If you were born and raised in New Jersey like me, you’ve heard your share of New Jersey jokes from hackers who think the entire state is like a Turnpike near Newark Airport. (“What’s the way out?” How clever is cool.) My response to these jokes is twofold. First, believe me on this, we don’t like you either. Second, we have Springsteen, Sinatra, Sopranos, Jersey Shore, three Stanley Cups, and two New York soccer teams.
So, the most important issue is: Why does Delaware exist?
I know, I know, the current president comes from Delaware. So did George Thoroughgood. and Valerie Bertinelli. But really, other than that, all they have down there is a big bridge, one beach, and an army of corporate lawyers, right?
Of course I’m joking. Another thing that Delaware has is the Supreme Court, which has a deep understanding of insurance law. As other states look to the Delaware courts for guidance regarding business cases, this is very important for those of us who represent policyholders in coverage lawsuits.
In the current environment, when business transactions go wrong, it is common for one party to accuse the other of fraud. Fraud litigation can be expensive, and it’s no exaggeration to say that having insurance could mean the difference between bankruptcy and survival. Recently, the Delaware Supreme Court dealt with the question of whether claims alleging fraud are insurable. Insurance companies often say it isn’t, which is what they argued in a Delaware court. they lost.
the case, RSUI vs. Murdock (which you can read over here), addressed whether the excess liability policy for directors and employees covered a shareholder lawsuit alleging wrongful manipulation of stock prices by two Dole employees. RSUI provided insurance at 8The tenth Layer of Tower Coverage, with $10M insurance over $75M in basic limits. There were two types of shareholder lawsuits. Prosecutors won $148 million in a court trial in one of them. The RSUI has denied responsibility for defense and judgment costs, on the grounds that fraud insurance is against public policy.
Insurers like to argue that business policy holders shouldn’t take advantage of policy building rules, which generally favor coverage, because of its “evolution.” (If you’ve been involved in coverage litigation long enough, the concept is funny. No matter how “sophisticated” you are, you may still need flowcharts, a dictionary, and a healthy dose of luck to figure out what most policies cover.)
Here, the Delaware Supreme Court has turned the tables, essentially finding that Insurance company It was “complicated” and should not be allowed to escape paid coverage based on some kind of implicit morality clause. (“Your Majesty, we would like to cover this claim, but we should all consider the greater good…”)
Specifically, the court wrote:
The question, then, is: Does our state have a public policy against fraudulent insurance so strong that it negates the parties’ freedom to contract? We feel that does not. Conversely, when the Delaware General Assembly passed Section 145 authorizing corporations to grant their directors and employees broad indemnity and rights to advance and purchase D&O insurance “against any liability” asserted against their directors and officers “whether or not the corporation has the power to indemnify such person against such liability under This section,” I expressed the opposite of the policy the RSUI is asking us to adopt.
There are two interesting lessons from this case. First, policies under the RSUI layer paid a staggering $75 million to defend securities fraud claims. While this case is an extreme example, litigation is amazing expensive. Always avoid them if you can, by paying careful attention to risk management protocols. Second, don’t take standard language in insurance company rejection letters as the last word. If the policyholders here surrendered after denying the RSUI claim, they would have been left with overwhelming obligations. So: Get a good attorney who understands insurance law.
Here, that was a good lawyer Kirk Pasich by Pasich LLP, who has been fighting a battle with carriers for decades. Kirk props on a fantastic result.