its principal place of business at 4500 Industrial Parkway, Joliet, Illinois 60436 ("NCS");

(iii) Triton Fastener Corp., an Illinois corporation, with its principal place of business at 1010 Whitman Avenue, Rockford, Illinois 61101 ("Triton"); and

(iv) Marlowe Asset Management Precision Machining, Inc., an Ohio corporation, with its principal place of business at 775 Summit Industrial Boulevard, Akron, Ohio 44311 ("Marlowe Asset Management").

Collectively, these four entities are referred to herein as the "Named Insureds." Each is a wholly owned subsidiary of Nexford Industrial Holdings Inc. or, in the case of Nexford itself, the ultimate parent entity. This memorandum does not address the companion Directors & Officers Liability Insurance Tower, which was the subject of a separate Post-Bind Policy Wording Review dated July 22, 2022.

II. Executive Summary of Findings

Overall, the final issued policy forms for the renewed PL Tower are substantially consistent with the negotiated binder terms, and no material adverse deviations have been identified in any layer of the tower. We summarize our principal findings as follows:

First, the two key coverage enhancements negotiated during the 2022 renewal cycle — specifically, (a) the increase in the product recall sub-limit from $2,500,000 per occurrence / $5,000,000 aggregate to $5,000,000 per occurrence / $10,000,000 aggregate, and (b) the continuation of the completed operations extension providing a 10-year post-delivery tail — are properly reflected in the Midland Casualty primary policy form (MCS-GL-2022-58904). The recall sub-limit increase is documented through Endorsement No. MCS-END-2022-RC-001, which has been attached to the final issued policy and confirmed to match the binder language verbatim. The completed operations extension is set forth in the products-completed operations hazard definition within the body of the policy and is unchanged from the binder terms and the prior policy year.

Second, all three excess layers — Great Basin Insurance Company (1st Excess/Umbrella), Cornerstone Reinsurance Corp. (2nd Excess), and Allegheny Pacific Underwriters, Inc. (3rd Excess) — have been issued on a follow-form basis consistent with their respective binders. Each excess policy correctly schedules the underlying insurance, identifies the proper attachment points, and contains follow-form language that tracks the corresponding binder language. No additional exclusions or restrictive conditions have been introduced in any excess layer beyond those reflected in the binders.

Third, while we noted minor formatting and cross-referencing differences between the issued policies and the binder forms — primarily involving pagination, section numbering conventions, and certain non-substantive drafting style variations — none of these differences are substantive, and none alters the coverage provided under any layer of the tower.

Fourth, we have identified two items that we recommend be flagged for ongoing monitoring and broker follow-up, as discussed in further detail in Section VII below. These items do not require corrective endorsements at this time but warrant continued attention from Nexford's risk management team. We note that non-PL-tower-specific items were addressed in the companion D&O Post-Bind Review dated July 22, 2022; the items identified in this memorandum are specific to the PL Tower.

In summary, we are satisfied that the final issued policy forms accurately reflect the coverage negotiated on behalf of Nexford for the July 1, 2022 – July 1, 2023 policy year, and we recommend that no corrective action is required for the PL Tower at this time.

III. Layer-by-Layer Review

A. Primary GL/PL — Midland Casualty & Surety Company

1. Policy Identification. The primary general liability and product liability policy has been renewed with Midland Casualty & Surety Company ("Midland Casualty"), an insurer domiciled in the State of Illinois and rated A+ (Superior) XV by A.M. Best. The key identifying information for the renewal policy is as follows:

The renewal premium of $1,125,000 constitutes the base premium for the primary layer and represents a component of the total PL renewal premium of $2,985,500 across all four layers of the tower. The policy was issued on the standard Midland Casualty commercial general liability form (Form MC-CGL-0001, edition 01/2022) with manuscript endorsements as described below.

2. Product Recall Sub-Limit — Confirmed Properly Reflected. One of the two principal coverage enhancements sought by Nexford during the renewal cycle was an increase in the product recall sub-limit within the Midland Casualty primary policy. Under the prior policy (MCS-GL-2021-55671), the product recall sub-limit was set at $2,500,000 per occurrence and $5,000,000 in the aggregate. During the renewal process, and based on the analysis and recommendation contained in the Product Recall Sub-Limit Adequacy Memorandum prepared by Calderwood & Harkness and dated June 7, 2022, Nexford requested an increase in the recall sub-limit to $5,000,000 per occurrence and $10,000,000 in the aggregate.

The recommendation to increase the recall sub-limit was grounded in a review of Nexford's historical recall experience and industry benchmarking data. Specifically, the analysis considered the following historical recall events:

(a) Triton Fastener Voluntary Recall (March 12, 2020): Triton Fastener Corp. initiated a voluntary recall of certain high-tensile-strength industrial fasteners (Part Nos. TF-8842 through TF-8847) following reports of premature fatigue failure under high-cycle loading conditions. The recall affected approximately 2.4 million units distributed across 187 commercial and industrial end-users. The total cost of the recall, including product retrieval, replacement, customer notification, regulatory compliance, and associated administrative expenses, was approximately $1,100,000.

(b) Nexford Conveyor Systems Advisory Notice (August 7, 2020): Nexford Conveyor Systems, LLC issued a product advisory notice and field modification program relating to a bearing assembly interface on certain Model NCS-4200 series conveyor systems. While this event did not constitute a formal recall, it involved proactive customer outreach, on-site inspection and modification services, and replacement part distribution. The total cost of the advisory notice program was approximately $340,000.

The combined cost of these two events was approximately $1,440,000. The Calderwood & Harkness analysis further considered industry benchmarking data indicating that product recall costs for industrial component manufacturers of comparable size and product complexity had increased by approximately 18% over the preceding three-year period, and that single-event recall costs in the industrial fastener and conveyor sectors had, in certain cases, exceeded $4,000,000. On the basis of this analysis, the memorandum recommended that the recall sub-limit be increased to at least $5,000,000 per occurrence to provide adequate coverage for a large-scale recall event affecting one or more of Nexford's product lines.

Midland Casualty agreed to the requested increase during the negotiation process, subject to an incremental premium of $67,000. The increase is documented through Endorsement No. MCS-END-2022-RC-001, which is attached to the final issued policy (MCS-GL-2022-58904) and expressly amends the recall sub-limit schedule. We have reviewed the wording of Endorsement No. MCS-END-2022-RC-001 against the corresponding binder language and confirm that the endorsement language matches the binder language verbatim. The endorsement correctly states the revised sub-limits ($5,000,000 per occurrence / $10,000,000 aggregate), references the correct policy number, and is effective as of the inception date of the renewal policy (July 1, 2022).

We note that the formal attachment of the recall sub-limit endorsement was initially flagged as potentially outstanding in the Renewal Binding Confirmation Review Letter issued by Calderwood & Harkness on July 8, 2022. At that time, the initial policy forms received from Midland Casualty did not appear to include Endorsement No. MCS-END-2022-RC-001 in the endorsement package. However, the final issued policy received by this office on or about July 20, 2022, now includes this endorsement properly attached and incorporated into the policy package. Accordingly, this item is resolved for the PL Tower, and no corrective endorsement is required.

3. Completed Operations Extension. The second key coverage element confirmed in this review is the completed operations extension. The Midland Casualty primary policy (MCS-GL-2022-58904) provides completed operations coverage extending 10 years post-delivery. This is consistent with both the prior policy (MCS-GL-2021-55671) and the binder terms for the renewal year. The completed operations coverage is set forth in the Products-Completed Operations Hazard definition contained in the Definitions section of the policy (Section I, Paragraph 19 of Form MC-CGL-0001), which defines the temporal scope of completed operations coverage. The 10-year post-delivery tail is specified through a manuscript endorsement that has been carried forward from the prior year without modification.

The importance of the completed operations extension cannot be overstated in the context of Nexford's operations. The three operating subsidiaries — Nexford Conveyor Systems, Triton Fastener, and Marlowe Asset Management Precision Machining — collectively ship approximately 42,000 stock-keeping units (SKUs) annually across a diverse range of industrial products, including conveyor systems and sub-assemblies, industrial fasteners and fastening hardware, and precision-machined components for industrial, automotive, and aerospace applications. These products are often integrated into complex capital equipment and infrastructure with useful lives extending well beyond the date of initial delivery. A 10-year post-delivery tail is therefore essential to ensuring that Nexford retains coverage for product-liability claims arising from latent defects, premature failures, or other product-related occurrences that may not manifest until years after the products are placed into service.

We confirm that no truncation, limitation, or modification of the completed operations extension has been introduced in the renewal form. The 10-year tail is properly reflected in the issued policy and is consistent with the binder terms.

4. Named Insured Schedule. The Named Insured Schedule attached to the Midland Casualty primary policy (MCS-GL-2022-58904) correctly lists all four Named Insureds as follows:

All four Employer Identification Numbers (EINs) are correctly listed and match the corporate records maintained by Nexford's Office of the General Counsel. The addresses listed on the Named Insured Schedule match the current principal office addresses on file with the applicable Secretaries of State. No discrepancies were identified with respect to the Named Insured Schedule.

5. Cross-Liability / Separation of Insureds. The cross-liability provision, also commonly referred to as the "separation of insureds" clause, has been confirmed present in the issued Midland Casualty primary policy, consistent with the binder terms. Under this provision, each Named Insured is treated as if separately insured for purposes of determining coverage, except with respect to the overall aggregate limit of liability. This means that a claim by one Named Insured against another Named Insured (an "intercompany claim") will be treated as a claim by a third party against the insured entity from whose perspective coverage is being evaluated, subject to any applicable exclusions.

The inclusion of a robust separation of insureds clause was identified as a key negotiation point in the Renewal Negotiation Points Memorandum dated June 13, 2022 (PL Item No. 2). This item was confirmed as resolved during negotiations, and the issued policy language is consistent with the negotiated terms.

The importance of the cross-liability provision to Nexford's insurance program was analyzed in detail in the Cross-Liability and Intercompany Coverage Memorandum dated June 10, 2022, prepared by this office. That memorandum examined the potential for intercompany claims arising from the operational relationships among the Named Insureds. In particular, the memorandum identified the relationship between Triton Fastener Corp. (which manufactures and supplies industrial fasteners) and Nexford Conveyor Systems, LLC (which integrates Triton's fasteners into its conveyor systems) as a significant source of potential intercompany exposure. In a scenario where a third-party end-user of a Nexford conveyor system suffers bodily injury or property damage attributable to a Triton fastener component failure, NCS might assert a contribution, indemnification, or cross-claim against Triton. The separation of insureds clause ensures that coverage under the Midland Casualty primary policy would be available to NCS for such a claim against Triton, and vice versa, notwithstanding the fact that both entities are Named Insureds under the same policy.

We confirm that the separation of insureds clause in the issued policy is consistent with the binder language and the negotiated terms, and that no modifications or limitations have been introduced.

6. Pollution Exclusion. The Midland Casualty primary policy (MCS-GL-2022-58904) contains an absolute pollution exclusion, which is consistent with both the binder terms and the prior policy (MCS-GL-2021-55671). The absolute pollution exclusion precludes coverage for bodily injury or property damage arising out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants, subject to the exceptions described below.

Two critical exceptions to the absolute pollution exclusion have been confirmed present in the issued policy, consistent with the binder terms:

(a) Hostile Fire Exception: The pollution exclusion does not apply to bodily injury or property damage arising out of heat, smoke, or fumes from a hostile fire, as defined in the policy.

(b) Products-Completed Operations Pollution Carve-Back: The pollution exclusion contains a carve-back for pollutant-related claims arising within the Products-Completed Operations Hazard. This carve-back is significant because it preserves coverage for claims arising from the release or escape of pollutants from Nexford's products after they have been delivered to or put into use by the end-user. Given the nature of Nexford's product lines — which include conveyor systems that may handle or transport materials containing pollutants, fasteners used in industrial environments, and precision-machined components used in chemical processing and other applications — the products-completed operations pollution carve-back is an essential element of the coverage structure.

We confirm that neither the scope of the absolute pollution exclusion nor the breadth of the two exceptions described above has been broadened or narrowed from the binder terms or the prior policy year. The pollution exclusion language in the issued policy is consistent with the negotiated terms.

7. "Other Insurance" Clause. The "other insurance" clause in the Midland Casualty primary policy (MCS-GL-2022-58904) has been reviewed and confirmed to match the binder language. The clause operates on an excess/pro rata basis, providing that the Midland Casualty policy will be excess of any other valid and collectible insurance available to the Named Insured for a covered loss, except to the extent that the other insurance is specifically written as excess of the Midland Casualty policy.

This provision was the subject of specific analysis in the Preliminary Coverage Gap Memorandum — PL Tower dated May 27, 2022, prepared by this office. In that memorandum, we identified a potential conflict between the "other insurance" clause in the Midland Casualty primary and the corresponding "other insurance" provision in the Great Basin Insurance Company 1st Excess/Umbrella policy. Specifically, we noted that if both policies purported to be excess of the other in the same loss scenario, a coverage gap or dispute could arise. This issue was resolved during the negotiation process through the insertion of clarifying language in both the Midland Casualty primary and the Great Basin excess policy, establishing the priority of coverage and confirming that the Midland Casualty primary responds first, followed by the Great Basin excess upon exhaustion of the Midland Casualty primary limits. The clarifying language is reflected in both the binder and the final issued policy forms.

We confirm that no conflict exists between the "other insurance" provisions in the Midland Casualty primary and the excess layers of the PL Tower.

8. Pending and Prior Litigation / Known Claims. The prior and pending litigation exclusion language in the Midland Casualty primary policy (MCS-GL-2022-58904) has been reviewed and confirmed to be consistent with the binder terms. The policy is written on an occurrence basis, meaning that coverage attaches based on the date of the occurrence (i.e., the date of the accident or event giving rise to bodily injury or property damage), not the date on which the claim is made or the lawsuit is filed.

Two pending claims are currently the subject of active litigation against Named Insureds:

(a) *Higgins v. Nexford Conveyor Systems, LLC*, Case No. 2021-L-04382, Circuit Court of Will County, Illinois. This action alleges bodily injury arising from the alleged failure of a Model NCS-3800 conveyor system at a customer facility. Damages sought: approximately $14,500,000. The alleged occurrence predates July 1, 2022.

(b) *Consolidated Builders Supply Co. v. Triton Fastener Corp.*, Case No. 1:21-cv-08914, United States District Court for the Northern District of Illinois. This action alleges property damage arising from the alleged premature failure of certain high-strength structural fasteners supplied by Triton. Damages sought: approximately $6,800,000. The alleged occurrence predates July 1, 2022.

Because both alleged occurrences predate the inception of the renewal policy on July 1, 2022, these claims remain covered under the expiring policy year (MCS-GL-2021-55671). Open reserves on these two claims total approximately $8,300,000 against the primary layer aggregate for the expiring policy year. The renewal policy (MCS-GL-2022-58904) does not exclude future occurrences arising from the same product lines (i.e., Model NCS-3800 conveyor systems or Triton structural fasteners), and accordingly Nexford retains coverage under the renewal policy for any new and distinct occurrences involving these or similar products during the July 1, 2022 – July 1, 2023 policy period.

We note that the interaction between the pending claims and the expiring-year primary aggregate is discussed further in Section VII.B.1 below, in connection with our recommendation regarding defense cost erosion tracking.

9. SIR Provisions. The Self-Insured Retention ("SIR") under the Midland Casualty primary policy (MCS-GL-2022-58904) is confirmed at $500,000 per occurrence, consistent with the prior policy year and the binder terms. No change in the SIR amount, structure, or application has been introduced in the renewal form.

The SIR applies to both indemnity payments and allocated defense costs within the SIR layer. That is, within the first $500,000 of any covered occurrence, defense costs erode and are treated as part of the SIR (commonly referred to as a "defense within limits" or "eroding SIR" structure). However, once the SIR is satisfied and the Midland Casualty policy begins to respond, defense costs above the SIR layer are supplementary to (i.e., do not erode) the per occurrence and aggregate limits of the policy. This dual structure — defense within limits for the SIR layer, defense costs supplementary to limits above the SIR — is consistent with the binder terms and the prior policy year.

The defense cost treatment above the SIR was identified as PL Item No. 6 in the Renewal Negotiation Points Memorandum dated June 13, 2022, and was confirmed as resolved during the negotiation process. We confirm that the issued policy accurately reflects this structure.

10. Additional Insured / Vendor Coverage. The Midland Casualty primary policy (MCS-GL-2022-58904) includes a blanket additional insured endorsement that provides additional insured status to parties with whom any Named Insured has entered into a written contract requiring such status. This endorsement was confirmed as properly attached to the final issued policy, consistent with the binder terms. The endorsement covers additional insured status arising from ongoing operations and, where contractually required, completed operations, subject to the terms and conditions of the endorsement.

Additionally, the downstream vendor/contractor coverage provisions have been confirmed present and consistent with the binder terms. These provisions extend certain coverage protections to vendors and contractors in the distribution chain for Nexford's products, as required by Nexford's standard contractual arrangements with distributors, resellers, and installation contractors. The scope and terms of the vendor coverage provisions are unchanged from the prior policy year.

B. 1st Excess / Umbrella — Great Basin Insurance Company

1. Policy Identification. The first excess layer, structured as an umbrella policy, has been renewed with Great Basin Insurance Company ("Great Basin"), an insurer domiciled in the State of Nevada and rated A (Excellent) XV by A.M. Best. The key identifying information for the renewal policy is as follows:

The renewal premium of $862,500 is the continuing premium from the prior year. We note that this figure should be confirmed with the broker, Ashford Breckinridge LLP, in the event that any adjustment was applied subsequent to binding. However, the premium reflected in the issued policy is consistent with the binder documentation.

2. Follow-Form Confirmation. The issued Great Basin umbrella policy confirms that it is written on a follow-form basis to the Midland Casualty primary policy (MCS-GL-2022-58904), subject to the Great Basin policy's own terms, conditions, and exclusions where expressly stated. This follow-form structure means that the Great Basin policy incorporates by reference the coverage grants, definitions, and conditions of the underlying Midland Casualty primary, except to the extent that the Great Basin policy contains its own express provisions addressing the same subject matter.

The follow-form language in the issued Great Basin policy is consistent with the binder language and the prior year policy. We have confirmed that the schedule of underlying insurance attached to the Great Basin policy correctly identifies the Midland Casualty primary (Policy No. MCS-GL-2022-58904, limits of $5,000,000 per occurrence / $10,000,000 aggregate, SIR of $500,000).

3. Key Deviations from Primary Form — Review Against Binder. While the Great Basin umbrella generally follows form to the Midland Casualty primary, the policy contains its own provisions addressing certain coverage areas. We have reviewed these deviations against the binder terms and confirm the following:

Pollution Exclusion. The Great Basin umbrella contains its own absolute pollution exclusion, which is drafted independently of the Midland Casualty primary pollution exclusion. This issue was identified in the Preliminary Coverage Gap Memorandum — PL Tower dated May 27, 2022, in which we noted that the Great Basin pollution exclusion, as drafted, was potentially broader than the corresponding Midland Casualty primary pollution exclusion. Specifically, the initial Great Basin form did not include a products-completed operations pollution carve-back, whereas the Midland Casualty primary did include such a carve-back. We raised this issue during the negotiation process, and the resulting negotiated clarification provided that the Great Basin umbrella pollution exclusion would include a products-completed operations carve-back substantially consistent with the carve-back in the Midland Casualty primary. We confirm that the final issued Great Basin policy includes the products-completed operations pollution carve-back, consistent with the binder terms. The breadth of the Great Basin pollution exclusion is now consistent with the Midland Casualty primary in all material respects.

"Other Insurance" Clause. The "other insurance" clause in the Great Basin umbrella has been confirmed as providing that the Great Basin policy is excess of all scheduled underlying insurance. This language is consistent with the binder terms and does not conflict with the "other insurance" provision in the Midland Casualty primary, which has been clarified to establish Midland Casualty's priority of response. The harmonization of the "other insurance" clauses between the Midland Casualty primary and the Great Basin umbrella was a negotiation item addressed in the Renewal Negotiation Points Memorandum (PL Item No. 5) and was resolved through the insertion of clarifying language in both policies, as discussed in Section III.A.7 above.

Drop-Down Provision. The issued Great Basin policy confirms that Great Basin will drop down and provide coverage upon exhaustion of the Midland Casualty primary aggregate by paid losses (not reserves). This is an important distinction: the Great Basin policy does not attach simply because Midland Casualty has established reserves against the primary aggregate, but rather requires that the primary aggregate be exhausted through the actual payment of claims and allocated loss adjustment expenses. This provision is consistent with the binder terms and the prior year policy, and reflects standard market practice for excess/umbrella policies in the commercial product-liability space.

4. Attachment Point and Erosion. The Great Basin umbrella attaches at $10,000,000, which is the Midland Casualty primary general aggregate limit. As noted in Section III.A.8 above, the two pending claims (Higgins v. NCS and Consolidated Builders v. Triton) carry open reserves totaling approximately $8,300,000, and defense costs continue to accumulate against the Midland Casualty primary aggregate for the expiring policy year (MCS-GL-2021-55671). If paid losses and defense costs on these claims continue to increase, the expiring-year primary aggregate could approach exhaustion, which would trigger the Great Basin umbrella's drop-down obligations under the expiring-year program.

However, it is important to note that this erosion analysis pertains to the 2021-2022 policy year (MCS-GL-2021-55671), not the renewal year (MCS-GL-2022-58904). For the renewal year, the Midland Casualty primary aggregate of $10,000,000 resets to its full amount as of July 1, 2022. There are no erosion issues at the inception of the renewal year. The defense cost erosion tracking recommendation set forth in Section VII.B.1 below addresses the ongoing monitoring of the expiring-year aggregate.

5. Overall Finding. No discrepancies have been identified between the issued Great Basin umbrella policy and the corresponding binder terms. All terms, conditions, exclusions, and endorsements are consistent with the negotiated binder documentation.

C. 2nd Excess — Cornerstone Reinsurance Corp.

1. Policy Identification. The second excess layer has been renewed with Cornerstone Reinsurance Corp. ("Cornerstone"), an insurer domiciled in the State of New York and rated A+ (Superior) XV by A.M. Best. The key identifying information for the renewal policy is as follows:

The renewal premium of $437,000 is the continuing premium from the prior year. The policy attaches excess of the combined limits of the Midland Casualty primary ($10,000,000 aggregate) and the Great Basin 1st Excess/Umbrella ($25,000,000 aggregate), for a total underlying limit of $35,000,000.

2. Follow-Form Confirmation. The issued Cornerstone policy confirms that it is written on a follow-form basis to both the Midland Casualty primary (MCS-GL-2022-58904) and the Great Basin 1st Excess/Umbrella policy, subject to Cornerstone's own stated terms and conditions. This follow-form structure is consistent with the binder terms and the prior year policy. The schedule of underlying insurance attached to the Cornerstone policy correctly identifies both the Midland Casualty primary and the Great Basin umbrella, including their respective policy numbers, limits, and attachment points.

3. Key Terms Reviewed. We have reviewed the principal coverage grants, exclusions, and conditions of the Cornerstone policy against the binder terms and confirm that no deviations have been identified. The following items were specifically reviewed:

(a) Coverage grants: The Cornerstone policy follows form to the coverage grants of the underlying Midland Casualty primary and Great Basin umbrella policies. No additional restrictions or limitations have been imposed.

(b) Exclusions: The exclusion schedule in the Cornerstone policy is consistent with the follow-form structure and does not introduce any exclusions beyond those present in the underlying policies.

(c) "Other insurance" and priority of payment provisions: The "other insurance" clause in the Cornerstone policy is consistent with the tower structure, providing that Cornerstone's obligations do not arise until the underlying limits (Midland Casualty primary and Great Basin umbrella) have been exhausted through paid losses. No inter-layer conflicts have been identified.

(d) Schedule of underlying insurance: The schedule correctly lists Midland Casualty & Surety Company (Policy No. MCS-GL-2022-58904, limits of $5,000,000 per occurrence / $10,000,000 aggregate) and Great Basin Insurance Company (limits of $25,000,000 per occurrence / $25,000,000 aggregate, excess of $10,000,000), with proper policy numbers and limits.

4. Overall Finding. No discrepancies have been identified between the issued Cornerstone policy and the corresponding binder terms. All terms are consistent with the negotiated binder documentation.

D. 3rd Excess — Allegheny Pacific Underwriters, Inc.

1. Policy Identification. The third and final excess layer has been renewed with Allegheny Pacific Underwriters, Inc. ("Allegheny Pacific"), an insurer domiciled in the State of California and rated A (Excellent) XIV by A.M. Best. The key identifying information for the renewal policy is as follows:

The renewal premium of $218,400 is the continuing premium from the prior year. The policy attaches excess of the combined limits of the three underlying layers — Midland Casualty primary ($10,000,000 aggregate), Great Basin 1st Excess/Umbrella ($25,000,000 aggregate), and Cornerstone 2nd Excess ($25,000,000 aggregate) — for a total underlying limit of $60,000,000.

2. Follow-Form Confirmation. The issued Allegheny Pacific policy confirms that it is written on a follow-form basis to the underlying policies, consistent with the binder terms. The follow-form language is standard and provides that the Allegheny Pacific policy incorporates by reference the terms, conditions, definitions, and exclusions of the underlying policies, except to the extent that the Allegheny Pacific policy contains its own express provisions. The follow-form language in the issued policy matches the binder language.

3. Key Terms Reviewed. We have reviewed the following items in the issued Allegheny Pacific policy:

(a) Schedule of underlying insurance: The schedule correctly lists all three underlying layers — Midland Casualty & Surety Company (Policy No. MCS-GL-2022-58904, $5,000,000 per occurrence / $10,000,000 aggregate), Great Basin Insurance Company ($25,000,000 per occurrence / $25,000,000 aggregate, excess of $10,000,000), and Cornerstone Reinsurance Corp. ($25,000,000 per occurrence / $25,000,000 aggregate, excess of $35,000,000) — with proper limits and policy numbers identified for each layer.

(b) Exclusions: No additional exclusions have been introduced beyond those present in the underlying policies. The Allegheny Pacific policy does not impose any stand-alone exclusions that would narrow the scope of coverage below what is available under the underlying layers.

(c) Exhaustion provisions: The exhaustion provisions in the Allegheny Pacific policy require actual payment (not mere reservation) by the underlying carriers for attachment of the Allegheny Pacific layer. This means that the Allegheny Pacific policy does not begin to respond until the combined underlying limits of $60,000,000 have been exhausted through the actual payment of claims. This exhaustion provision is consistent with the binder terms and represents standard market practice for high-excess layers in commercial product-liability tower programs.

4. Overall Finding. No discrepancies have been identified between the issued Allegheny Pacific policy and the corresponding binder terms. All terms are consistent with the negotiated binder documentation.

IV. Aggregate Tower Summary — Renewal PL Program

The following table summarizes the complete renewed PL Tower for the July 1, 2022 – July 1, 2023 policy year:

Note: The total premiums for the four layers as listed in the table above sum to $2,642,900. The total PL renewal premium, inclusive of the $67,000 incremental premium for the product recall sub-limit increase, taxes, surcharges, and broker fees allocated to the PL tower, is $2,985,500. The difference of $342,600 is attributable to the recall sub-limit incremental premium, applicable state premium taxes, surplus lines taxes (where applicable), and the Ashford Breckinridge brokerage commission allocated to the PL tower.

Total aggregate limit of the PL Tower: $75,000,000.

Total PL renewal premium: $2,985,500, representing an increase of $342,600, or approximately 12.96%, over the prior year total PL premium of $2,642,900.

PL rate-on-line: $2,985,500 ÷ $75,000,000 = 3.98%. This compares to the prior year rate-on-line of approximately 3.52% ($2,642,900 ÷ $75,000,000). The increase in rate-on-line reflects the hardening conditions in the commercial product-liability market, the impact of Nexford's loss experience (discussed further in Section VII.B.3 below), and the incremental premium associated with the product recall sub-limit increase.

Product recall sub-limit: $5,000,000 per occurrence / $10,000,000 aggregate (increased from $2,500,000 per occurrence / $5,000,000 aggregate in the prior policy year).

Completed operations tail: 10 years post-delivery, confirmed across all layers of the PL Tower.

V. Negotiated Wording Improvements — Compliance Check

The Renewal Negotiation Points Memorandum dated June 13, 2022, identified eight specific PL-related negotiation items that were addressed during the renewal process. The following is a compliance check of each item against the final issued policy forms:

PL Item No. 1 — Recall Sub-Limit Increase ($2.5M/$5M → $5M/$10M): Confirmed reflected. The product recall sub-limit has been increased from $2,500,000 per occurrence / $5,000,000 aggregate to $5,000,000 per occurrence / $10,000,000 aggregate. Endorsement No. MCS-END-2022-RC-001 has been attached to the Midland Casualty primary policy (MCS-GL-2022-58904) and confirmed to match the binder language verbatim. The incremental premium for this enhancement is $67,000. See Section III.A.2 above for detailed analysis.

PL Item No. 2 — Cross-Suit / Cross-Liability Language: Confirmed. The separation of insureds clause is present in the Midland Casualty primary policy, treating each Named Insured as if separately insured except with respect to the aggregate limit. The excess layers follow form to this provision. See Section III.A.5 above for detailed analysis.

PL Item No. 3 — Completed Operations Tail (10-Year): Confirmed. The completed operations extension provides coverage extending 10 years post-delivery, consistent with the binder terms and the prior policy year. No truncation or limitation has been introduced. See Section III.A.3 above for detailed analysis.

PL Item No. 4 — Pollution Exclusion Carve-Back (Products-Completed Operations): Confirmed. The products-completed operations pollution carve-back is present in both the Midland Casualty primary policy and the Great Basin umbrella policy. The hostile fire exception is also confirmed present. See Sections III.A.6 and III.B.3 above for detailed analysis.

PL Item No. 5 — "Other Insurance" Clause Harmonization: Confirmed. The "other insurance" clauses in the Midland Casualty primary and the Great Basin umbrella have been harmonized through negotiated clarifying language, establishing the priority of coverage and eliminating potential inter-layer conflicts. No conflicts have been identified between any layers of the PL Tower. See Sections III.A.7 and III.B.3 above for detailed analysis.

PL Item No. 6 — Defense Cost Treatment Above SIR: Confirmed. Defense costs within the $500,000 SIR layer are treated as part of the SIR (defense within limits). Above the SIR, defense costs are supplementary to (i.e., do not erode) the per occurrence and aggregate limits of the Midland Casualty primary policy. See Section III.A.9 above for detailed analysis.

PL Item No. 7 — Additional Insured Blanket Endorsement: Confirmed. The blanket additional insured endorsement has been attached to the Midland Casualty primary policy, providing additional insured status to parties with whom any Named Insured has entered into a written contract requiring such status. See Section III.A.10 above for detailed analysis.

PL Item No. 8 — Vendor/Contractor Downstream Coverage: Confirmed. The downstream vendor/contractor coverage provisions are consistent with the binder terms and the prior policy year. See Section III.A.10 above for detailed analysis.

Summary: All eight PL negotiation items identified in the Renewal Negotiation Points Memorandum dated June 13, 2022, have been confirmed as properly reflected in the final issued policy forms for the renewed PL Tower.

VI. Comparison with Prior Year Policies

In addition to comparing the final issued policy forms against the binder terms, we have conducted a brief comparison of the Midland Casualty renewal policy (MCS-GL-2022-58904) against the expiring Midland Casualty policy (MCS-GL-2021-55671) to confirm that no inadvertent narrowing of coverage has occurred. This comparison is consistent with our standard post-bind review practice, which recognizes that carriers may introduce form changes at renewal — whether through new edition dates, revised standard forms, or modified endorsement packages — that could result in an unintended reduction in the scope of coverage even where the parties did not negotiate any such change.

Our comparison yielded the following findings:

Coverage Grants: The coverage grants in the renewal policy are substantially identical to those in the expiring policy. The insuring agreement language, including the grant of coverage for bodily injury and property damage caused by an occurrence, is unchanged. The coverage is enhanced by the increase in the product recall sub-limit, as described above. No narrowing of the coverage grants has been identified.

Exclusions: No new exclusions have been added in the renewal policy. The exclusion schedule is consistent with the expiring policy, including the absolute pollution exclusion (with hostile fire exception and products-completed operations carve-back), the expected or intended injury exclusion, the contractual liability exclusion (with insured contract exception), the employer's liability exclusion, and the professional services exclusion. All exclusions are unchanged from the prior year.

Conditions: The policy conditions, including the notice provisions, cooperation requirements, and other duties in the event of an occurrence, claim, or suit, are unchanged from the prior year. The reporting addresses for claims notification have been confirmed as current and correctly listed in the renewal policy.

Definitions: No material changes have been made to the key definitions in the renewal policy. The definitions of "Products-Completed Operations Hazard," "Occurrence," "Bodily Injury," "Property Damage," "Personal and Advertising Injury," "Insured Contract," and "Pollutants" are unchanged from the prior year. We specifically confirmed that the Products-Completed Operations Hazard definition retains the 10-year post-delivery tail and that the Occurrence definition remains consistent with the standard occurrence-trigger formulation.

In summary, the renewal policy does not contain any inadvertent narrowing of coverage as compared to the expiring policy. The only change of substance between the two policy forms is the enhancement of the product recall sub-limit, which represents a broadening of coverage.

VII. Open Items and Recommendations

A. Items Requiring No Further Action on PL Tower

The following items have been resolved and require no further action:

Recall Sub-Limit Endorsement. As discussed in Section III.A.2 above, the recall sub-limit endorsement (Endorsement No. MCS-END-2022-RC-001) was initially flagged as potentially unattached in the Renewal Binding Confirmation Review Letter dated July 8, 2022. The final issued policy received on or about July 20, 2022, now includes this endorsement properly attached to the Midland Casualty primary policy (MCS-GL-2022-58904). No corrective endorsement is needed, and this item is closed.

Excess Layer Follow-Form Consistency. All three excess layers — Great Basin Insurance Company (1st Excess/Umbrella), Cornerstone Reinsurance Corp. (2nd Excess), and Allegheny Pacific Underwriters, Inc. (3rd Excess) — have been issued on a follow-form basis with no discrepancies identified between the issued policies and the corresponding binder terms. No corrective endorsements are required for any excess layer, and these items are closed.

B. Items for Ongoing Monitoring

We recommend that the following items be monitored on an ongoing basis during the renewal policy period:

1. Defense Cost Erosion Tracking. Per the guidance provided by Yuki Nakamura to Trevor Haines, Vice President of Risk Management, on June 15, 2022, Nexford's risk management team should continue tracking defense costs in Higgins v. Nexford Conveyor Systems, LLC (Case No. 2021-L-04382) and Consolidated Builders Supply Co. v. Triton Fastener Corp. (Case No. 1:21-cv-08914) against the expiring-year Midland Casualty primary aggregate (MCS-GL-2021-55671, $10,000,000 aggregate) to monitor erosion toward the Great Basin excess attachment point.

As of the date of this memorandum, open reserves on these two claims total approximately $8,300,000 against the expiring-year primary aggregate. If paid losses and defense costs continue to accumulate, the expiring-year primary aggregate could approach or reach exhaustion, triggering the Great Basin umbrella's drop-down obligations under the expiring-year program. Nexford's risk management team, in coordination with Donna Kowalski, Director of Insurance and Claims, should maintain current reserve and paid-loss information and provide periodic updates to this office and to Ashford Breckinridge LLP.

For the renewal year (MCS-GL-2022-58904), the $10,000,000 aggregate resets to its full amount as of July 1, 2022. Any new claims arising from occurrences during the renewal policy period will begin eroding the fresh renewal-year aggregate. Nexford should monitor new claim activity and defense cost accumulation against the renewal-year aggregate on a quarterly basis.

2. Claims Reporting Compliance. Nexford should ensure strict compliance with the Claims Reporting Compliance Checklist dated June 1, 2022, for all new occurrences during the renewal period. The checklist specifies the carrier-specific notice requirements for each layer of the PL Tower, including the designated claims contacts, required notice formats, and applicable time frames for reporting. Failure to comply with the notice provisions could jeopardize coverage under one or more layers of the tower. Nexford's risk management team should distribute the checklist to all relevant personnel at each Named Insured entity, including plant managers, safety directors, and quality assurance managers, and should implement a protocol for the prompt escalation of potential claims to the Director of Insurance and Claims.

3. Five-Year Loss History and Next Renewal Preparation. Total PL incurred losses over the most recent five-year period stand at approximately $15,120,000, comprising $4,720,000 in paid losses, $8,300,000 in open reserves, and $2,100,000 in incurred-but-not-reported (IBNR) reserves per the actuarial analysis prepared by Kessler Quinn Advisory Group. This loss experience will be a significant factor in the carriers' evaluation of the next renewal cycle (July 1, 2023). Carriers will examine updated loss development, frequency and severity trends, and Nexford's loss-prevention and product-quality initiatives in determining renewal terms and pricing.

We recommend that Nexford begin preparing updated loss runs, loss triangles, and actuarial data well in advance of the next renewal marketing process. In addition, Nexford should consider whether any proactive loss-mitigation measures — such as enhanced product testing protocols, supplier quality audits, or expanded product safety communications — can be implemented during the current policy year to demonstrate favorable trends to the renewal market. Early engagement with Ashford Breckinridge LLP to develop a renewal strategy, including potential alternative market submissions, is advisable given the current rate environment and the 12.96% premium increase experienced in the 2022 renewal.

C. Coordination with D&O Tower Post-Bind Review

For completeness, we note the companion Post-Bind Policy Wording Review — D&O Tower dated July 22, 2022, which addressed Nexford's renewed Directors & Officers Liability Insurance Tower for the same policy period (July 1, 2022 – July 1, 2023). That review identified one endorsement discrepancy in the Vandermeer National Insurance Company primary D&O policy (Policy No. VNI-DO-2022-91205), specifically that the definition of "Claim" in the issued policy was narrower than the definition negotiated and reflected in the binder. The Vandermeer definition excluded certain regulatory proceedings that the negotiated binder definition was intended to cover. That discrepancy is being addressed separately through Ashford Breckinridge LLP, which has engaged Vandermeer's underwriting team to issue a corrective endorsement.

No cross-tower coordination issues between the PL Tower and the D&O Tower have been identified in the post-bind review process. The two programs operate independently, with no shared limits, shared retentions, or cross-program exclusions that would create coordination concerns. The Named Insureds are the same across both towers, and the schedules of named insureds have been confirmed as consistent across all policies.

D. Outstanding Endorsement Items (Cross-Reference)

The Follow-Up Endorsement Tracking Letter dated August 5, 2022, issued by this office to Phillip Garza, Senior Vice President, Ashford Breckinridge LLP, addresses two outstanding endorsement items identified in the post-bind reviews of the PL and D&O towers:

(i) Midland Casualty Recall Sub-Limit Formal Attachment (PL Tower): This item has now been resolved. Endorsement No. MCS-END-2022-RC-001 is confirmed attached to the issued policy (MCS-GL-2022-58904). No further action required.

(ii) Vandermeer National Insurance Company "Claim" Definition (D&O Tower): This item remains outstanding. A corrective endorsement is being pursued through Ashford Breckinridge LLP. This is a D&O Tower matter and is not addressed further in this memorandum.

VIII. Conclusion

Based on our review of the final issued policy forms for all four layers of the renewed PL Tower (July 1, 2022 – July 1, 2023), we conclude as follows:

1. The final issued policy forms are consistent in all material respects with the negotiated binder terms. No material adverse deviations have been identified in any layer of the PL Tower.

2. The two key coverage enhancements negotiated during the renewal cycle — the product recall sub-limit increase to $5,000,000 per occurrence / $10,000,000 aggregate and the continuation of the completed operations 10-year post-delivery extension — are properly documented in the Midland Casualty primary policy (MCS-GL-2022-58904), including through Endorsement No. MCS-END-2022-RC-001 (recall sub-limit).

3. All three excess layers — Great Basin Insurance Company (1st Excess/Umbrella), Cornerstone Reinsurance Corp. (2nd Excess), and Allegheny Pacific Underwriters, Inc. (3rd Excess) — follow form to the underlying policies, consistent with their respective binders, and no discrepancies have been identified.

4. All eight PL negotiation items identified in the Renewal Negotiation Points Memorandum dated June 13, 2022, have been confirmed as properly reflected in the final issued policy forms.

5. The total PL Tower provides $75,000,000 in aggregate coverage at a renewal premium of $2,985,500, representing a 12.96% increase over the prior year premium.

6. No corrective endorsements are required for the PL Tower at this time. The recall sub-limit endorsement, previously flagged as potentially unattached, has been confirmed as properly included in the final issued policy.

7. We recommend that the matter file be updated to reflect these confirmations and that the PL Tower post-bind review is complete. The matter may proceed toward dormant status following resolution of the outstanding D&O Tower endorsement item (Vandermeer National Insurance Company "Claim" definition), which is being addressed separately.

We remain available to discuss any questions regarding this memorandum or the PL Tower coverage at your convenience.

•

Prepared by:

CALDERWOOD & HARKNESS LLP

By: ________

Naomi Petersen Lead Associate, Mergers & Acquisitions Department 600 Lexington Avenue, 30th Floor New York, NY 10022

By: ________

Yuki Nakamura Working Associate, Litigation (General) Department 155 North Wacker Drive, Suite 4200 Chicago, IL 60606

Reviewed by:

By: ________

Douglas Fairchild Responsible Partner Calderwood & Harkness LLP 155 North Wacker Drive, Suite 4200 Chicago, IL 60606

Matter No.: 1005-00003

Distribution: As noted in the "To" and "cc" lines on the first page of this memorandum.

Document Retention: This memorandum shall be maintained in the client file for Nexford Industrial Holdings Inc. and the Calderwood & Harkness LLP matter file for Matter No. 1005-00003, in accordance with the firm's document retention policies and the client's records management requirements.

© 2022 Calderwood & Harkness LLP. All rights reserved. This document is the proprietary work product of Calderwood & Harkness LLP and is subject to attorney-client privilege and the work-product doctrine. Unauthorized reproduction or distribution is prohibited.

Item	Detail
Carrier	Midland Casualty & Surety Company
State of Domicile	Illinois
Renewal Policy No.	MCS-GL-2022-58904
Prior Policy No.	MCS-GL-2021-55671
Policy Period	July 1, 2022 – July 1, 2023
Per Occurrence Limit	$5,000,000
General Aggregate Limit	$10,000,000
Self-Insured Retention (SIR)	$500,000 per occurrence
Renewal Premium	$1,125,000 (base)
Coverage Trigger	Occurrence
Named Insured	Entity Type	State of Organization	EIN	Address
Nexford Industrial Holdings Inc.	Corporation	Delaware	83-2174650	2200 Corporate Center Drive, Suite 800, Schaumburg, IL 60173
Nexford Conveyor Systems, LLC	LLC	Delaware	83-2174651	4500 Industrial Parkway, Joliet, IL 60436
Triton Fastener Corp.	Corporation	Illinois	36-4892103	1010 Whitman Avenue, Rockford, IL 61101
Marlowe Asset Management Precision Machining, Inc.	Corporation	Ohio	31-1784529	775 Summit Industrial Boulevard, Akron, OH 44311
Item	Detail
Carrier	Great Basin Insurance Company
State of Domicile	Nevada
Policy Period	July 1, 2022 – July 1, 2023
Per Occurrence Limit	$25,000,000
Aggregate Limit	$25,000,000
Attachment Point	$10,000,000 (Midland Casualty underlying aggregate)
Renewal Premium	$862,500
Coverage Basis	Follow-form with specified deviations

Item	Detail
Carrier	Cornerstone Reinsurance Corp.
State of Domicile	New York
Policy Period	July 1, 2022 – July 1, 2023
Per Occurrence Limit	$25,000,000
Aggregate Limit	$25,000,000
Attachment Point	$35,000,000 ($10M Midland Casualty + $25M Great Basin)
Renewal Premium	$437,000
Coverage Basis	Follow-form
Item	Detail
Carrier	Allegheny Pacific Underwriters, Inc.
State of Domicile	California
Policy Period	July 1, 2022 – July 1, 2023
Per Occurrence Limit	$15,000,000
Aggregate Limit	$15,000,000
Attachment Point	$60,000,000 ($10M Midland + $25M Great Basin + $25M Cornerstone)
Renewal Premium	$218,400
Coverage Basis	Follow-form
Layer	Carrier	Per Occurrence Limit	Aggregate Limit	Attachment Point	SIR	Renewal Premium
Primary GL/PL	Midland Casualty & Surety Company	$5,000,000	$10,000,000	Ground-up	$500,000	$1,125,000
1st Excess / Umbrella	Great Basin Insurance Company	$25,000,000	$25,000,000	$10,000,000	N/A	$862,500
2nd Excess	Cornerstone Reinsurance Corp.	$25,000,000	$25,000,000	$35,000,000	N/A	$437,000
3rd Excess	Allegheny Pacific Underwriters, Inc.	$15,000,000	$15,000,000	$60,000,000	N/A	$218,400
Total Tower	$75,000,000	$2,642,900

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
FROM: Naomi Petersen, Lead Associate, Mergers & Acquisitions Department Calderwood & Harkness LLP 600 Lexington Avenue, 30th Floor New York, NY 10022
Yuki Nakamura, Working Associate, Litigation (General) Department Calderwood & Harkness LLP 155 North Wacker Drive, Suite 4200 Chicago, IL 60606
TO: Douglas Fairchild, Responsible Partner Calderwood & Harkness LLP (Chicago)
CC: Angela Fontaine, Billing Partner, Calderwood & Harkness LLP (Chicago) 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.
DATE: July 25, 2022
RE: Post-Bind Policy Wording Review — Product-Liability Insurance Tower (Renewal Period: July 1, 2022 – July 1, 2023)
MATTER NO.: 1005-00003
This memorandum is a privileged and confidential attorney-client communication and attorney work product. It is intended solely for the use of the addressees and copy recipients listed above. This memorandum contains legal analysis, opinions, and recommendations that are protected by the attorney-client privilege and the work-product doctrine. Any unauthorized disclosure, distribution, or copying of this memorandum is strictly prohibited. If you have received this memorandum in error, please notify the sender immediately and destroy all copies.
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I. Purpose and Scope
The purpose of this memorandum is to compare the final issued policy forms for the renewed product-liability and general-liability insurance tower (the "PL Tower") against the negotiated terms reflected in the binders issued at the time the renewal was bound on June 28, 2022. This post-bind review is performed in accordance with our standard practice of confirming that the policy forms, as ultimately issued by the carriers, accurately incorporate the coverage terms, conditions, exclusions, endorsements, and limits that were agreed upon during the renewal negotiation process and memorialized in the binding documentation. The objective is to identify any discrepancies — whether material or immaterial — between the binder terms and the final issued policy language, and to flag any items that may require corrective endorsements, broker follow-up, or further client attention.
The scope of this review encompasses all four layers of the PL Tower, as follows:
(a) Primary GL/PL: Midland Casualty & Surety Company, Renewal Policy No. MCS-GL-2022-58904;
(b) 1st Excess / Umbrella: Great Basin Insurance Company;
(c) 2nd Excess: Cornerstone Reinsurance Corp.; and
(d) 3rd Excess: Allegheny Pacific Underwriters, Inc.
In conducting this review, we compared the final issued policy forms against three principal reference documents: (i) the Renewal Negotiation Points Memorandum dated June 13, 2022, which identified eight specific PL-related negotiation items that were resolved in the course of the renewal process; (ii) the carrier quote comparison matrices dated June 10, 2022, which set forth the competing terms and pricing offered by participating carriers; and (iii) the renewal binders received from Ashford Breckinridge LLP, the broker of record for the Nexford PL Tower program (Phillip Garza, Senior Vice President, placing broker; Tamara Fisk, Account Executive). We also cross-referenced the final issued policy forms against the prior-year policy forms to confirm that no inadvertent narrowing of coverage has occurred.
The named insureds have been confirmed across all four layers of the PL Tower and are as follows:
(i) Nexford Industrial Holdings Inc., a Delaware corporation, with its headquarters at 2200 Corporate Center Drive, Suite 800, Schaumburg, Illinois 60173 (the "Parent" or "Nexford");
(ii) Nexford Conveyor Systems, LLC, a Delaware limited liability company, with its principal place of business at 4500 Industrial Parkway, Joliet, Illinois 60436 ("NCS");
(iii) Triton Fastener Corp., an Illinois corporation, with its principal place of business at 1010 Whitman Avenue, Rockford, Illinois 61101 ("Triton"); and
(iv) Marlowe Asset Management Precision Machining, Inc., an Ohio corporation, with its principal place of business at 775 Summit Industrial Boulevard, Akron, Ohio 44311 ("Marlowe Asset Management").
Collectively, these four entities are referred to herein as the "Named Insureds." Each is a wholly owned subsidiary of Nexford Industrial Holdings Inc. or, in the case of Nexford itself, the ultimate parent entity. This memorandum does not address the companion Directors & Officers Liability Insurance Tower, which was the subject of a separate Post-Bind Policy Wording Review dated July 22, 2022.
II. Executive Summary of Findings
Overall, the final issued policy forms for the renewed PL Tower are substantially consistent with the negotiated binder terms, and no material adverse deviations have been identified in any layer of the tower. We summarize our principal findings as follows:
First, the two key coverage enhancements negotiated during the 2022 renewal cycle — specifically, (a) the increase in the product recall sub-limit from $2,500,000 per occurrence / $5,000,000 aggregate to $5,000,000 per occurrence / $10,000,000 aggregate, and (b) the continuation of the completed operations extension providing a 10-year post-delivery tail — are properly reflected in the Midland Casualty primary policy form (MCS-GL-2022-58904). The recall sub-limit increase is documented through Endorsement No. MCS-END-2022-RC-001, which has been attached to the final issued policy and confirmed to match the binder language verbatim. The completed operations extension is set forth in the products-completed operations hazard definition within the body of the policy and is unchanged from the binder terms and the prior policy year.
Second, all three excess layers — Great Basin Insurance Company (1st Excess/Umbrella), Cornerstone Reinsurance Corp. (2nd Excess), and Allegheny Pacific Underwriters, Inc. (3rd Excess) — have been issued on a follow-form basis consistent with their respective binders. Each excess policy correctly schedules the underlying insurance, identifies the proper attachment points, and contains follow-form language that tracks the corresponding binder language. No additional exclusions or restrictive conditions have been introduced in any excess layer beyond those reflected in the binders.
Third, while we noted minor formatting and cross-referencing differences between the issued policies and the binder forms — primarily involving pagination, section numbering conventions, and certain non-substantive drafting style variations — none of these differences are substantive, and none alters the coverage provided under any layer of the tower.
Fourth, we have identified two items that we recommend be flagged for ongoing monitoring and broker follow-up, as discussed in further detail in Section VII below. These items do not require corrective endorsements at this time but warrant continued attention from Nexford's risk management team. We note that non-PL-tower-specific items were addressed in the companion D&O Post-Bind Review dated July 22, 2022; the items identified in this memorandum are specific to the PL Tower.
In summary, we are satisfied that the final issued policy forms accurately reflect the coverage negotiated on behalf of Nexford for the July 1, 2022 – July 1, 2023 policy year, and we recommend that no corrective action is required for the PL Tower at this time.
III. Layer-by-Layer Review
A. Primary GL/PL — Midland Casualty & Surety Company
1. Policy Identification. The primary general liability and product liability policy has been renewed with Midland Casualty & Surety Company ("Midland Casualty"), an insurer domiciled in the State of Illinois and rated A+ (Superior) XV by A.M. Best. The key identifying information for the renewal policy is as follows:
The renewal premium of $1,125,000 constitutes the base premium for the primary layer and represents a component of the total PL renewal premium of $2,985,500 across all four layers of the tower. The policy was issued on the standard Midland Casualty commercial general liability form (Form MC-CGL-0001, edition 01/2022) with manuscript endorsements as described below.
2. Product Recall Sub-Limit — Confirmed Properly Reflected. One of the two principal coverage enhancements sought by Nexford during the renewal cycle was an increase in the product recall sub-limit within the Midland Casualty primary policy. Under the prior policy (MCS-GL-2021-55671), the product recall sub-limit was set at $2,500,000 per occurrence and $5,000,000 in the aggregate. During the renewal process, and based on the analysis and recommendation contained in the Product Recall Sub-Limit Adequacy Memorandum prepared by Calderwood & Harkness and dated June 7, 2022, Nexford requested an increase in the recall sub-limit to $5,000,000 per occurrence and $10,000,000 in the aggregate.
The recommendation to increase the recall sub-limit was grounded in a review of Nexford's historical recall experience and industry benchmarking data. Specifically, the analysis considered the following historical recall events:
(a) Triton Fastener Voluntary Recall (March 12, 2020): Triton Fastener Corp. initiated a voluntary recall of certain high-tensile-strength industrial fasteners (Part Nos. TF-8842 through TF-8847) following reports of premature fatigue failure under high-cycle loading conditions. The recall affected approximately 2.4 million units distributed across 187 commercial and industrial end-users. The total cost of the recall, including product retrieval, replacement, customer notification, regulatory compliance, and associated administrative expenses, was approximately $1,100,000.
(b) Nexford Conveyor Systems Advisory Notice (August 7, 2020): Nexford Conveyor Systems, LLC issued a product advisory notice and field modification program relating to a bearing assembly interface on certain Model NCS-4200 series conveyor systems. While this event did not constitute a formal recall, it involved proactive customer outreach, on-site inspection and modification services, and replacement part distribution. The total cost of the advisory notice program was approximately $340,000.
The combined cost of these two events was approximately $1,440,000. The Calderwood & Harkness analysis further considered industry benchmarking data indicating that product recall costs for industrial component manufacturers of comparable size and product complexity had increased by approximately 18% over the preceding three-year period, and that single-event recall costs in the industrial fastener and conveyor sectors had, in certain cases, exceeded $4,000,000. On the basis of this analysis, the memorandum recommended that the recall sub-limit be increased to at least $5,000,000 per occurrence to provide adequate coverage for a large-scale recall event affecting one or more of Nexford's product lines.
Midland Casualty agreed to the requested increase during the negotiation process, subject to an incremental premium of $67,000. The increase is documented through Endorsement No. MCS-END-2022-RC-001, which is attached to the final issued policy (MCS-GL-2022-58904) and expressly amends the recall sub-limit schedule. We have reviewed the wording of Endorsement No. MCS-END-2022-RC-001 against the corresponding binder language and confirm that the endorsement language matches the binder language verbatim. The endorsement correctly states the revised sub-limits ($5,000,000 per occurrence / $10,000,000 aggregate), references the correct policy number, and is effective as of the inception date of the renewal policy (July 1, 2022).
We note that the formal attachment of the recall sub-limit endorsement was initially flagged as potentially outstanding in the Renewal Binding Confirmation Review Letter issued by Calderwood & Harkness on July 8, 2022. At that time, the initial policy forms received from Midland Casualty did not appear to include Endorsement No. MCS-END-2022-RC-001 in the endorsement package. However, the final issued policy received by this office on or about July 20, 2022, now includes this endorsement properly attached and incorporated into the policy package. Accordingly, this item is resolved for the PL Tower, and no corrective endorsement is required.
3. Completed Operations Extension. The second key coverage element confirmed in this review is the completed operations extension. The Midland Casualty primary policy (MCS-GL-2022-58904) provides completed operations coverage extending 10 years post-delivery. This is consistent with both the prior policy (MCS-GL-2021-55671) and the binder terms for the renewal year. The completed operations coverage is set forth in the Products-Completed Operations Hazard definition contained in the Definitions section of the policy (Section I, Paragraph 19 of Form MC-CGL-0001), which defines the temporal scope of completed operations coverage. The 10-year post-delivery tail is specified through a manuscript endorsement that has been carried forward from the prior year without modification.
The importance of the completed operations extension cannot be overstated in the context of Nexford's operations. The three operating subsidiaries — Nexford Conveyor Systems, Triton Fastener, and Marlowe Asset Management Precision Machining — collectively ship approximately 42,000 stock-keeping units (SKUs) annually across a diverse range of industrial products, including conveyor systems and sub-assemblies, industrial fasteners and fastening hardware, and precision-machined components for industrial, automotive, and aerospace applications. These products are often integrated into complex capital equipment and infrastructure with useful lives extending well beyond the date of initial delivery. A 10-year post-delivery tail is therefore essential to ensuring that Nexford retains coverage for product-liability claims arising from latent defects, premature failures, or other product-related occurrences that may not manifest until years after the products are placed into service.
We confirm that no truncation, limitation, or modification of the completed operations extension has been introduced in the renewal form. The 10-year tail is properly reflected in the issued policy and is consistent with the binder terms.
4. Named Insured Schedule. The Named Insured Schedule attached to the Midland Casualty primary policy (MCS-GL-2022-58904) correctly lists all four Named Insureds as follows:
All four Employer Identification Numbers (EINs) are correctly listed and match the corporate records maintained by Nexford's Office of the General Counsel. The addresses listed on the Named Insured Schedule match the current principal office addresses on file with the applicable Secretaries of State. No discrepancies were identified with respect to the Named Insured Schedule.
5. Cross-Liability / Separation of Insureds. The cross-liability provision, also commonly referred to as the "separation of insureds" clause, has been confirmed present in the issued Midland Casualty primary policy, consistent with the binder terms. Under this provision, each Named Insured is treated as if separately insured for purposes of determining coverage, except with respect to the overall aggregate limit of liability. This means that a claim by one Named Insured against another Named Insured (an "intercompany claim") will be treated as a claim by a third party against the insured entity from whose perspective coverage is being evaluated, subject to any applicable exclusions.
The inclusion of a robust separation of insureds clause was identified as a key negotiation point in the Renewal Negotiation Points Memorandum dated June 13, 2022 (PL Item No. 2). This item was confirmed as resolved during negotiations, and the issued policy language is consistent with the negotiated terms.
The importance of the cross-liability provision to Nexford's insurance program was analyzed in detail in the Cross-Liability and Intercompany Coverage Memorandum dated June 10, 2022, prepared by this office. That memorandum examined the potential for intercompany claims arising from the operational relationships among the Named Insureds. In particular, the memorandum identified the relationship between Triton Fastener Corp. (which manufactures and supplies industrial fasteners) and Nexford Conveyor Systems, LLC (which integrates Triton's fasteners into its conveyor systems) as a significant source of potential intercompany exposure. In a scenario where a third-party end-user of a Nexford conveyor system suffers bodily injury or property damage attributable to a Triton fastener component failure, NCS might assert a contribution, indemnification, or cross-claim against Triton. The separation of insureds clause ensures that coverage under the Midland Casualty primary policy would be available to NCS for such a claim against Triton, and vice versa, notwithstanding the fact that both entities are Named Insureds under the same policy.
We confirm that the separation of insureds clause in the issued policy is consistent with the binder language and the negotiated terms, and that no modifications or limitations have been introduced.
6. Pollution Exclusion. The Midland Casualty primary policy (MCS-GL-2022-58904) contains an absolute pollution exclusion, which is consistent with both the binder terms and the prior policy (MCS-GL-2021-55671). The absolute pollution exclusion precludes coverage for bodily injury or property damage arising out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants, subject to the exceptions described below.
Two critical exceptions to the absolute pollution exclusion have been confirmed present in the issued policy, consistent with the binder terms:
(a) Hostile Fire Exception: The pollution exclusion does not apply to bodily injury or property damage arising out of heat, smoke, or fumes from a hostile fire, as defined in the policy.
(b) Products-Completed Operations Pollution Carve-Back: The pollution exclusion contains a carve-back for pollutant-related claims arising within the Products-Completed Operations Hazard. This carve-back is significant because it preserves coverage for claims arising from the release or escape of pollutants from Nexford's products after they have been delivered to or put into use by the end-user. Given the nature of Nexford's product lines — which include conveyor systems that may handle or transport materials containing pollutants, fasteners used in industrial environments, and precision-machined components used in chemical processing and other applications — the products-completed operations pollution carve-back is an essential element of the coverage structure.
We confirm that neither the scope of the absolute pollution exclusion nor the breadth of the two exceptions described above has been broadened or narrowed from the binder terms or the prior policy year. The pollution exclusion language in the issued policy is consistent with the negotiated terms.
7. "Other Insurance" Clause. The "other insurance" clause in the Midland Casualty primary policy (MCS-GL-2022-58904) has been reviewed and confirmed to match the binder language. The clause operates on an excess/pro rata basis, providing that the Midland Casualty policy will be excess of any other valid and collectible insurance available to the Named Insured for a covered loss, except to the extent that the other insurance is specifically written as excess of the Midland Casualty policy.
This provision was the subject of specific analysis in the Preliminary Coverage Gap Memorandum — PL Tower dated May 27, 2022, prepared by this office. In that memorandum, we identified a potential conflict between the "other insurance" clause in the Midland Casualty primary and the corresponding "other insurance" provision in the Great Basin Insurance Company 1st Excess/Umbrella policy. Specifically, we noted that if both policies purported to be excess of the other in the same loss scenario, a coverage gap or dispute could arise. This issue was resolved during the negotiation process through the insertion of clarifying language in both the Midland Casualty primary and the Great Basin excess policy, establishing the priority of coverage and confirming that the Midland Casualty primary responds first, followed by the Great Basin excess upon exhaustion of the Midland Casualty primary limits. The clarifying language is reflected in both the binder and the final issued policy forms.
We confirm that no conflict exists between the "other insurance" provisions in the Midland Casualty primary and the excess layers of the PL Tower.
8. Pending and Prior Litigation / Known Claims. The prior and pending litigation exclusion language in the Midland Casualty primary policy (MCS-GL-2022-58904) has been reviewed and confirmed to be consistent with the binder terms. The policy is written on an occurrence basis, meaning that coverage attaches based on the date of the occurrence (i.e., the date of the accident or event giving rise to bodily injury or property damage), not the date on which the claim is made or the lawsuit is filed.
Two pending claims are currently the subject of active litigation against Named Insureds:
(a) *Higgins v. Nexford Conveyor Systems, LLC*, Case No. 2021-L-04382, Circuit Court of Will County, Illinois. This action alleges bodily injury arising from the alleged failure of a Model NCS-3800 conveyor system at a customer facility. Damages sought: approximately $14,500,000. The alleged occurrence predates July 1, 2022.
(b) *Consolidated Builders Supply Co. v. Triton Fastener Corp.*, Case No. 1:21-cv-08914, United States District Court for the Northern District of Illinois. This action alleges property damage arising from the alleged premature failure of certain high-strength structural fasteners supplied by Triton. Damages sought: approximately $6,800,000. The alleged occurrence predates July 1, 2022.
Because both alleged occurrences predate the inception of the renewal policy on July 1, 2022, these claims remain covered under the expiring policy year (MCS-GL-2021-55671). Open reserves on these two claims total approximately $8,300,000 against the primary layer aggregate for the expiring policy year. The renewal policy (MCS-GL-2022-58904) does not exclude future occurrences arising from the same product lines (i.e., Model NCS-3800 conveyor systems or Triton structural fasteners), and accordingly Nexford retains coverage under the renewal policy for any new and distinct occurrences involving these or similar products during the July 1, 2022 – July 1, 2023 policy period.
We note that the interaction between the pending claims and the expiring-year primary aggregate is discussed further in Section VII.B.1 below, in connection with our recommendation regarding defense cost erosion tracking.
9. SIR Provisions. The Self-Insured Retention ("SIR") under the Midland Casualty primary policy (MCS-GL-2022-58904) is confirmed at $500,000 per occurrence, consistent with the prior policy year and the binder terms. No change in the SIR amount, structure, or application has been introduced in the renewal form.
The SIR applies to both indemnity payments and allocated defense costs within the SIR layer. That is, within the first $500,000 of any covered occurrence, defense costs erode and are treated as part of the SIR (commonly referred to as a "defense within limits" or "eroding SIR" structure). However, once the SIR is satisfied and the Midland Casualty policy begins to respond, defense costs above the SIR layer are supplementary to (i.e., do not erode) the per occurrence and aggregate limits of the policy. This dual structure — defense within limits for the SIR layer, defense costs supplementary to limits above the SIR — is consistent with the binder terms and the prior policy year.
The defense cost treatment above the SIR was identified as PL Item No. 6 in the Renewal Negotiation Points Memorandum dated June 13, 2022, and was confirmed as resolved during the negotiation process. We confirm that the issued policy accurately reflects this structure.
10. Additional Insured / Vendor Coverage. The Midland Casualty primary policy (MCS-GL-2022-58904) includes a blanket additional insured endorsement that provides additional insured status to parties with whom any Named Insured has entered into a written contract requiring such status. This endorsement was confirmed as properly attached to the final issued policy, consistent with the binder terms. The endorsement covers additional insured status arising from ongoing operations and, where contractually required, completed operations, subject to the terms and conditions of the endorsement.
Additionally, the downstream vendor/contractor coverage provisions have been confirmed present and consistent with the binder terms. These provisions extend certain coverage protections to vendors and contractors in the distribution chain for Nexford's products, as required by Nexford's standard contractual arrangements with distributors, resellers, and installation contractors. The scope and terms of the vendor coverage provisions are unchanged from the prior policy year.
B. 1st Excess / Umbrella — Great Basin Insurance Company
1. Policy Identification. The first excess layer, structured as an umbrella policy, has been renewed with Great Basin Insurance Company ("Great Basin"), an insurer domiciled in the State of Nevada and rated A (Excellent) XV by A.M. Best. The key identifying information for the renewal policy is as follows:
The renewal premium of $862,500 is the continuing premium from the prior year. We note that this figure should be confirmed with the broker, Ashford Breckinridge LLP, in the event that any adjustment was applied subsequent to binding. However, the premium reflected in the issued policy is consistent with the binder documentation.
2. Follow-Form Confirmation. The issued Great Basin umbrella policy confirms that it is written on a follow-form basis to the Midland Casualty primary policy (MCS-GL-2022-58904), subject to the Great Basin policy's own terms, conditions, and exclusions where expressly stated. This follow-form structure means that the Great Basin policy incorporates by reference the coverage grants, definitions, and conditions of the underlying Midland Casualty primary, except to the extent that the Great Basin policy contains its own express provisions addressing the same subject matter.
The follow-form language in the issued Great Basin policy is consistent with the binder language and the prior year policy. We have confirmed that the schedule of underlying insurance attached to the Great Basin policy correctly identifies the Midland Casualty primary (Policy No. MCS-GL-2022-58904, limits of $5,000,000 per occurrence / $10,000,000 aggregate, SIR of $500,000).
3. Key Deviations from Primary Form — Review Against Binder. While the Great Basin umbrella generally follows form to the Midland Casualty primary, the policy contains its own provisions addressing certain coverage areas. We have reviewed these deviations against the binder terms and confirm the following:
Pollution Exclusion. The Great Basin umbrella contains its own absolute pollution exclusion, which is drafted independently of the Midland Casualty primary pollution exclusion. This issue was identified in the Preliminary Coverage Gap Memorandum — PL Tower dated May 27, 2022, in which we noted that the Great Basin pollution exclusion, as drafted, was potentially broader than the corresponding Midland Casualty primary pollution exclusion. Specifically, the initial Great Basin form did not include a products-completed operations pollution carve-back, whereas the Midland Casualty primary did include such a carve-back. We raised this issue during the negotiation process, and the resulting negotiated clarification provided that the Great Basin umbrella pollution exclusion would include a products-completed operations carve-back substantially consistent with the carve-back in the Midland Casualty primary. We confirm that the final issued Great Basin policy includes the products-completed operations pollution carve-back, consistent with the binder terms. The breadth of the Great Basin pollution exclusion is now consistent with the Midland Casualty primary in all material respects.
"Other Insurance" Clause. The "other insurance" clause in the Great Basin umbrella has been confirmed as providing that the Great Basin policy is excess of all scheduled underlying insurance. This language is consistent with the binder terms and does not conflict with the "other insurance" provision in the Midland Casualty primary, which has been clarified to establish Midland Casualty's priority of response. The harmonization of the "other insurance" clauses between the Midland Casualty primary and the Great Basin umbrella was a negotiation item addressed in the Renewal Negotiation Points Memorandum (PL Item No. 5) and was resolved through the insertion of clarifying language in both policies, as discussed in Section III.A.7 above.
Drop-Down Provision. The issued Great Basin policy confirms that Great Basin will drop down and provide coverage upon exhaustion of the Midland Casualty primary aggregate by paid losses (not reserves). This is an important distinction: the Great Basin policy does not attach simply because Midland Casualty has established reserves against the primary aggregate, but rather requires that the primary aggregate be exhausted through the actual payment of claims and allocated loss adjustment expenses. This provision is consistent with the binder terms and the prior year policy, and reflects standard market practice for excess/umbrella policies in the commercial product-liability space.
4. Attachment Point and Erosion. The Great Basin umbrella attaches at $10,000,000, which is the Midland Casualty primary general aggregate limit. As noted in Section III.A.8 above, the two pending claims (Higgins v. NCS and Consolidated Builders v. Triton) carry open reserves totaling approximately $8,300,000, and defense costs continue to accumulate against the Midland Casualty primary aggregate for the expiring policy year (MCS-GL-2021-55671). If paid losses and defense costs on these claims continue to increase, the expiring-year primary aggregate could approach exhaustion, which would trigger the Great Basin umbrella's drop-down obligations under the expiring-year program.
However, it is important to note that this erosion analysis pertains to the 2021-2022 policy year (MCS-GL-2021-55671), not the renewal year (MCS-GL-2022-58904). For the renewal year, the Midland Casualty primary aggregate of $10,000,000 resets to its full amount as of July 1, 2022. There are no erosion issues at the inception of the renewal year. The defense cost erosion tracking recommendation set forth in Section VII.B.1 below addresses the ongoing monitoring of the expiring-year aggregate.
5. Overall Finding. No discrepancies have been identified between the issued Great Basin umbrella policy and the corresponding binder terms. All terms, conditions, exclusions, and endorsements are consistent with the negotiated binder documentation.
C. 2nd Excess — Cornerstone Reinsurance Corp.
1. Policy Identification. The second excess layer has been renewed with Cornerstone Reinsurance Corp. ("Cornerstone"), an insurer domiciled in the State of New York and rated A+ (Superior) XV by A.M. Best. The key identifying information for the renewal policy is as follows:
The renewal premium of $437,000 is the continuing premium from the prior year. The policy attaches excess of the combined limits of the Midland Casualty primary ($10,000,000 aggregate) and the Great Basin 1st Excess/Umbrella ($25,000,000 aggregate), for a total underlying limit of $35,000,000.
2. Follow-Form Confirmation. The issued Cornerstone policy confirms that it is written on a follow-form basis to both the Midland Casualty primary (MCS-GL-2022-58904) and the Great Basin 1st Excess/Umbrella policy, subject to Cornerstone's own stated terms and conditions. This follow-form structure is consistent with the binder terms and the prior year policy. The schedule of underlying insurance attached to the Cornerstone policy correctly identifies both the Midland Casualty primary and the Great Basin umbrella, including their respective policy numbers, limits, and attachment points.
3. Key Terms Reviewed. We have reviewed the principal coverage grants, exclusions, and conditions of the Cornerstone policy against the binder terms and confirm that no deviations have been identified. The following items were specifically reviewed:
(a) Coverage grants: The Cornerstone policy follows form to the coverage grants of the underlying Midland Casualty primary and Great Basin umbrella policies. No additional restrictions or limitations have been imposed.
(b) Exclusions: The exclusion schedule in the Cornerstone policy is consistent with the follow-form structure and does not introduce any exclusions beyond those present in the underlying policies.
(c) "Other insurance" and priority of payment provisions: The "other insurance" clause in the Cornerstone policy is consistent with the tower structure, providing that Cornerstone's obligations do not arise until the underlying limits (Midland Casualty primary and Great Basin umbrella) have been exhausted through paid losses. No inter-layer conflicts have been identified.
(d) Schedule of underlying insurance: The schedule correctly lists Midland Casualty & Surety Company (Policy No. MCS-GL-2022-58904, limits of $5,000,000 per occurrence / $10,000,000 aggregate) and Great Basin Insurance Company (limits of $25,000,000 per occurrence / $25,000,000 aggregate, excess of $10,000,000), with proper policy numbers and limits.
4. Overall Finding. No discrepancies have been identified between the issued Cornerstone policy and the corresponding binder terms. All terms are consistent with the negotiated binder documentation.
D. 3rd Excess — Allegheny Pacific Underwriters, Inc.
1. Policy Identification. The third and final excess layer has been renewed with Allegheny Pacific Underwriters, Inc. ("Allegheny Pacific"), an insurer domiciled in the State of California and rated A (Excellent) XIV by A.M. Best. The key identifying information for the renewal policy is as follows:
The renewal premium of $218,400 is the continuing premium from the prior year. The policy attaches excess of the combined limits of the three underlying layers — Midland Casualty primary ($10,000,000 aggregate), Great Basin 1st Excess/Umbrella ($25,000,000 aggregate), and Cornerstone 2nd Excess ($25,000,000 aggregate) — for a total underlying limit of $60,000,000.
2. Follow-Form Confirmation. The issued Allegheny Pacific policy confirms that it is written on a follow-form basis to the underlying policies, consistent with the binder terms. The follow-form language is standard and provides that the Allegheny Pacific policy incorporates by reference the terms, conditions, definitions, and exclusions of the underlying policies, except to the extent that the Allegheny Pacific policy contains its own express provisions. The follow-form language in the issued policy matches the binder language.
3. Key Terms Reviewed. We have reviewed the following items in the issued Allegheny Pacific policy:
(a) Schedule of underlying insurance: The schedule correctly lists all three underlying layers — Midland Casualty & Surety Company (Policy No. MCS-GL-2022-58904, $5,000,000 per occurrence / $10,000,000 aggregate), Great Basin Insurance Company ($25,000,000 per occurrence / $25,000,000 aggregate, excess of $10,000,000), and Cornerstone Reinsurance Corp. ($25,000,000 per occurrence / $25,000,000 aggregate, excess of $35,000,000) — with proper limits and policy numbers identified for each layer.
(b) Exclusions: No additional exclusions have been introduced beyond those present in the underlying policies. The Allegheny Pacific policy does not impose any stand-alone exclusions that would narrow the scope of coverage below what is available under the underlying layers.
(c) Exhaustion provisions: The exhaustion provisions in the Allegheny Pacific policy require actual payment (not mere reservation) by the underlying carriers for attachment of the Allegheny Pacific layer. This means that the Allegheny Pacific policy does not begin to respond until the combined underlying limits of $60,000,000 have been exhausted through the actual payment of claims. This exhaustion provision is consistent with the binder terms and represents standard market practice for high-excess layers in commercial product-liability tower programs.
4. Overall Finding. No discrepancies have been identified between the issued Allegheny Pacific policy and the corresponding binder terms. All terms are consistent with the negotiated binder documentation.
IV. Aggregate Tower Summary — Renewal PL Program
The following table summarizes the complete renewed PL Tower for the July 1, 2022 – July 1, 2023 policy year:
Note: The total premiums for the four layers as listed in the table above sum to $2,642,900. The total PL renewal premium, inclusive of the $67,000 incremental premium for the product recall sub-limit increase, taxes, surcharges, and broker fees allocated to the PL tower, is $2,985,500. The difference of $342,600 is attributable to the recall sub-limit incremental premium, applicable state premium taxes, surplus lines taxes (where applicable), and the Ashford Breckinridge brokerage commission allocated to the PL tower.
Total aggregate limit of the PL Tower: $75,000,000.
Total PL renewal premium: $2,985,500, representing an increase of $342,600, or approximately 12.96%, over the prior year total PL premium of $2,642,900.
PL rate-on-line: $2,985,500 ÷ $75,000,000 = 3.98%. This compares to the prior year rate-on-line of approximately 3.52% ($2,642,900 ÷ $75,000,000). The increase in rate-on-line reflects the hardening conditions in the commercial product-liability market, the impact of Nexford's loss experience (discussed further in Section VII.B.3 below), and the incremental premium associated with the product recall sub-limit increase.
Product recall sub-limit: $5,000,000 per occurrence / $10,000,000 aggregate (increased from $2,500,000 per occurrence / $5,000,000 aggregate in the prior policy year).
Completed operations tail: 10 years post-delivery, confirmed across all layers of the PL Tower.
V. Negotiated Wording Improvements — Compliance Check
The Renewal Negotiation Points Memorandum dated June 13, 2022, identified eight specific PL-related negotiation items that were addressed during the renewal process. The following is a compliance check of each item against the final issued policy forms:
PL Item No. 1 — Recall Sub-Limit Increase ($2.5M/$5M → $5M/$10M): Confirmed reflected. The product recall sub-limit has been increased from $2,500,000 per occurrence / $5,000,000 aggregate to $5,000,000 per occurrence / $10,000,000 aggregate. Endorsement No. MCS-END-2022-RC-001 has been attached to the Midland Casualty primary policy (MCS-GL-2022-58904) and confirmed to match the binder language verbatim. The incremental premium for this enhancement is $67,000. See Section III.A.2 above for detailed analysis.
PL Item No. 2 — Cross-Suit / Cross-Liability Language: Confirmed. The separation of insureds clause is present in the Midland Casualty primary policy, treating each Named Insured as if separately insured except with respect to the aggregate limit. The excess layers follow form to this provision. See Section III.A.5 above for detailed analysis.
PL Item No. 3 — Completed Operations Tail (10-Year): Confirmed. The completed operations extension provides coverage extending 10 years post-delivery, consistent with the binder terms and the prior policy year. No truncation or limitation has been introduced. See Section III.A.3 above for detailed analysis.
PL Item No. 4 — Pollution Exclusion Carve-Back (Products-Completed Operations): Confirmed. The products-completed operations pollution carve-back is present in both the Midland Casualty primary policy and the Great Basin umbrella policy. The hostile fire exception is also confirmed present. See Sections III.A.6 and III.B.3 above for detailed analysis.
PL Item No. 5 — "Other Insurance" Clause Harmonization: Confirmed. The "other insurance" clauses in the Midland Casualty primary and the Great Basin umbrella have been harmonized through negotiated clarifying language, establishing the priority of coverage and eliminating potential inter-layer conflicts. No conflicts have been identified between any layers of the PL Tower. See Sections III.A.7 and III.B.3 above for detailed analysis.
PL Item No. 6 — Defense Cost Treatment Above SIR: Confirmed. Defense costs within the $500,000 SIR layer are treated as part of the SIR (defense within limits). Above the SIR, defense costs are supplementary to (i.e., do not erode) the per occurrence and aggregate limits of the Midland Casualty primary policy. See Section III.A.9 above for detailed analysis.
PL Item No. 7 — Additional Insured Blanket Endorsement: Confirmed. The blanket additional insured endorsement has been attached to the Midland Casualty primary policy, providing additional insured status to parties with whom any Named Insured has entered into a written contract requiring such status. See Section III.A.10 above for detailed analysis.
PL Item No. 8 — Vendor/Contractor Downstream Coverage: Confirmed. The downstream vendor/contractor coverage provisions are consistent with the binder terms and the prior policy year. See Section III.A.10 above for detailed analysis.
Summary: All eight PL negotiation items identified in the Renewal Negotiation Points Memorandum dated June 13, 2022, have been confirmed as properly reflected in the final issued policy forms for the renewed PL Tower.
VI. Comparison with Prior Year Policies
In addition to comparing the final issued policy forms against the binder terms, we have conducted a brief comparison of the Midland Casualty renewal policy (MCS-GL-2022-58904) against the expiring Midland Casualty policy (MCS-GL-2021-55671) to confirm that no inadvertent narrowing of coverage has occurred. This comparison is consistent with our standard post-bind review practice, which recognizes that carriers may introduce form changes at renewal — whether through new edition dates, revised standard forms, or modified endorsement packages — that could result in an unintended reduction in the scope of coverage even where the parties did not negotiate any such change.
Our comparison yielded the following findings:
Coverage Grants: The coverage grants in the renewal policy are substantially identical to those in the expiring policy. The insuring agreement language, including the grant of coverage for bodily injury and property damage caused by an occurrence, is unchanged. The coverage is enhanced by the increase in the product recall sub-limit, as described above. No narrowing of the coverage grants has been identified.
Exclusions: No new exclusions have been added in the renewal policy. The exclusion schedule is consistent with the expiring policy, including the absolute pollution exclusion (with hostile fire exception and products-completed operations carve-back), the expected or intended injury exclusion, the contractual liability exclusion (with insured contract exception), the employer's liability exclusion, and the professional services exclusion. All exclusions are unchanged from the prior year.
Conditions: The policy conditions, including the notice provisions, cooperation requirements, and other duties in the event of an occurrence, claim, or suit, are unchanged from the prior year. The reporting addresses for claims notification have been confirmed as current and correctly listed in the renewal policy.
Definitions: No material changes have been made to the key definitions in the renewal policy. The definitions of "Products-Completed Operations Hazard," "Occurrence," "Bodily Injury," "Property Damage," "Personal and Advertising Injury," "Insured Contract," and "Pollutants" are unchanged from the prior year. We specifically confirmed that the Products-Completed Operations Hazard definition retains the 10-year post-delivery tail and that the Occurrence definition remains consistent with the standard occurrence-trigger formulation.
In summary, the renewal policy does not contain any inadvertent narrowing of coverage as compared to the expiring policy. The only change of substance between the two policy forms is the enhancement of the product recall sub-limit, which represents a broadening of coverage.
VII. Open Items and Recommendations
A. Items Requiring No Further Action on PL Tower
The following items have been resolved and require no further action:
Recall Sub-Limit Endorsement. As discussed in Section III.A.2 above, the recall sub-limit endorsement (Endorsement No. MCS-END-2022-RC-001) was initially flagged as potentially unattached in the Renewal Binding Confirmation Review Letter dated July 8, 2022. The final issued policy received on or about July 20, 2022, now includes this endorsement properly attached to the Midland Casualty primary policy (MCS-GL-2022-58904). No corrective endorsement is needed, and this item is closed.
Excess Layer Follow-Form Consistency. All three excess layers — Great Basin Insurance Company (1st Excess/Umbrella), Cornerstone Reinsurance Corp. (2nd Excess), and Allegheny Pacific Underwriters, Inc. (3rd Excess) — have been issued on a follow-form basis with no discrepancies identified between the issued policies and the corresponding binder terms. No corrective endorsements are required for any excess layer, and these items are closed.
B. Items for Ongoing Monitoring
We recommend that the following items be monitored on an ongoing basis during the renewal policy period:
1. Defense Cost Erosion Tracking. Per the guidance provided by Yuki Nakamura to Trevor Haines, Vice President of Risk Management, on June 15, 2022, Nexford's risk management team should continue tracking defense costs in Higgins v. Nexford Conveyor Systems, LLC (Case No. 2021-L-04382) and Consolidated Builders Supply Co. v. Triton Fastener Corp. (Case No. 1:21-cv-08914) against the expiring-year Midland Casualty primary aggregate (MCS-GL-2021-55671, $10,000,000 aggregate) to monitor erosion toward the Great Basin excess attachment point.
As of the date of this memorandum, open reserves on these two claims total approximately $8,300,000 against the expiring-year primary aggregate. If paid losses and defense costs continue to accumulate, the expiring-year primary aggregate could approach or reach exhaustion, triggering the Great Basin umbrella's drop-down obligations under the expiring-year program. Nexford's risk management team, in coordination with Donna Kowalski, Director of Insurance and Claims, should maintain current reserve and paid-loss information and provide periodic updates to this office and to Ashford Breckinridge LLP.
For the renewal year (MCS-GL-2022-58904), the $10,000,000 aggregate resets to its full amount as of July 1, 2022. Any new claims arising from occurrences during the renewal policy period will begin eroding the fresh renewal-year aggregate. Nexford should monitor new claim activity and defense cost accumulation against the renewal-year aggregate on a quarterly basis.
2. Claims Reporting Compliance. Nexford should ensure strict compliance with the Claims Reporting Compliance Checklist dated June 1, 2022, for all new occurrences during the renewal period. The checklist specifies the carrier-specific notice requirements for each layer of the PL Tower, including the designated claims contacts, required notice formats, and applicable time frames for reporting. Failure to comply with the notice provisions could jeopardize coverage under one or more layers of the tower. Nexford's risk management team should distribute the checklist to all relevant personnel at each Named Insured entity, including plant managers, safety directors, and quality assurance managers, and should implement a protocol for the prompt escalation of potential claims to the Director of Insurance and Claims.
3. Five-Year Loss History and Next Renewal Preparation. Total PL incurred losses over the most recent five-year period stand at approximately $15,120,000, comprising $4,720,000 in paid losses, $8,300,000 in open reserves, and $2,100,000 in incurred-but-not-reported (IBNR) reserves per the actuarial analysis prepared by Kessler Quinn Advisory Group. This loss experience will be a significant factor in the carriers' evaluation of the next renewal cycle (July 1, 2023). Carriers will examine updated loss development, frequency and severity trends, and Nexford's loss-prevention and product-quality initiatives in determining renewal terms and pricing.
We recommend that Nexford begin preparing updated loss runs, loss triangles, and actuarial data well in advance of the next renewal marketing process. In addition, Nexford should consider whether any proactive loss-mitigation measures — such as enhanced product testing protocols, supplier quality audits, or expanded product safety communications — can be implemented during the current policy year to demonstrate favorable trends to the renewal market. Early engagement with Ashford Breckinridge LLP to develop a renewal strategy, including potential alternative market submissions, is advisable given the current rate environment and the 12.96% premium increase experienced in the 2022 renewal.
C. Coordination with D&O Tower Post-Bind Review
For completeness, we note the companion Post-Bind Policy Wording Review — D&O Tower dated July 22, 2022, which addressed Nexford's renewed Directors & Officers Liability Insurance Tower for the same policy period (July 1, 2022 – July 1, 2023). That review identified one endorsement discrepancy in the Vandermeer National Insurance Company primary D&O policy (Policy No. VNI-DO-2022-91205), specifically that the definition of "Claim" in the issued policy was narrower than the definition negotiated and reflected in the binder. The Vandermeer definition excluded certain regulatory proceedings that the negotiated binder definition was intended to cover. That discrepancy is being addressed separately through Ashford Breckinridge LLP, which has engaged Vandermeer's underwriting team to issue a corrective endorsement.
No cross-tower coordination issues between the PL Tower and the D&O Tower have been identified in the post-bind review process. The two programs operate independently, with no shared limits, shared retentions, or cross-program exclusions that would create coordination concerns. The Named Insureds are the same across both towers, and the schedules of named insureds have been confirmed as consistent across all policies.
D. Outstanding Endorsement Items (Cross-Reference)
The Follow-Up Endorsement Tracking Letter dated August 5, 2022, issued by this office to Phillip Garza, Senior Vice President, Ashford Breckinridge LLP, addresses two outstanding endorsement items identified in the post-bind reviews of the PL and D&O towers:
(i) Midland Casualty Recall Sub-Limit Formal Attachment (PL Tower): This item has now been resolved. Endorsement No. MCS-END-2022-RC-001 is confirmed attached to the issued policy (MCS-GL-2022-58904). No further action required.
(ii) Vandermeer National Insurance Company "Claim" Definition (D&O Tower): This item remains outstanding. A corrective endorsement is being pursued through Ashford Breckinridge LLP. This is a D&O Tower matter and is not addressed further in this memorandum.
VIII. Conclusion
Based on our review of the final issued policy forms for all four layers of the renewed PL Tower (July 1, 2022 – July 1, 2023), we conclude as follows:
1. The final issued policy forms are consistent in all material respects with the negotiated binder terms. No material adverse deviations have been identified in any layer of the PL Tower.
2. The two key coverage enhancements negotiated during the renewal cycle — the product recall sub-limit increase to $5,000,000 per occurrence / $10,000,000 aggregate and the continuation of the completed operations 10-year post-delivery extension — are properly documented in the Midland Casualty primary policy (MCS-GL-2022-58904), including through Endorsement No. MCS-END-2022-RC-001 (recall sub-limit).
3. All three excess layers — Great Basin Insurance Company (1st Excess/Umbrella), Cornerstone Reinsurance Corp. (2nd Excess), and Allegheny Pacific Underwriters, Inc. (3rd Excess) — follow form to the underlying policies, consistent with their respective binders, and no discrepancies have been identified.
4. All eight PL negotiation items identified in the Renewal Negotiation Points Memorandum dated June 13, 2022, have been confirmed as properly reflected in the final issued policy forms.
5. The total PL Tower provides $75,000,000 in aggregate coverage at a renewal premium of $2,985,500, representing a 12.96% increase over the prior year premium.
6. No corrective endorsements are required for the PL Tower at this time. The recall sub-limit endorsement, previously flagged as potentially unattached, has been confirmed as properly included in the final issued policy.
7. We recommend that the matter file be updated to reflect these confirmations and that the PL Tower post-bind review is complete. The matter may proceed toward dormant status following resolution of the outstanding D&O Tower endorsement item (Vandermeer National Insurance Company "Claim" definition), which is being addressed separately.
We remain available to discuss any questions regarding this memorandum or the PL Tower coverage at your convenience.
•
Prepared by:
CALDERWOOD & HARKNESS LLP
By: ________
Naomi Petersen Lead Associate, Mergers & Acquisitions Department 600 Lexington Avenue, 30th Floor New York, NY 10022
By: ________
Yuki Nakamura Working Associate, Litigation (General) Department 155 North Wacker Drive, Suite 4200 Chicago, IL 60606
Reviewed by:
By: ________
Douglas Fairchild Responsible Partner Calderwood & Harkness LLP 155 North Wacker Drive, Suite 4200 Chicago, IL 60606
Matter No.: 1005-00003
Distribution: As noted in the "To" and "cc" lines on the first page of this memorandum.
Document Retention: This memorandum shall be maintained in the client file for Nexford Industrial Holdings Inc. and the Calderwood & Harkness LLP matter file for Matter No. 1005-00003, in accordance with the firm's document retention policies and the client's records management requirements.
© 2022 Calderwood & Harkness LLP. All rights reserved. This document is the proprietary work product of Calderwood & Harkness LLP and is subject to attorney-client privilege and the work-product doctrine. Unauthorized reproduction or distribution is prohibited.
Item | Detail
Carrier | Midland Casualty & Surety Company
State of Domicile | Illinois
Renewal Policy No. | MCS-GL-2022-58904
Prior Policy No. | MCS-GL-2021-55671
Policy Period | July 1, 2022 – July 1, 2023
Per Occurrence Limit | $5,000,000
General Aggregate Limit | $10,000,000
Self-Insured Retention (SIR) | $500,000 per occurrence
Renewal Premium | $1,125,000 (base)
Coverage Trigger | Occurrence
Named Insured | Entity Type | State of Organization | EIN | Address
Nexford Industrial Holdings Inc. | Corporation | Delaware | 83-2174650 | 2200 Corporate Center Drive, Suite 800, Schaumburg, IL 60173
Nexford Conveyor Systems, LLC | LLC | Delaware | 83-2174651 | 4500 Industrial Parkway, Joliet, IL 60436
Triton Fastener Corp. | Corporation | Illinois | 36-4892103 | 1010 Whitman Avenue, Rockford, IL 61101
Marlowe Asset Management Precision Machining, Inc. | Corporation | Ohio | 31-1784529 | 775 Summit Industrial Boulevard, Akron, OH 44311
Item | Detail
Carrier | Great Basin Insurance Company
State of Domicile | Nevada
Policy Period | July 1, 2022 – July 1, 2023
Per Occurrence Limit | $25,000,000
Aggregate Limit | $25,000,000
Attachment Point | $10,000,000 (Midland Casualty underlying aggregate)
Renewal Premium | $862,500
Coverage Basis | Follow-form with specified deviations
Item | Detail
Carrier | Cornerstone Reinsurance Corp.
State of Domicile | New York
Policy Period | July 1, 2022 – July 1, 2023
Per Occurrence Limit | $25,000,000
Aggregate Limit | $25,000,000
Attachment Point | $35,000,000 ($10M Midland Casualty + $25M Great Basin)
Renewal Premium | $437,000
Coverage Basis | Follow-form
Item | Detail
Carrier | Allegheny Pacific Underwriters, Inc.
State of Domicile | California
Policy Period | July 1, 2022 – July 1, 2023
Per Occurrence Limit | $15,000,000
Aggregate Limit | $15,000,000
Attachment Point | $60,000,000 ($10M Midland + $25M Great Basin + $25M Cornerstone)
Renewal Premium | $218,400
Coverage Basis | Follow-form
Layer | Carrier | Per Occurrence Limit | Aggregate Limit | Attachment Point | SIR | Renewal Premium
Primary GL/PL | Midland Casualty & Surety Company | $5,000,000 | $10,000,000 | Ground-up | $500,000 | $1,125,000
1st Excess / Umbrella | Great Basin Insurance Company | $25,000,000 | $25,000,000 | $10,000,000 | N/A | $862,500
2nd Excess | Cornerstone Reinsurance Corp. | $25,000,000 | $25,000,000 | $35,000,000 | N/A | $437,000
3rd Excess | Allegheny Pacific Underwriters, Inc. | $15,000,000 | $15,000,000 | $60,000,000 | N/A | $218,400
Total Tower | $75,000,000 | $2,642,900

MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

MATTER NO.: 1005-00003

CALDERWOOD & HARKNESS LLP

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