On March 3, 2021, the Delaware Supreme Court issued a Landmark Decree claiming that the Delaware Act should be applied in Board of Directors and Officers Insurance ("D&O") sold to companies registered in Delaware. RSUI Indem. Co. v. Murdock, et al. 154, 2020, C.A. No. N16C-01-104 CCLD (Del. March 3, 2021). The court addressed this and other key issues in the long-running D&O insurance dispute acquired by Dole Food Company and specifically addressed issues raised by Dole's eighth inventory surplus, RSUI, which provided $ 10 million in excess of $ 75 million.
The Court ruled on several important issues and found that liability for alleged fraud is insurable under Delaware's general policy, RSUI's profit / fraud does not exclude coverage as there had been no "final assessment" of fraud and "major sums rule" ruled distribution issues. Among the important rulings, however, the most significant may be the Supreme Court's ruling that Delaware regulates the interpretation of D&O insurance issued to a company registered in Delaware. The Court specifically rejected the insurer's argument that California law (which may exclude coverage) should be applied under a policy purchased and issued in California to a Delaware company headquartered in California .
The RSUI sued the Delaware State Court, seeking a decision that it had no obligation to finance the settlements. Dole claimed counterclaims for breach of contract, breach of the implied agreement of good faith and fair trade and fraud in the cause. The coverage measure resulted in a $ 10 million policy restrictive action against RSUI, plus more than $ 2.3 million in advance interest. RSUI appealed.
Murdock the court acknowledged that under Delaware's most "significant relationship" test there is "a presumption of insurance the parties understood where to be the main place of the insured risk should be applied because that state will have the most significant relationship. ”However, the court also noted that another result can be achieved if the facts of the case do not fit such assumptions – for example, where the insurance, in many complex insurance coverage disputes, insures risks that are not limited to a jurisdiction.In that context, the court will look at "broader subject-specific factors."
Under this standard, the court considered, inter alia, the following factors set out in Reconsideration (other) on conflict between Laws : (i) the place of contract; (ii) the place of negotiation of the contract, (iii) the place of up the performance, (iv) the place of the subject of the contract, and (v) the domicile, residence, nationality, place of establishment and place of business of the parties.
Applying these factors, the court ruled that the Delaware Act should apply "& # 39; [w] when the insured risk is the" honesty and fidelity "of the board members and masters to the company" – and we would add its shareholders and investors "and the choice of law is between head office or state, transposition has the most important interest. ""  The court said that its conclusion is in line with the principle that courts must review the insurance contract as a whole to determine its subject. For example, the Dole D&O policy was intended to cover a Delaware company, and Delaware law provides "broad indemnity and advancement rights to their board members and executives to purchase D&O policies to protect them even where damages are unavailable." The availability of this insurance coverage enables Delaware companies to "attract talented people to fill these roles." The court stated that the choice of law suggests that "in Implementation is the focus of typical D&O policies. "
Finally, the Court ruled that Dole's contacts in California do not outweigh Delaware's interest in "protecting its significant corporate citizens' ability to secure D&O insurance and thereby attract talented board members and officials."
Key Takeaways  ] Murdock decision confirms the Supreme Court's conclusion that according to the "most significant relationship" test in insurance coverage disputes, Delaware courts may consider broader factors where the insurance insures risks that are not limited to one jurisdiction. The court, one of the leading arbitrators in corporate litigation in the country, has confirmed that companies registered in Delaware and their insured board members and officers deserve benefits from Delaware law, as Murdock Murdock illustrates, the court specifically confirmed that it a consistent approach to the interpretation of D&O insurance issued to Delaware companies, an approach that protects Delaware companies and helps them attract talented board members and officials, who can all understand how their D&O insurance can be applied by looking at how the Delaware courts have dealt with these issues .
Given Delaware's leading role in corporate law and governance matters, this decision may also affect other courts dealing with this crucial issue of law choice under D&O insurance. In addition, most states have the same policy as Delaware to enable broad indemnity and advancement rights to attract and retain board members and executives.
Policyholders can also note that this theme of promoting policies that help companies attract talented board members and salaried employees is consistent. with the latest opinions from Delaware lawsuits that benefit policyholders under the D&O policy in matters relating to the advancement of defense costs and the jurisdiction of the Delaware courts in certain coverage issues. A discussion of these case decisions can be reached here.