Del. court requires coverage in Dole D&O policy dispute
The decision sets up what might be the most comprehensive larger-settlement rule in the country.
A recent Delaware Supreme Court decision upholding coverage for Dole Food Co. Inc. marks a win for companies wanting to cash in on D&O liability insurance coverage.
The court upheld a Superior Court decision, stating that neither Delaware law nor RSUI Indemnity Co.’s policy removed RSUI’s coverage duty in two lawsuits settled against Dole, and it may have given Delaware the most comprehensive larger settlement rule in the country.
“There was kind of a dearth of Delaware law on most of these issues, so it really provides a lot of guidance for insurers, and obviously a lot of encouragement on what’s covered in, quite frankly, very common types of claims against them,” said Pamela Woods of Pasich LLP, which represented Dole in the case along with Young Conaway Stargatt & Taylor.
The circumstances that led to the insurance dispute started with two lawsuits, both involving Dole officers and one also filed against the company itself.
The first suit was filed in 2014 and, following a trial two years later, the Court of Chancery issued an opinion finding two Dole officers liable for $148 million and referencing fraud. A settlement negotiation then began, and two days after it was settled for $115 million, the second suit was filed.
Six Dole insurers then filed another Delaware case and refused to pay for the first settlement, and Dole and Murdock filed a counterclaim against the companies when the second suit was settled for $74 million. All the companies except RSUI ultimately settled with Dole, while RSUI appealed the rulings against it.
The decision has far-reaching implications
The Supreme Court found that the larger settlement rule applied because RSUI hadn’t shown that the uninsured aspects of the case added onto the losses incurred by the insured ones. Pasich LLP managing partner Kirk Pasich said only a handful of other courts nationwide have similarly adopted larger settlement rules, and the Delaware Supreme Court may now be the court that’s taken the rule the furthest.
“In most of the handful of decisions that may have done it, you’re dealing with insured parties and uninsured parties,” Pasich said. “This decision’s important not only in adopting a larger settlement rule but in adopting it and addressing not just insured and uninsured parties but insured and uninsured claims.”
Both Pasich and Woods said because the language in D&O policies generally doesn’t differ much from one corporation’s policy to another’s, it’s likely the decision will be significant in its application to other settlements moving forward, and it could set a precedent in insured companies’ favor in other courts.
Though RSUI argued California law should apply because it’s the state where Dole is headquartered and the policy was negotiated, the Supreme Court found Delaware law applied to the D&O coverage because Delaware law applies in nearly all cases involving Delaware corporations’ stockholders, investors and the corporation itself. Woods said it’s noteworthy the court opted to address the issue of choice of law at all.
The Supreme Court also found the circumstances of the case didn’t reach a point where RSUI would be exempt from insuring fraud under either Delaware law or the terms of its policy with Dole. Pasich said insurance companies likely won’t be able to tip the scales back in their favor on the issue simply by changing the language in a policy to more broadly indemnify them for fraud coverage.
“We may see them try to add some choice of law clauses. Sometimes they put them in, but given that Delaware has said, for example, that there’s no Delaware public policy against insuring against fraud, it’s possible that they might try to change the language,” Pasich said. “If you have a choice between a policy with severe limitations and one without them, you’re probably going to buy the policy without those limitations. So there will be some market checks and balances on what the insurers can do.”
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