Epic D&O Insurance Coverage Case Out Of Delaware

Every now and then, writes D&O insurance expert Kevin LaCroix. there is a coverage dispute “so broad that it constitutes a veritable D&O insurance coverage curriculum.” One such dispute recently came out of the Delaware state courts, he says. That case is Northrup Grumman Innovation Systems, Inc. v. Zurich American Insurance Co., et al – the et al in this case consisting of a long list of carriers, with the exact number not immediately apparent because one is identified only as “Certain Underwriters at Lloyds of London.” The presiding judge himself was impressed with the complexity of the case, describing it in his preliminary comments to the 60-page opinion as a sprawling dispute that involved “one transaction, two alleged federal securities law violations, three policy towers, seven motions, and a baker’s dozen parties.” The dispute arose after Northrup sought coverage from all three of the “towers, and all three replied with versions of the same answer: “Not me.”

This dispute in not over – there could be a trial and appeals – but LaCroix provides some takeaways, along with one speculative note, on the basis of what has happened so far. “Although it is not a universally valid proposition,” he says, “it is generally true that on balance policyholders will want to have their D&O insurance coverage disputes resolved in Delaware courts.” He bases this conclusion in part on the judge’s choice-of-law analysis, which relies on the Delaware criteria that are, LaCroix notes, heavily weighted toward one consideration: the policy holder’s state of incorporation. “Why?” he asks, and then answers his own question.

“Because – to cut to the chase on what it is really going on here – Delaware clearly thinks it has an interest in seeing that D&O insurers pay the claims of corporations incorporated under the laws of the state,” he says, adding that in reading this opinion, he wondered, not for the first time, “how long it will be before choice of law or choice of forum provisions start to become standard features of D&O insurance policies.”