Delaware Supreme Court Finds D&O Coverage Applies To Fraudulent Conduct
On March 3, 2021, the Supreme Court of Delaware unanimously affirmed a series of rulings by the Superior Court of Delaware requiring a directors and officers (“D&O”) excess insurer, RSUI Indemnity Co. (“RSUI”), to pay over $12 million towards settlements to resolve claims arising from the conduct of Dole Food Co.’s (“Dole”) CEO, which the Delaware Court of Chancery previously found was fraudulent. In so holding, the Delaware Supreme Court ruled that losses stemming from fraudulent conduct are insurable under Delaware law. RSUI Indemnity Co. v. David H. Murdock, et al., C.A. No. 154, 2020, opinion (Del. Mar. 3, 2021). As we discussed in a prior post, the Superior Court applied Delaware law and ordered RSUI to pay the full policy limit plus interest. The Supreme Court affirmed the ruling in its entirety, finding that, as the state of incorporation, Delaware had the “most significant relationship” with the D&O policy even though Dole was headquartered in California. The Supreme Court also held that Delaware law did not prohibit D&O coverage for fraudulent conduct, noting that neither the policy nor the state’s corporation laws prohibited defendants from securing D&O insurance for fraudulent conduct by insureds.
Superior Court Of Delaware Rules That Delaware Public Policy Does Not Prohibit Indemnification For Breach Of Duty Of Loyalty Based On Fraud
On March 1, 2018, Judge Eric M. Davis of the Superior Court of the State of Delaware denied in part and granted in part the summary judgment motion brought by plaintiff-insurers, which provided directors and officers liability insurance coverage to Dole Food Company, Inc. (“Dole”) and sought a declaratory judgment that they were not obligated to fund the settlement of fiduciary duty claims against the defendant-insureds. Arch Ins. Co. v. Murdock, No. N16C-01-104 EMD CCLD (Del. Super. Mar. 1, 2018). The Court rejected the insurers’ argument that Delaware public policy prohibited indemnification for liability resulting from breaches of fiduciary duty based on fraudulent conduct, the basis of the claims against the insureds (including David Murdock, Dole’s former CEO who took the company private in 2013, and Michael Charter, Dole’s former COO) litigated in the Delaware Court of Chancery in In re Dole Food Co., Inc. Stockholder Litigation., C.A. No. 8703-VCL, 2015 WL 5052214 (Del. Ch. Aug. 27, 2015) (“In re Dole”). The Superior Court also found that the parties were collaterally estopped from re-litigating factual matters decided in In re Dole, declined to rule on plaintiffs’ breach of contract defenses and defendants’ bad faith counterclaims, and dismissed defendants’ fraudulent inducement claims.
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New Jersey Federal Court Extends Coverage of Merged Bank’s D&O Liability Insurance Policy To Surviving Bank
On September 18, 2017, Judge John Michael Vazquez of the U.S. District Court of New Jersey granted summary judgment in favor of plaintiffs BCB Bancorp, Inc. (“BCB”) and the former directors and officers of Pamrapo Bancorp, Inc. (“Pamrapo”), finding that insurer Progressive Casualty Insurance Co. (“Progressive”) was obligated to indemnify BCB for the legal expenses incurred in defending the Pamrapo directors and officers in shareholder litigation arising from the merger of BCB and Pamrapo. In so holding, the Court agreed with plaintiffs that the surviving bank, BCB, had inherited Pamrapo’s D&O policy following the merger in accordance with the New Jersey Business Corporation Act (“NJBCA”).
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