The Supreme Court of Delaware argued that insurers could not rely on written consent and co-operative clauses in the liability of the board and officials to avoid coverage of settlements by Dole Food Company, Inc. ("Dole") in shareholder disputes involving fraud in a go -private transaction.
In the first underlying dispute the shareholders sued Dole, its former, in Re Dole Food Co., Inc. Stockholder Litig 2015 WL 5052214 (Part CEO, Michael Carter, DFC Holdings, LLC (" DFC ") and David Murdock, who owned 40% of the Dole share and were director and official of Dole, the shareholders arguing that Murdock used DFC to acquire the remaining shares in Dole at an artificially low price to take the company privately.
found that Murdock, Carter and DFC broke their duty of loyalty. The complainants in San Antonio Fire & Police Pension Fund against Dole Food Co., Inc. No. 1
According to Dole, DFC and Murdock ("the policyholder"), they reported D&O insurers on their intention to resolve shareholder disputes, shared information which is relevant to the ongoing conciliation negotiations and formally asked the insurers to contribute funds against dissolution. Despite these efforts, the insurance companies, which had reserved their rights to accept coverage, refused to finance the settlement amount. Instead, the insurance companies claimed their policyholders that they would assure themselves that they had no coverage under the policy.
In their draft summary assessment, insurance companies claimed, among other things, that policyholders violate the policy's written consent by completing the underlying settlements without prior consent. They also claimed that the policyholders violate the co-operation clause and that there is no coverage because the settlements are not a "loss" because that term is defined in the policy. The Court rejected these arguments.
The Court of First Instance stated that the Settlement Rules do not give an insurer the absolute right to veto a reasonable solution. Rather, the provision's primary purpose is to protect the insurer against prejudice or a conscientious settlement. The Court ruled that, on the basis of the record, the insurers were unreasonably holding their consent to the settlements. The Court concluded that there was a real issue of material fact if the insurance companies had a reasonable opportunity to participate before the settlement was concluded. Because of these actual disputes, the court concluded that it would not be a legal matter for policyholders to breach the written consent provisions. In fact, the court declared that if the insurance companies put the policyholders in an unsustainable position by deciding between (a) resolving without consent and possibly losing coverage or (b) continuing with the litigation and then possibly not recovering, a matter of the jury's case .
The Court also argued that there was a real issue of material fact if policyholders violated the co-operation clause of the policy. The court stated that the purpose of cooperation clauses is to prevent the collusion between the insured and the plaintiff and to give the insurer the opportunity to make a reasonable investigation of the claim. The policyholders argued that the insurers did not associate with the defense of the shareholders' trials, did not accept coverage, never reserved their rights to deny coverage in some cases, and also failed to respond to the policyholder's notice of one of the trials. The policyholders argued that the insurance companies could not make reasonable decisions to defend themselves, as insurance companies failed to take timely action. The insurance companies, on the other hand, admitted that the policyholders had notified them of settlement discussions, but finally negotiated the settlement without the insurer's participation. Based on these factual objections, the court rejected the insurers' argument that the co-operation clause was violated by law.
The Court also argued that the settlements were a "loss", which is the policy defined in the relevant section, such as "all monetary amounts insured legally required to pay due to a claim, including damages, settlement amounts and judgments [.] "
When the judges reached their conclusions, the Court based the following established rules on the interpretation of Insurance policies: Insurance policy is interpreted as a whole to give the parties' intentions and to avoid reading individual passages in isolation. Courts must give effect to all terms and avoid a conclusion that makes terms unusable repetitive, illusory or meaningless. If the language of an insurance policy is clear and unambiguous, the intention of the parties is determined by giving the language its usual and common meaning. Ambiguous insurance language is interpreted in the insured's favor, ie according to the doctrine of contra proferentem an insurance policy's language [ ie. an adhesion agreement) is most strongly interpreted against the insurance company that drafted the policy. An insurance policy is ambiguous when the relevant provisions are reasonable or rather susceptible to different interpretations or may have more than one sentence. Coverage language is widely interpreted to protect the insured's objectively reasonable expectations. Exclusive clauses on the one hand are given a strict and narrow construction. Finally, the Court emphasized that courts apply reasonable expectation doctrines to meet the insured's expectations even though those expectations are contrary to the unambiguous, simple meaning of the clauses.
The judgment of the Court shows that if an insurer can invoke an alleged breach of the policyholder's obligations to cooperate or seek consent for the purpose of denying coverage under a liability policy, often fact-intensive issues that courts generally avoid solving as a legal issue. Consequently, it is necessary to insureds documenting its communication with insurers, including but not limited to the notification of claims, requests for participation in mediation, requirements to resolve and ongoing cooperation. Since these issues often lead to a survey on invoicing, it is important to have interactions with the insurance companies well documented.