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A jewel of a decision – no cover for loss after a policy expires



An insured who defeats his claim by changing his policy after a merger was hung on a gallows that it had built and lost more than $ 35 million in Zale Corporation v. Berkley Insurance Company and Starr Indemnity & Liability Company, Nr. 05-19-00730-CV, Fifth District Court of Appeals in Texas, Dallas (July 30, 2020).

Zale Corporation ("Zale") appealed against the decision of the Berkley Insurance Company ("Berkley") and Starr Compensation and Liability ("Starr") (collectively, "Appeals"), in a contractual dispute includes surplus insurance coverage.

BACKGROUND

Zale is a jewelry retailer in North America. From July 31

, 2013 to July 31, 2014, Zale had board members and liability insurance through Liberty Insurance Underwriters Inc. ("Liberty Policy"), which had a police liability limit of $ 10,000,000.00. Liberty Policy's definition of "Loss" includes "sums such as. . . the insured organization is legally obliged to pay solely as a result of all claims that are insured by the insurance. "But" Loss "excludes" issues that cannot be insured in accordance with applicable law, including … settlements that are in the form of restoration … "" Loss "further excludes changes or parts of a judgment or settlement regarding the amount of which price or consideration was altered or modified as a result of a claim that the price or compensation paid or proposed to be paid for the acquisition of any security issued by or assets owned by any natural person or entity is insufficient, exaggerated or inappropriate.

In addition to the Liberty Policy, Zale had surplus insurance through Berkley, which immediately exceeded the Liberty Policy and had a liability limit of $ 5,000,000.00 ("Berkley Policy"). Berkley policy insurance followed in the form of Liberty policy. Zale had additional surplus insurance through Starr, which immediately exceeded the Berkley policy and had a $ 5,000,000 police liability limit ("Starr Policy"). Starr Policy's insurance contract was also a form of compliance.

From November 2013 to early February 2014, Signet Jewelers Limited ("Signet") made merger offers to Zale's Board of Directors. On February 19, 2014, Zale and Signet jointly announced a merger in which (a) Signet would purchase Zale's outstanding joint stock at a price of $ 21 per share, and (b) Zale would merge with a subsidiary of Signet. Signet further agreed to pay an amount as required in a Delaware valuation measure, should deviation from Zale shareholders be perfect, and to raise an appraisal measure under the Delaware Code (Government Companies).

On May 1, 2014, Zale announced that the merger vote would take place on May 29, 2014. Prior to the merger vote, several dissenting Zale shareholders filed complaints for shareholders in the Delaware Court of Chancery. The deviating Zale shareholders alleged breaches of management obligations and moved to join the merger. The dissenting Zale shareholders claimed that Zale's board members and members failed to maximize shareholder value, agreed to an insufficient concentration price, agreed to trade terms that discouraged higher bids and issued misleading and incomplete power of attorney regarding the merger.

On May 29, 2014, a majority of Zale's shareholders voted to approve the merger with Signet, thereby implementing the merger in which Signet became a parent company of Zale. In accordance with the merger, Zale changed its insurance policies on May 29, 2014. Zale extended the validity of the Liberty Policy until May 29, 2020. However, the Liberty Policy was also partially amended by a Run-off approval as follows that only provided coverage for losses due to an erroneous act that occurred on or after May 29, 2014. [19659002] Following the completion of the merger on 29 May 2014, three groups of dissenting shareholders (“Appraisal Action Petitioners”) filed separate petitions against Zale. In December 2014, Zale began settlement discussions with the petitioners. On 29 July 2015, without the consent of the insurers, Zale and the assessment measure approved the petitioners to resolve the assessment measure. Signet, Zale and their respective merger subsidiaries agreed to pay Appraisal Action Petitioners $ 24.90 per share to settle the revaluation measure, and this figure included all statutory interest that may have accrued on Appraisal Action Petitioners shares.

granted appellants' proposal for a brief assessment with separate written orders. None of the brief decisions set out the grounds for granting a summary judgment.

ANALYSIS

Zales insurance policy period excludes coverage

The insured initially has the burden of establishing coverage according to the terms of the insurance. Zale seeks insurance coverage for the assessment disputes – mainly $ 34,246,984.20 amount as the assessment measures that the petitioners received in settlement. Zale claims that the $ 34,246,984.20 paid to settle the appraisal was a "loss" resulting from an "illegal act" that occurred during the "policy period."

For shareholders who do not agree to a merger based on a share purchase, the Delaware Code gives shareholders rating rights. Through an appraisal measure, dissenting shareholders can sue the Delaware Court of Chancery to “determine the“ fair value ”of the dissenting shareholders' shares.

It was undisputed that the merger occurred on 29 May 2014. Therefore, the earliest date on which the evaluators could initiate an assessment measure was 29 May 2014. It is further undisputed that the assessors did not submit their respective assessment measures until after 29 May. 2014.

29 May 2014, Freedom Policy Approval termination effectively ended Zale's insurance coverage period on 28 May 2014 and expressly excludes claims “based on, arising from or in any way related to any wrongful act committed or alleged to be committed on 29 May 2014. ”

The right to an assessment in a concentration proceeding is entirely a statutory being. The Regulation on Assessment Measures does not require an "unfair act" or infringement. For deviating shareholders who have otherwise exercised their assessment rights, the instrumental document that provides assessment dispute rights is not the merger process but the implementation of the merger, which did not occur in this case until after Zale's surplus insurance period. [19659002] The merger procedure triggered the assessment process. There is no evidence that the merger proceeding, which gave rise to assessment disputes, occurred during the insurance period. Since the triggering of the merger on May 29, 2014 – the day after the coverage ended during the insurance policy period – there was no evidence that Zale was entitled to coverage for the evaluation measure under Berkley and Starr's surplus insurances.

records show that both Berkley and Starr reviewed the petitions for evaluation measures in order to arrive at their respective denial of coverage positions. As there was no evidence of cover under Berkley and Starr's surplus insurances, the court concluded that Zale had not established a right to receive benefits under the Berkley and Starr insurances and therefore could not obtain benefits as "actual damages."

Zale failed to produce more than a scintilla of evidence to address a factual problem.

When attempting to modify an insurance policy, an insured person, such as Zale, would be careful not to deprive himself of the coverage it had to protect against personal injury such as those claimed by the "Assessment" complainants. By approving the approval after the completion of the merger, Zale agreed that it had no cover for any wrongdoing or claim after the expiration date. Since the assessment measures had not been submitted – but had been threatened – Zale bought the rope, tied it in a box and hung the right to insurance income – the meaning of being patibulated on his own gibbit.


© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to employment as an insurance consultant specializing in insurance coverage, insurance non-life insurance, bad faith insurance and insurance fraud almost equal insurance policyholder. He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance coverage and attorney handling attorney and more than 52 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

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