Delaware law applies when determining whether insurers must provide liability coverage for directors and officers, the state Supreme Court has ruled affirming the Superior Court’s decision in favor of the insurers.
The opinion links to two other recent precedent-setting Supreme Court decisions in resolving disputes over D&O insurance coverage, all clarifying the role Delaware law plays in D&O coverage contracts. The decision was handed down on January 12.
“What emerges in the opinion is a strong interest in consistency,” said Carolyn Rosenberg, a partner in Reed Smith’s insurance recovery group. “Delaware law will have broad applicability with respect to coverage disputes that arise in Delaware.”
The appellant corporation, Delaware-based Stillwater Mining Co., based in Montana, had D&O insurance policies with National Union Fire Insurance Co., with ACE American Insurance and QBE Insurance Corp serving as excess insurers. Stillwater shareholders filed the appraisal action underlying the insurance dispute in the Court of Chancery after the company was acquired and private in 2017, alleging that Stillwater management had supported an unfair sale process, a claim that the court finally considered that it was not proven.
National Union later said it would not pay defense costs and interest incurred during the appraisal case, and Stillwater filed its lawsuit against the insurers in High Court.
As the case progressed, Stillwater changed his stance on which state law should apply, arguing in favor of Delaware’s law before changing course and arguing that Montana had a greater interest.
That change coincided with the Supreme Court overturning a separate Superior Court decision in litigation over D&O coverage for Solera Holdings Inc., involving policies that both sides in the Stillwater case said were similar to D&O coverage. of Stillwater.
Stillwater filed his case in Montana state court after the Supreme Court reversed Solera’s decision. Both Delaware courts found that, while not entirely comfortable with the change, Stillwater’s revised claims were comparable enough to decide whether Delaware law applied.
The High Court granted the insurers’ motion to dismiss the case, applying the Supreme Court’s 2021 decision in RSUI Indemnity Co. v. Murdock to determine that Delaware law should apply because Delaware had the most significant connection to the D&O policies, then decided based on the 2020 Supreme Court overturn of a case brought by Solera Holdings Co. that D&O coverage of Stillwater did not apply to appraisal procedures.
With that in mind, the court returned to the precedent established in Murdock, finding that applying the laws of multiple states to the same contract issue was too complicated and slowed down the resolution of coverage claims.
“From a choice-of-law perspective, it is reaffirming previous decisions by Delaware courts about Delaware’s strong interest in applying its law to D&O insurance coverage disputes,” Rosenberg said.
Lawyers representing the parties in the Supreme Court case did not respond or declined to comment on the decision.
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