Opinion
C.A. No. 09C-11-174 FSS.
November 23, 2010.
Upon Defendant's Motion for Reargument — DENIED.
Kathleen A. Murphy, Esquire, Reed Smith LLP, Wilmington, DE.
Brian L. Kasprzak, Esquire, Marks, O'Neill, O'Brien Courtney, P.C., Wilmington, DE.
Dear Counsel:
In its timely motion for reargument under Superior Court Civil Rule 59(c), Liberty Mutual contends that the November 5, 2010 decision was wrong in two ways. First, Liberty Mutual emphasizes the fact that the underlying claims against the directors and officers also involved federal securities law violations. That, according to Liberty Mutual, undermines the finding that, for choice of law purposes, Delaware has the most significant relationship with the D O policy, here. Second, Liberty Mutual contends that the court's alleged reliance on Dunlap v. State Farm Fire Cas. Co., is misplaced because Dunlap is inapplicable and distinguishable in several ways.
878 A.2d 434 (Del. 2005).
Plaintiffs oppose reargument and their response is on point and helpful, except for one thing. Plaintiffs state that the court "rejected" the presumption that the directors' and officers' misconduct "primarily occurred in Virginia." Actually, viewing the record in the light most favorable to Liberty Mutual, the court cannot tell where the misconduct occurred. The court actually presumed that the scheme to defraud investors was hatched and implemented, to a large extent, at headquarters in Virginia. It cannot, however, be disputed that significant misconduct occurred elsewhere. But, as the opinion explains and as mentioned next, the decision is more concerned with the misconduct's nature, and it is not concerned with its location, even assuming its location were known.
See, e.g. Mem. Op. And Order at 8 ("Presumably, the filings were made in the District of Columbia, which means that wherever the scheme was fabricated the lies were first told in Washington."); at 9 ("Along with the officer/director and director-only defendants, Mills's accountants and underwriters, who also were named for their parts in the fraud, were mostly New York-based.")
See, e.g. Mem. Op. And Order at 17 ("When the conduct of a corporation's directors and officers is centrally implicated, the place of incorporation is important.")
I.
As to choice of law, the court did not, as Liberty Mutual declares, "overlook[] the fact that claims asserted against directors and officers also involved violations of federal securities law." At several points, the decision specifically refers to the directors' and officers' violations of federal securities laws and the federal court litigation they precipitated. The choice of laws question, however, did not involve a choice between applying federal or state law when this court read the insurance contract at issue. The parties agreed that the choice was between Delaware's or Virginia's insurance law.
Def.'s Mot. for Reargument 2.
See, e.g. Mem. Op. and Order at 6 ("On January 20, 2006, investors brought four securities class actions against Mills and several former directors and officers.") (citing the federal case) and ("As to the directors-only, they were charged with signing fraudulent federal securities filings."); at 7 ("The settlement was approved by the United State District Court for the Eastern District of Virginia on December 23, 2009.") (citing the federal case).
Liberty Mutual misstates the decision's holding. The decision actually begins by holding there is no actual conflict between Delaware's and Virginia's laws. Then, the decision addresses the parties' expectations. Only after that, does the decision assume a conflict. With an assumed conflict, Delaware has the most significant relationship to the insured risk. That is true even if the directors and officers violated federal securities law, and even if some, or all, of their misconduct happened at headquarters in Virginia. The misconduct violated Delaware's law, as well as federal law, but it did not involve Virginia's law. Virginia is involved by happenstance.
To be clear, if there were a conflict of law, which there is not, the court's choosing Delaware's insurance law over Virginia's does not rest on antiquated and superficial notions of lex loci delectus or lex loci contractus, which Liberty Mutual tacitly advocates. Consistent with the Restatement of Conflicts, the decision here rests on the insured risk's substantive nature and Delaware's strong interest in it.
See, e.g. Mem. Op. and Order at 16 ("When the insured risk is the directors' and officers' `honesty and fidelity' to the corporation, and the choice of law is between headquarters or the state of incorporation, the state of incorporation has the most significant relationship.").
II.
Liberty Mutual's argument about Dunlap seriously mischaracterizes and misstates the holding. The decision plainly states that it rests on Zeig v. Mass. Bonding Ins. Co., and follows HLTH Corp. v. Agric. Excess Surplus Ins. Co. The decision expressly does not rest on Dunlap. The decision, itself, recognizes that Dunlap's facts were distinguishable. The decision appropriately mentions Dunlap's reasoning because Dunlap's reasoning "underscores Zeig's point." But, again, the decision rests on Zeig, et al.III.
The motion for reargument offers one thing new. Liberty Mutual correctly observes "principles of insurance contract interpretation do not require [it] to demonstrate prejudice or a business reason." Even so, Liberty Mutual suggests that it provided "a legitimate business reason for enforcing the exhaustion provision (and why it would be prejudiced if the provision is not enforced based on the unambiguous language of the Liberty Mutual Excess Policy) — the premiums charged for excess insurance." Liberty Mutual's passing reference to excess insurance premiums is without citation, and it muddies Liberty Mutual's central argument. The decision recognizes that "Liberty Mutual is entitled to every legitimate benefit of its bargain," but the "court is not interested in scrutinizing a business deal in a vacuum simply to vindicate a theoretical right, as if this coverage question were a game of "Gotcha."The decision correctly reflects the core point that Liberty Mutual stood and fell on: the policy's clarity. As the decision explains, if the policy were ambiguous, the court would look to the parties' expectations or contra preferentum, neither of which favors Liberty Mutual. Thus, Liberty Mutual has taken the position, throughout, that the policy's language was not triggered as a matter of law. And, therefore, Liberty Mutual has insisted that it does not have to justify its denial of coverage on anything but its exhaustion clause.
The decision primarily agrees with Liberty Mutual that the exhaustion clause is unambiguous as a matter of law. The decision concludes, however, that an exhaustion clause like the one Liberty Mutual drafted does not require actual exhaustion as a matter of law. Although the decision refers to Dunlap, good faith, fair dealing and the lack of a valid business reason, they are not what the decision rests on. The reference to those other things helps further explain why the law, as articulated by Zeig and adopted in HLTH Corp., makes sense.
IV.
For the foregoing reasons, Defendant's November 15, 2010 Motion For Reargument is DENIED.
IT IS SO ORDERED.