Editors
Meghan A. Adams
Superior Court, State of Delaware
Leonard L. Williams Justice Center
500 N. King. St., Suite 10400
Wilmington, DE 19801
(302) 255-0634 phone
(302)255-2273 fax
[email protected]
Carla M. Jones
Potter Anderson & Corroon LLP
1313 N. Market St., 6th Floor
Wilmington, DE 19801-6108
(302) 984-6122 phone
(302)658-1192 fax
[email protected]
Jennifer C. Wasson
Potter Anderson & Corroon LLP
1313 N. Market St., 6th Floor
Wilmington, DE 19801-6108
(302) 984-6165 phone
(302)658-1192 fax
[email protected]
Introduction
This chapter summarizes the significant case law developments from state and federal courts across the country in 2020 concerning directors’ and officers’ liability insurance coverage claims. Noteworthy decisions included the following:
- In re Solera Insurance Coverage Appeals, 2020 WL 6280593 (Del. Oct. 23, 2020). The Delaware Supreme Court held that an appraisal action brought under 8 C. § 262 was not covered “Securities Claim” within the definition of that term in a D&O policy.
- Arch Insurance Company v. Murdock, et al., 2020 WL 1865752 (Del. Super. Jan. 17, 2020). The Superior Court of Delaware held that the Larger Settlement Rule governs allocation disputes under Delaware law when the parties cannot agree on allocation between covered and uncovered claims.
- Pfizer Inc. v. U.S. Specialty Insurance Company, 2020 WL 5088075 (Del. Super. Aug. 28, 2020). The Superior Court of Delaware held that a settlement for less than an insurer’s policy limit did not affect attachment of higher-level excess insurance.
Allocation
Arch Insurance Company v. Murdock, et al., 2020 WL 1865752 (Del. Super. Jan. 17, 2020). The Superior Court of Delaware held that the Larger Settlement Rule governs allocation disputes under Delaware law when the parties cannot agree on allocation between covered and uncovered claims. The court found that the Larger Settlement Rule best protects the economic expectations of the insured, consistent with Delaware courts’ interpretation of insurance policies as a whole, and applies even when the policy’s allocation provision references the relative legal and financial exposures of the insureds.
In this case, certain excess insurers filed a declaratory judgment action regarding, inter alia, their obligation to indemnify the insureds for settlement payments arising out of two shareholder litigations, one brought in the Delaware Court of Chancery (In re Dole Food Company, Inc. Stockholder Litigation, 2015 WL 5052214 (Del. Ch. Aug. 27, 2015) (“Dole”) and one brought in the District of Delaware (San Antonio Fire & Police Pension Fund v. Dole Food Co., Inc., No. 1:15-CV-01140 (D. Del. Dec. 9, 2015) (“San Antonio”). Both sides filed motions for summary judgment on the issue of which allocation theory applied to the policies, since the underlying cases involved uninsured parties. The insureds advocated for the Larger Settlement Rule. This rule dictates that allocation between covered and uncovered claims is appropriate only if acts of the uninsured parties caused the settlement costs to be higher than they would have been, had only the insured parties settled the actions. Under the Larger Settlement Rule, the insurers often are liable for the entire settlement unless they can demonstrate that the uncovered liability actually increased the amount of the settlement. In contrast, the insurers argued that the insureds bore the burden of proving that a loss relating to the settlement was a covered “Loss” under the policy.
The court first looked at the policy language and found it unambiguous but unhelpful to the question before it, because the allocation provision only addressed circumstances in which the parties agreed to an allocation. The provision did not contain a formula or any other methodology to apply in the event that the parties disagreed. The court also noted that Delaware case law provided no guidance on the question, but that other courts had employed the Larger Settlement Rule when adjudicating allocation disputes. Important to the court was the overarching rationale for the rule, which was to protect …
