8400 E Crescent Pkwy, Suite 630

Greenwood Village, CO 80111 Texas Office Number: 254-436-9113

Colorado Office Number:303-670-2710 info@c3adjusters.com

Date: 9/20/2019

To: Republic Lloyds/Amtrust Please address any questions to Chris Cleveland Texas Public Adjuster #2283804. Cell# 254-436-9113 Email: chris@c3adjusters.com To Whom it may concern, After multiple attempts to get an agreed price to set the proper RCV and ACV value of this claim it has become apparent that we are at an impasse.

We have conferred with our client and made them aware that Amtrust has had their counsel, Steve Badger, involved in the negotiation of their claim and made them aware of all statements made. We have made them aware that their current options to continue the dispute would be either the appraisal provision of their policy or to hire outside counsel. At this time it has been agreed the the swiftest resolution would be to their best interest and so have chosen to demand appraisal. Attached to this letter you will find the signed demand for appraisal and you will note that the insured has agreed to recommended appraiser .

Per the policy we acknowledge the appraisal will be dictated by the following language:

Endorsement RH 1601011 for use with Form HO 00 03 SECTION I - CONDITIONS, Paragraph E.

Appraisal 1s deleted in its entirety and replaced with the following: E. Appraisal. If you and we fail to agree on the amount of loss from an occurrence claimed by you in accordance with the loss settlement provisions of your policy, either may demand an appraisal of the loss. In the event of a demand for an appraisal of loss. each party shall choose a competent and disinterested appraiser within 20 days after receiving a written request from the other. During this same time period, the parties shall provide to each other in writing the name and contact information for their selected appraiser. The two appraisers shall attempt to select a competent and disinterested umpire. If they cannot agree upon an umpire within 15 days after the selection of the second Appraiser, you or we may request that the choice of a competent and disinterested umpire be made by a Judge of a court of record in the state where the residence premises is located. You and we may also agree to delay selection of an umpire until the appraisers have first attempted to reach an agreement on the amount of the loss. Each party must provide immediate notice to the other party of any request or motion to a court for appointment of an umpire and any hearing on that issue. A judge's selection of an umpire at the request of one party without notice to the other party as described above shall invalidate that selection and require selection of a new umpire either by agreement of the appraisers or by another judicial selection as required Herein. Stating separately the items and amounts of loss for each item, and in accordance with your policy's loss settlement provisions, the appraisers shall determine the amount of loss from the occurrence claimed by you. Both you and we and each of our representatives shall cooperate with the appraisal process, allow the appraisers and umpire reasonable and timely access to inspect the damaged property, and make reasonable efforts to allow completion of the appraisal process in a timely manner. If the appraisers fail to reach agreement on the amounts, the appraisers shall submit their differences, only, to the umpire. An appraisal decision in writing, so itemized, of any two of these three, when received by us shall set the amount of loss. Each party will pay its own appraiser and bear the other expenses of the appraisal and umpire equally. This appraisal shall be binding on you and us concerning only the amount of loss. You will retain your right to bring suit against us following the appraisal award, subject to Texas law and compliance with the Suit Against Us provisions of the policy as modified

by this Endorsement. We will retain our right to deny all or part of your claim and to dispute liability for any portion of the appraisal award based on lack of coverage or violation of the terms or conditions of the policy.

As previously documented, the differences are well established by the submittal of the estimate to Amtrust from C3 Group, as well as from the insured’s chosen contractor,

. We have previously attempted to settle this matter with Amtrust in a fair and expeditious manner that would not require further delays of the claim nor burden our client or the carrier with further expense. Those attempts have been declined on multiple occasions by the Amtrust and their assigned counsel who has been handling this case, Mr. Steve Badger. Please name your chosen appraiser within the time allotted by the policy. We are submitting this demand on the evening of September 20, 2019. Per our calendar the naming of your chosen appraiser must occur by October 10, 2019. Best Regards, Chris Cleveland C3 Group 254-436-9113 Public Insurance Adjuster TX License# 2283804 www.c3adjusters.com

October 8, 2019 Page 2 ______________ legal issues also appropriate for the involvement of counsel. This is again particularly true when a public insurance adjuster is involved in the claim on behalf of a policyholder. The negotiation of an insurance claim on behalf of a policyholder has been found by Texas courts to constitute the practice of law. The Texas Public Adjuster Licensing Statute, found at Chapter 4102 of the Texas Insurance Code, creates a narrow carve-out allowing public insurance adjusters to represent insureds in the insurance claim context. Thus, the involvement of counsel for the insurance company to respond to certain issues raised by public insurance adjusters is entirely appropriate. For these reasons, the assertion by Mr. Cleveland that our law firm’s involvement in responding to his allegations and discussing certain claim related issues is somehow improper is entirely meritless. Our email exchange with Mr. Cleveland also addressed the issue of how he is to be compensated for his work in this claim. Texas law allows a public insurance adjuster to charge a commission not to exceed 10% of the claim proceeds. This commission cannot be collected from replacement cost coverage requested to be paid by the insurance company based on a representation that the damaged property has been repaired and the cost to perform the work has been incurred. Our client’s obligation to pay replacement cost coverage is based on the necessary amount actually spent to repair or replace the damaged property and paid to the contractor who actually performs the work. See Central Mutual Ins. Co. vs. Whitestone, 2014 WL1092121 (W.D. Tex 2014). Amounts paid to a public adjuster are not covered by the insurance policy and cannot be included in any request for replacement cost coverage. Misrepresenting to the insurance company the amount paid to a contractor in performing repair work is a material misrepresentation in support of an insurance claim. Therefore, we trust that Mr. Cleveland has advised you that in a claim of this nature where essentially the only claim component is the roofing system itself, assuming the roof is replaced and replacement cost coverage is sought, his commission must be paid independent of the insurance proceeds. Lastly, Mr. Cleveland’s letter invokes the appraisal process. Republic Lloyds is agreeable to proceeding with the appraisal process consistent with its policy and applicable Texas law. Please note, however, that Republic Lloyds has not accepted liability for this claim and disputes that there exists coverage for this claim under its policy. We refer you to our client’s letters dated July 9, 2019, and August 15, 2019. In the July 9, 2019, letter Republic Lloyds states that there is a dispute as to “whether the roof can be repaired or needs to be replaced” and a “question as to what is new and old hail damage.” Similarly, the August 15, 2019, letter states that in “a spirit of compromise we have agreed to pay for the replacement of the roof based on ]’s estimate less expenses and depreciation”. You subsequently rejected this compromise offer by not agreeing to the proposal set forth by Republic Lloyds. Therefore, all aspects of this claim remain disputed. Consistent with the policy and applicable Texas law, Republic Lloyds reserves all rights to contest coverage, causation, and liability subsequent to a decision by the appraisal panel. Specifically, this includes disputing the existence/extent of any damage, when any

October 8, 2019 Page 3 ______________ such damage occurred, and whether general contractor overhead and profit is payable on this claim. Republic Lloyds considers all of these to be coverage/causation/liability questions at issue in this disputed claim. To the extent the appraisal panel seeks to determine these issues, Republic Lloyds reserves the right to subsequently object to any such determination and seek to have these issues addressed in a court of law. Please note also that Republic Lloyds will refuse to pay any replacement cost value award that exceeds the necessary amount actually spent to repair or replace the damaged property. Republic Lloyds will also object to any award that does not properly apply depreciation to the existing roof (that we understand to be in excess of 80 years old). Republic Lloyds appoints as its appraiser. Your appraiser has his contact information. Finally, in the event you desire to resolve this disputed claim without the need for appraisal and potential subsequent litigation, either you or your public insurance adjuster remain free to contact to discuss an amicable resolution. It is always Republic Lloyds’ preference to resolve disputed claims without the need for a lengthy dispute resolution process. Best regards,

Steven J. Badger cc: VIA EMAIL: chris@c3adjusters.com

Chris Cleveland C3 GROUP INC.

4838-2151-2361v1

Mr. Steven J. Badger Green & Klein October 11, 2019 Page 2 7, 2018 he signed a contract to hire C3 Group as a public adjuster. As payment for their services

agreed to pay the public adjuster 10% of any recovery as a fee. C3 Group went to work and immediately inspected the Property for damages. After

preparing an initial estimate, C3 Group also retained a reputable engineering firm which confirmed their findings, which were also consistent with the report from the insured’s preferred contractor,

. ’s report determined the need for a full roof replacement of the Property, contrary to your client’s prior findings. C3 Group forwarded you a copy of the estimate for full roof replacement.

On August 15, 2019, Republic finally agreed to a full roof replacement based upon the estimate provided by Republic’s chosen expert . put the replacement cost at $219,253.30.

Although Republic used as a basis for their decision, Republic subtracted

significant amounts from their own expert’s estimate then applied a 50% depreciation and then sent a check for $94,456.78 which was received on August 20, 2019. This was almost 50 times the original payment by Republic. Despite the fact that this payment was made over a year after the initial payment and clearly outside the deadlines set forth in Tex. Ins. Code 542.055 et. seq., no interest penalty was paid. The argument that Republic may have felt the original payment was reasonable is irrelevant. The Prompt Pay penalty is mandatory.

C3 Group tendered the estimate of in the amount of

$293,015.22.

In various correspondences, including one on August 15, 2019, August 21, 2019 and again on October 8, 2019, Republic stood steadfastly by the reduced amount of its own experts’ estimate and threatened appraisal by quoting the appraisal clause from the policy. The parties remained $73,761.92 apart, which is the difference in Replacement Cost Value between ’s bid and

’s bid. In an effort to break the impasse, C3 Group conferred with and

and the two experts agreed that could serve as a fair arbiter to resolve the damage dispute. C3 Group asked Republic to avoid appraisal and simply allow to independently bid the job in order to avoid the costs and delays associated with the appraisal process. C3 Group agreed to accept that neutral bid no matter what the result. Republic ignored this offer of compromise.

Left with no alternative other than appraisal or litigation, C3 Group invoked the appraisal process that Republic had already twice threatened. Republic’s response to this proper invocation of the appraisal clause came from you. You refused the compromise solution and stated that Republic had the right to choose its own expert and stand by that expert even when there is a stark disagreement by another expert. This was surprising since you have been known to chastise public adjusters to obtain more than one bid. More importantly, you then threatened my clients through

Mr. Steven J. Badger Green & Klein October 11, 2019 Page 3 their agents with criminal prosecution in an express attempt to bully the agent of my clients into capitulating to your will despite their belief that you are wrong:

“You would advise to do the work for that price or refer your client to a different contractor who would. You would then advise your client, consistent with your ethical obligations under the Texas Insurance Code, that he is responsible for your public adjuster fee independent of the insurance claim proceeds and any effort to use replacement cost proceeds to pay your fee would constitute criminal felony insurance fraud. But instead you demand appraisal. Which will lead to more delay and expense for all involved parties, including your client. Also, it does not solve your commission dilemma, as any amounts awarded by the appraisal panel likewise cannot be used to pay your commission. I trust you have complied with your fiduciary duties to

and advised him accordingly. My client intends to closely scrutinize how any appraisal award proceeds are spent.”

As you should know, this is a violation of the disciplinary rules that guide the conduct of lawyers:

“(a) In representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass, delay, or burden a third person, or use methods of obtaining evidence that violate the legal rights of such a person. (b) A lawyer shall not present, participate in presenting, or threaten to present:

(1) criminal or disciplinary charges solely to gain an advantage in a civil matter; or

(2) civil, criminal or disciplinary charges against a complainant, a witness, or a potential witness in a bar disciplinary proceeding solely to prevent participation by the complainant, witness or potential witness therein.” TEXAS DISCIPLINARY RULES OF PROFESSIONAL CONDUCT R. 4.04.

Steve, I know that you are a zealot for your side of the issues. I admire that. We have that in common. However, your conduct here is beyond the pale. As long as my clients make no misrepresentation to your client, it is none of your client’s business how my clients pay their public adjuster.

It is my understanding that you have on numerous occasions in other claims also inserted yourself into the adjusting process. I have also heard that this is not the first time you have threatened criminal prosecution. Although it is your right to adjust claims if you wish, you should know that in those cases in which I become involved I believe that makes you a witness if not a defendant.

Mr. Steven J. Badger Green & Klein October 11, 2019 Page 4

I am certain that your client would love to live in a world where there are no public adjusters and you can get away with paying $6,000 on a $200,000 claim, but fortunately the system and Texas Law provides some protection for policyholders.

In this particular case, it is our position that your client breached its contract over a year ago when it paid only $2,401.35 on a loss it now, supported by its own experts, agrees is worth over $200,000. See USAA Texas Lloyds Company v. Menchaca, 545 S.W.3d 479, 502 (Tex. 2018) (“…the question of whether the insurer complied with its policy obligations does not always depend on whether it paid the proper amount of benefits. An insurer may fail to comply even if it pays the proper amount of benefits if, for example, it paid the benefits late.”). See also Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987) (“A cause of action for breach of the duty of good faith and fair dealing is stated when it is alleged that there is no reasonable basis for denial of a claim or delay in payment or a failure on the part of the insurer to determine whether there is any reasonable basis for the denial or delay.”).

One of the black letter remedies for breach of contract is consequential damages. Consequential damages is defined by the Pattern Jury Charge as:

“Consequential damages result naturally, but not necessarily, from the defendant’s wrongful act. Under the common law, consequential damages need not be the usual result of the wrong but must be foreseeable and must be directly traceable to the wrongful act and result from it.”

“Lost profits that were a natural, probable, and foreseeable consequence of _______’s failure to comply.”

Your client’s breach forced my clients to engage a public adjuster at the cost of 10% of the

entire claim. Engagement of a public adjuster where a claim is underpaid is undeniably foreseeable by your client when it underpays a claim. The fee is a recoverable consequential damage. We will seek the C3 Group’s fee as part of the breach of contract damages.

In addition, your client violated the Prompt Pay Statute as follows:

Your client issued payment in the amount of $2,401.35 on May 1, 2018, however, this payment misrepresented the damages and grossly undervalued the covered losses. Your client failed to make full payment of the claim as owed under the policy within the time limits allowed under the Texas Prompt Payment of Claims Act. This is evident by the later payment in the amount of $94,456.78 for the full roof replacement, for which such damages were previously refuted by your client. As such, your client violated the Prompt Pay Act. Depending on how the adjustment ultimately resolves, we seek to recover 10% of the late payments as a violation of the Prompt Pay Statute. Prejudgment interest is also a viable remedy.

This correspondence should not be considered as notice under TEX. INS. CODE § 542A.003. My client will make the determination as to whether or not to file suit once the appraisal award is complete and your client has responded to the award.

Mr. Steven J. Badger Green & Klein October 11, 2019 Page 5 Upon completion of this letter, I was copied on your latest letter naming your appraiser. After wading deep into the adjustment of the claim you now try to crawfish away from those facts. Additionally, after making an undisputed amount payment, without release or qualification, for a full roof replacement, you try to say you are now for the first time attempting to reserve your client’s right to contest coverage. I believe that ship has sailed. Any reservation of rights has been waived by undisputed payment. If you have any questions, please feel free to contact my office. Very truly yours,

Robert D. Green RDG/ag