CURRENT MONTH (June 2025)
RWI Insurer Exercises Rarely Used Right of Subrogation
By Yelena Dunaevsky, Woodruff Sawyer
Per Geoffrey Fehling’s recent LinkedIn post, an interesting complaint was filed on June 11, 2025, in Delaware Chancery Court. Liberty Surplus Insurance Corporation (“Liberty”) brought the complaint against Owner Resource Group, et. al. and its former CEO, CFO, and director of finance (“Sellers”) in an attempt to exercise Liberty’s right of subrogation. The complaint relates to a transaction where Liberty served as the representations and warranties insurance (“RWI”) carrier and paid a $12.2 million claim pursuant to an RWI policy after the purchaser in the transaction discovered that the seller had engaged in fraudulent activities. While RWI policies typically cover seller fraud, they also reserve a right for the insurer to subrogate against the seller if fraud occurs. Insurance carriers very rarely exercise this right because (1) fraud is very difficult to prove and (2) carriers do not want to earn a reputation of being tough on the sellers. However, in this case, the facts must have been such that Liberty could not avoid subrogating.
Liberty filed the suit against the Sellers, alleging that not only did they carry out a purposeful breach of the financial statement reps, but that to facilitate the closing of the $140 million transaction, Sellers actively took steps to cover up that breach by creating phony inventory subledgers. As a result, the buyer ended up overpaying more than $15 million in purchase price for inventory that did not exist and then claiming $12.2 million of losses against the RWI policy, which Liberty had to pay.
As Fehling points out, “from a coverage perspective, the RWI policy operated as intended, making the buyer whole and leaving the insurer to pursue any alleged wrongdoers in subrogation.” The wrongdoers in this case include the Seller’s former CEO, CFO, and director of finance, whom Liberty is attempting to hold personally liable for fraud, “asserting that the executives were involved in the creation and dissemination of the allegedly false statements giving rise to the inflated valuation and overpayment.” It is hardly surprising that with this fact pattern, Liberty opted to move forward with its subrogation claim. It will be interesting to see, however, how this case is ultimately resolved and if it encourages other insurance carriers to work up the courage to bring similar subrogation actions against nefarious sellers.
Delaware Court of Chancery Denies Motion to Dismiss Breach of Fiduciary Duty Claims Asserted Against Directors of Start-Up in Sale to Amazon but Dismisses Aiding and Abetting Claims
By Lisa R. Stark, Hirschler
In a recent Delaware Court of Chancery decision, Wei v. Levinson, C.A. No. 2023-0521-KSJM (Del. Ch. June 3, 2025), addressing a challenge to Amazon’s 2020 acquisition of autonomous “robotaxi” start-up Zoox, Inc. for $1.3 billion, the Court declined defendants’ motion to dismiss the plaintiffs’ complaint. The Court found it reasonably conceivable that more than half of the members of Zoox’s board labored under disabling conflicts of interest arising from either their preferred stockholdings and dual fiduciary status, their noteholdings, or their positions as members of Zoox’s senior management. However, the Court dismissed aiding and abetting claims asserted by plaintiffs against Amazon, finding that Amazon did not exploit the Zoox board’s conflicts of interest. The lion’s share of the merger proceeds went to Zoox’s preferred stockholders and noteholders and Zoox management and employees as part of a “bonus pool” equal to 15 percent of the first billion in merger consideration. The preferred stockholders did not receive their full liquidation preference, and the common stockholders received very little merger consideration. According to the Court, once the purchase price hit $1.07 billion, no preferred stockholder received additional consideration unless the deal price exceeded $2 billion, although the common stockholders could more than quadruple their per-share price at a deal price in that range. The three members of the Zoox board who were officers or directors and preferred stockholders were therefore disincentivized to try to extract a higher price for a deal price in the $1.07 billion to $2 billion range and were conflicted. The Court also found that plaintiffs adequately alleged that two management members of Zoox’s board who expected to stay on as officers of Zoox post-closing, and received bonuses and other financial benefits from the merger, faced potentially disabling conflicts of interest. Finally, the Court found that it was reasonably conceivable that a sixth Zoox director was interested in the merger due to his ownership of convertible notes that were settled for $1 million in connection with the acquisition. Finding that it was reasonably conceivable that six out of eight members of the Zoox board were interested in the merger, the Court denied defendants’ motion to dismiss the breach of fiduciary duty claims asserted against Zoox’s board members.
