In another Delaware policyholder's decision, a Delaware Superior Court judge denied a group of insurers' request for a call for appeal in the long-running D & O dispute, Verizon Communications Inc. et al. v. National Union Fire Insurance Co., Pittsburgh, PA, et al. C.A. No. N18C-08-086 EMD CCLD (Del. Super. March 16, 2021). The court's latest ruling comes from a Feb. 23 ruling that Verizon could recover $ 24 million in legal costs incurred in defense of a fraudulent transfer process brought by a bankruptcy trustee. When the insurers tried to appeal this decision, the court refused and concluded that the benefits of an immediate appeal do not outweigh the likely costs. The decision will enable an orderly settlement of what the court considered to be "standard principles of contract law", which the insurers had not shown neglected coverage.
A merger and sale of assets among the insured Verizon, Spinco and FairPoint left the company FairPoint with significant debts, which resulted in FairPoint filing a Chapter 11 petition. Following the confirmation of the reorganization plan, the trustee filed a lawsuit against Verizon, claiming that FairPoint was insolvent at the time of the merger and the sale of assets, resulting in an actual and constructive fraudulent transfer. The trustee's claim was eventually resolved, but only after the insured had incurred approximately $ 24 million in defense costs. tens of millions of dollars in legal fees. Insurers refused to reimburse legal fees or otherwise harm the insured because the trustee's fraudulent brokerage goals did not meet the policy definition of "Securities Claim." In the ensuing insurance protection dispute, both parties brought a summary judgment on the issues of compensation and defense costs in connection with the trustee action.
Denial of appeal
The Court finally found that the common language in the D&O policy provided coverage for the trustee action as a "securities claim". The insurers raised a number of arguments in trying to appeal the decision immediately, including that the lower court's decision contradicted other court decisions by stating that the trustee's fraudulent transfer claim was derived, that the court incorrectly focused on “the theory of liability, not the nature of the damage by comparing the estate with the debtor, "and that" a court should look at what is wrong and to whom the relief should go "to determine whether a claim is derived.
The court disagreed, noting that the court's decision does not conflict with other court decisions and followed provisions of the Third Circuit precedent and bankruptcy code to assess whether a claim made by a trustee in the administration of a debtor's property was a derivative, whereas the court found that the cases relied on by the insurers were either "inapposite" or presented alleged conflicts correctly settled by Delaware courts.In addition, while the court "is considering cow course and company law principles when applying facts to relevant insurance policies ", the central issue in the insurance measure was a matter of interpretation of contracts, which the Delaware Act has considered" not worth a call appeal.
Likewise, the decision that the defense expenditure was reasonable, the court ruled, does not contradict any other court decisions. In addition, the insurers had waived their right to contest the reasonableness of the fees when they failed to engage in the defense of the insured despite having the invoices for almost six years. If the insurers had not evaluated the reasonableness of the charges in the underlying claim, the court would have been dissatisfied with their late request that the court "examine the billable hours of insurance lawyers" as part of the coverage disputes.
Although limited to the issue of appeal, this decision is still a benefit to policyholders and underscores the sound reasoning of the original decision of the Court of Justice in favor of coverage consistent with Delaware, third cycle and bankruptcy law. In particular, it highlights the importance of evaluating the scope of issues raised (or not addressed) during investigations and claims and later determining whether any arguments may have been waived to the extent that coverage issues are raised for the first time months or even years later. in litigation. Finally, the decision provides another example of a decision for policyholders who uphold the rights of companies and their insured board members and officials seeking D&O coverage in Delaware courts. We will continue to monitor the case for further development, including the insurance companies' probable appeal.