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Arch Insurance Company v. Murdock

Superior Court of Delaware

May 7, 2019

ARCH INSURANCE COMPANY, LIBERTY MUTUAL INSURANCE COMPANY, CONTINENTAL CASUALTY INSURANCE COMPANY, NAVIGATORS INSURANCE COMPANY, RSUI INDEMNITY COMPANY, and BERKLEY INSURANCE COMPANY, Plaintiffs,
v.
DAVID H. MURDOCK, DOLE FOOD COMPANY, INC., and DFC HOLDINGS, LLC, Defendants.

          Submitted: January 22, 2019

         Upon Defendant David H. Murdock's Motion for Summary Judgment GRANTED in part and DENIED in part

         Upon Defendant Dole Food Company, Inc.'s Motion for Summary Judgment GRANTED in part and DENIED in part

         Upon Defendant DFC Holdings, LLC's Motion for Summary Judgment GRANTED in part and DENIED in part

         Upon Plaintiff Insurers' Second Motion for Summary Judgment GRANTED in part and DENIED in part

          Robert J. Katzenstein, Esquire and Kathleen M. Miller, Esquire, Smith, Katzenstein & Jenkins LLP, Wilmington, Delaware. Attorneys for All Plaintiffs.

          Ronald P. Schiller, Esquire, Daniel J. Layden, Esquire, Bonnie M. Hoffman, Esquire and Hangley Aronchick Segal, Pudlin & Schiller, Philadelphia, PA. Attorneys for Navigators Insurance Company.

          Michael L. Manire, Esquire and Deeanna M. Galla, Manire & Galla LLP, New York, New York, Robert P. Conlon, Esquire and Kevin A. Lahm, Esquire, Walker Wilcox Matousek LLP, Chicago, Illinois, Merril Hirsh, Esquire, Merril Hirsh PLLC, Washington, D.C. Attorneys for RSUI Insurance Company.

          Elena C. Norman, Esquire and Mary F. Dugan, Esquire, Young Conaway Stargatt & Taylor LLP, Wilmington, Delaware, Kirk A. Pasich, Esquire and Pamela Woods, Esquire, Pasich LLP, Los Angeles, California, Mikaela Whitman, Esquire and Jeffrey L. Schulman, Esquire, Pasich LLP, New York, New York. Attorneys for David H. Murdock, Dole Food Company, Inc., and DFC Holdings, LLC.

          ERIC M. DAVIS, JUDGE

         I. INTRODUCTION

         This breach of contract case is assigned to the Complex Commercial Litigation Division of this Court. Plaintiffs Arch Insurance Company, Liberty Mutual Insurance Company, Continental Casualty Insurance Company, Navigators Insurance Company ("Navigators"), RSUI Indemnity Company ("RSUI"), and Berkley Insurance Company are six excess insurance carriers. The insurance carriers filed a declaratory judgment against Defendants David H. Murdock, Dole Food Company, Inc. ("Dole"), and DFC Holdings, LLC ("DFC") (collectively, the "Defendants"). The insurance carriers seek a declaratory judgment that they do not have to fund an underlying settlement due to Defendants' alleged breaches of the applicable insurance policies (the "Policies").

         On August 22, 2018, Navigators and RSUI (collectively, the "Insurers") filed their second motion for summary judgment (the "Insurers' Motion"). In addition, on August 22, 2018, the Defendants each filed motions for summary judgment (collectively the "Defendants' Motions"). On December 7, 2018 and January 22, 2019, the Court held hearings (the "Hearings") on the Insurers' Motion and the Defendants' Motion (collectively, the "Motions"). After the Hearings, the Court took the matter under advisement. This is the Court's opinion on the Motions. For the reasons set forth more fully below, the Motions are GRANTED in part and DENIED in part.[1]

         II. RELEVANT FACTS

         A. Parties

         The Insurers provided part of Dole's overall tower of Directors' and Officers' Liability insurance coverage.[2] The Policies are in excess of, and follow form to, Axis Insurance Company's Primary Policy (the "Primary Policy") and two, non-party, excess carriers: National Union Fire Insurance Company and Federal Insurance Company.[3] The Primary policy provides $15, 000, 000 in coverage.[4] Navigators' and RSUI's policies were the seventh and eighth "layers" in the tower, and each provided $10, 000, 000 in coverage excess of a $500, 000 retention (to be paid by Dole) and $65, 000, 000 and $75, 000, 000 in underlying insurance, respectively.[5]

         Navigators is a New York corporation with its principal place of business in New York.[6]RSUI is a New Hampshire corporation with its principal place of business in Georgia.[7] Dole is a Delaware corporation.[8] Mr. Murdock owned 40% of Dole's stock and was a director and officer of Dole.[9] C. Michael Carter was Dole's president and CEO.[10] DFC is a Delaware LLC that acts as an acquisition vehicle.[11]

         B. Relevant Policy Provisions

         Dole executed the Policies with the Insurers. The Policies are claims-based insurance for the directors, officers, and corporate liability. Section 1 of the Primary Policy, as amended by Endorsement 3, lists the situations in which the Insurers are obligated to provide coverage to insureds.[12] In the Policies, the term "Insureds" refers to the "Policyholder" and "Insured Individuals."[13] The term "Policyholder" refers to Dole and its subsidiaries and "Insured Individuals" include the directors and officers of Dole.[14] Section 1 states:

A. The Insurer shall pay on behalf of the Insured Individual all Loss which is not indemnified by the Policyholder arising from any Claim for a Wrongful Act first made against or Insured Inquiry first received by such Insured Individual during the Policy Period or the Extended Reporting Period, if applicable.
B. The Insurer shall pay on behalf of the Policyholder all Loss for which the Policyholder grants indemnification to any Insured Individual, as permitted or required by law, arising from any Claim for a Wrongful Act first made against or Insured Inquiry first received by such Insured Individual during the Policy Period or the Extended Reporting Period, if applicable.
C. The Insurer shall pay on behalf of the Policyholder all Loss arising from any Securities Claim first made against the Policyholder during the Policy Period or the Extended Reporting Period, if applicable, for a Wrongful Act.[15]
1. Loss
Section III of the Primary Policy, as amended by Endorsement 3, defines "Loss" as:
Loss means all monetary amounts which the Insureds become legally obligated to pay on account of a Claim, including damages, settlement amounts and judgments, including any award of punitive, exemplary or multiple damages, pre-judgment or post-judgment interest, costs and fees awarded pursuant to judgments, Defense Costs . . . .
Loss does not include: . . .
4. any amount representing the increase in the consideration paid (or proposed to be paid) by the Policyholder in connection with its purchase of any securities or assets; or
5. matters uninsurable under the law applicable to this Policy, provided:
a. the law of the jurisdiction most favorable to the insurability of such matters shall apply; provided further such jurisdiction is: (i) where such amounts were awarded or imposed; (ii) where any Wrongful Act underlying the Claim took place; (iii) where either the Insurer or any Insured is incorporated, has its principal place of business or resides; or (iv) where this Policy was issued or became effective.[16]

         Section III of the Primary Policy, as amended by Endorsement 3, also defines "Wrongful Act" as "any actual or alleged error, misstatement, misleading statement, act, omission, neglect or breach of duty by [among others] . . . any Insured Individual . . . ."[17]

         2. The Written Consent Provision

         Section V.D of the Primary Policy, as amended by Endorsement 3, contains a provision, which requires the Insureds to obtain the Insurers' written consent before the Insureds may enter into a settlement (the "Written Consent Provision").[18] The Written Consent Provision states: "[t]he Insureds shall not admit any liability, settle, offer to settle, stipulate to any judgment or otherwise assume any contractual obligation with regard to any Claim or Insured Inquiry without the Insurer's prior written consent, which shall not be unreasonably withheld."[19]

         3. The Cooperation Clause

         Section V.D of the Primary Policy, as amended by Endorsement 3, also contains a provision that requires the Insureds to cooperate with the Insurers (the "Cooperation Clause"). The Cooperation Clause states:

The Insurer shall have the right and shall be given the opportunity to effectively associate with the Insureds in the investigation, defense and settlement, including but not limited to the negotiation of a settlement, of any Claim that appears reasonably likely to be covered in whole or in part hereunder.
The Insureds shall provide the Insurer with all information, assistance and cooperation which the Insurer reasonably requests and shall do nothing that may prejudice the Insurer's potential or actual rights of recovery with respect to Loss paid; provided the failure of one Insured Individual to comply with this provision shall not impair the rights of any other Insured Individual under this Policy.[20]

         4. Allocation

         Finally, Section VIII.A of the Primary Policy on the allocation of insurance coverage between Insureds and non-Insureds states:

If in any Claim, the Insureds who are afforded coverage for such Claim incur Loss jointly with others (including other Insureds) who are not afforded coverage for such Claim, or incur an amount consisting of both Loss covered by this Policy and loss not covered by this Policy because such Claim includes both covered and uncovered matters, then the Insureds and the Insurer agree to use their best efforts to determine a fair and proper allocation of covered Loss. The Insurer's obligation shall relate only to those sums allocated to matters and Insureds which are afforded coverage. In making such determination, the parties shall take into account the relative legal and financial exposures of the Insureds in connection with the defense and/or settlement of the Claim.[21]

         C. In re Dole Food Company, Inc. Stockholder Litigation

         In 2013, Mr. Murdock utilized DFC to acquire the remaining Dole stock and take it private.[22] Mr. Murdock completed the acquisition in November 2013. Mr. Murdock paid shareholders $13.50 per share.[23] Thereafter, the shareholders filed multiple lawsuits challenging the transaction's fairness.[24]

         In re Dole Food Company, Inc. Stockholder Litigation ("Memorandum Opinion") [25] is one of two shareholder litigations relevant to this civil action. This action was filed in the Delaware Court of Chancery (the "Chancery Court"). The Defendants were all parties to the Memorandum Opinion.[26] The stockholders alleged Defendants engaged in a lengthy process that manipulated the stock price so that Mr. Murdock could acquire the stock at a lower price.[27] At the outset of the litigation, Dole paid the defense costs incurred.[28] Once the $500, 000 retention had been met, AXIS began to pay the defense costs.[29] By March 2015, AXIS had paid $15, 000, 000 in defense costs for the litigation.[30] The first excess insurer, National Union Fire Insurance Company, then paid defense costs.[31]

         Vice Chancellor Laster, in his Memorandum Opinion, repeatedly cited to "fraud" and "fraudulent activity."[32] Vice Chancellor Laster specifically found breaches of the duty of loyalty, and assessed liability against Mr. Murdock, Mr. Carter, and DFC in the amount of $148, 190, 590.18.[33] The plaintiffs also were entitled to seek their attorneys' fees in addition to this amount.[34]

          On September 21, 2015, Dole's "insurance recovery counsel" wrote to the Insurers.[35]The letter attached the Memorandum Opinion and notified the Insurers that Dole was considering settlement and mediation.[36] It asked that the Insurers fund a settlement.[37] The Insurers all responded, citing various potential exclusions and requesting more information from Dole.[38] On October 29, 2015, Dole, Mr. Murdock and Mr. Carter responded.[39] Dole disagreed with one of the Insurers' reservations, and again demanded coverage for the underlying settlement.[40]

         On November 5, 2015, Dole signed a term sheet settling the underlying action.[41] On December 7, 2015, the underlying parties signed a formal Stipulation and Agreement of Settlement (the "Settlement").[42] In lieu of an appeal, the parties settled for 100% plus interest.[43]Mr. Murdock agreed to pay the settlement on the Defendants' behalf. Vice Chancellor Laster approved the settlement on February 10, 2016 (the "Order and Final Judgment").[44] The Settlement caused the Chancery Court action to be dismissed with prejudice[45] The Insurers did not object to the Settlement or appeal the Order and Final Judgment in the Chancery Court.[46]

         The Defendants contend that they kept the Insurers informed as to the progress of the negotiations and provided copies of drafts of term sheets.[47] The Defendants also state that none of the Insurers asked to participate in the settlement negotiations or objected to or commented on any of the settlement terms.[48] On February 26, 2016, Dole's counsel wrote to the Insurers, seeking indemnification for the Settlement.[49]

         On January 13, 2016, prior to the Chancery Court's approving the Settlement, the Insurers filed this civil action.

         D. San Antonio Fire & Police Pension Fund v. Dole Food Co., Inc.

         On December 9, 2015, suit was filed against Dole and Mr. Murdock in United States District Court for the District of Delaware-San Antonio Fire & Police Pension Fund v. Dole Food Co., Inc., No. 1:15-CV-01140 (D. Del.)(the "San Antonio Action").[50] The Defendants state that Dole gave the Insurers notice of the San Antonio Action.[51] The Insurers responded over a six-month period as to their respective coverage positions.[52] According to the Defendants, the Insurers took the same coverage positions with respect to the San Antonio Action as were taken in the Memorandum Opinion.[53]

         In October 2016, the Delaware District Court scheduled an Alternative Dispute Resolution teleconference in the San Antonio Action.[54] The Defendants notified the Insurers of this teleconference.[55] The San Antonio Action plaintiffs then approached the Defendants about mediation, and the parties discussed the timing of such a mediation and potential mediators.[56]

         The Defendants scheduled a teleconference to discuss the potential mediation with the Insurers.[57] During this teleconference, the Defendants stated to the Insurers that the Defendants thought it would be beneficial to mediate the San Antonio Action.[58] The Defendants purported to identify potential mediators that had been previously discussed with the plaintiffs and asked the Insurers for input.[59] The Insurers provided some feedback on potential mediators but none objected to the mediation or to using Judge Layn Phillips as a mediator.[60]

         Arch and Liberty asked the Insured to provide who was the Insured's damages expert and a damage assessment report during the teleconference.[61] The Defendants refused to provide this information, claiming that it was work product or attorney-client privileged information and if it was disclosed to non-defending insurers it could be argued that the Defendants waived these privileges.[62]

         The Defendants relayed to the Insurers the mediation dates.[63] Once each Insurer signed a Mediation Confidentiality Agreement required by the mediator, the Defendants provided the mediation briefs to the Insurers.[64] According to the Defendants, only Arch and Liberty attended the mediation and the other Insurers received telephonic updates.[65]

         After the mediation, the Defendants told the Insurers that the Defendants had provisionally agreed to terms of a term sheet (the "Term Sheet").[66] The Term Sheet was subject to the approval of Dole's board of directors within ten business days.[67] The Defendants asked the Insurers to confirm that the Insurers would contribute to the settlement reached in the Term Sheet.[68] The Defendants also provided the Insurers with information requested in the November 2016 teleconference-damage analyses by Dole's consulting expert-and asked them to let the Defendants know if they needed any additional information.[69] According to the Defendants, none of the Insurers requested additional information.[70]

         The Insurers each responded to the request that it contribute to fund the settlement.[71] The Insurers did not fund the settlement.[72] The Defendants negotiated a final settlement (the "San Antonio Settlement") with the San Antonio Action plaintiffs.[73] The Delaware District Court entered a Judgment Approving Class Settlement, finding that the settlement was "in all respects, fair, reasonable, and adequate to the Settlement Class."[74]

         The Insurers did not provide prior written consent for (i) the Settlement or (ii) the San Antonio Settlement.

         E. Procedural History

         The Insurers filed a complaint on January 13, 2016. The parties stipulated to dismiss the Insurers' claims against DFC, because DFC, is not an insured under any of the policies."[75] The Insurers filed an Amended Complaint for Declaratory Judgment (the "Amended Complaint") on April 8, 2016. The Amended Complaint has two counts. In Count I, Insurers seek a declaratory judgment that the Insurers have no obligation to pay for the Settlement under the terms of the Policies. The Insurers disclaim coverage for the Settlement because, among other reasons, (i) the Policies do not cover Dole, (ii) California Insurance Code Section 533 bars coverage, (iii) the Settlement does not constitute "Loss" covered under the Policies, (iv) the Defendants were not acting in an insured capacity in the circumstances under which the Defendants claim coverage, (v) the Employed Attorney Exclusion in Primary Policy Section IV, as amended by Endorsement No. 5 bars coverage, (vi) applicable law and public policy bar coverage, (vii) Primary Policy Section IV.A.6, as amended by Endorsement No. 3 bars coverage, (viii) Section VIII as amended by Endorsement No. 3 bars coverage, (ix) the Defendants breached the Written Consent Provision and the Cooperation Clause in Primary Policy Section V.D, as amended by Endorsement No. 3, and (x) excess coverage is not available until the Defendants have exhausted their primary coverage. In Count II, Insurers seek declaratory judgment that the Insurers are subrogated to any rights the Defendants have to recover payments from the Mr. Carter, Mr. Murdock, and DFC.

         On April 28, 2016, the Defendants filed a Motion to Dismiss.[76] Then, on December 21, 2016, the Court partially granted Motion to Dismiss (the "MTD Decision").[77] As set out more fully in the MTD Decision, the Court found that: (i) the Insurers have sufficiently plead a claim for declaratory judgment in Count I, (ii) Primary Policy Section IV.A.6 does not apply to this case, and (iii) the Insurers cannot subrogate claims against the Defendants.[78]

         The Defendants filed their amended answer, affirmative defenses, and counterclaims (the "Counterclaims") on April 18, 2017. The Defendants assert five counterclaims: (i) Counterclaim 1-the Insurers breached the Policies by refusing to pay for the Settlement; (ii) Counterclaim 2-the Insurers breached the Policies by refusing to pay for the San Antonio Settlement; (iii) Counterclaim 3-the Insurers breached the implied covenant of good faith and fair dealing in denying coverage for the Settlement and the San Antonio Settlement; (iv) Counterclaim 4-the Insurers committed fraud because the Insurers never had any intention of fulfilling its obligations under the Policies; and (v) Counterclaim 5-fraud in the inducement. In addition to compensatory damages, the Defendants seek punitive damages.

         All of the insurance carriers answered the Counterclaims. The insurance carriers assert many of the reasons for disclaiming coverage in the Amended Complaint as affirmative defenses in the insurance carriers' answers to the Counterclaims.

         On March 1, 2018, the Court partially granted insurance carriers Arch Insurance Company's, Liberty Mutual Insurance Company's, Continental Casualty Insurance Company's, Navigators', RSUI's, and Berkley Insurance Company's motion for summary judgment (the "First MSJ").[79] In the First MSJ, the Court held that: (i) the Defendants are collaterally estoppel from relitigating the Memorandum Opinion's factual determinations, including those of fraud and disloyalty, to the extent those factual determinations are relevant to this civil action, (ii) Delaware law applies to the Policies, (iii) Delaware law and public policy do not excuse the Insurers from indemnifying the Defendants for breach of loyalty based upon fraud, and (iv) Counterclaim 5 was dismissed with prejudice for failing to state a claim upon which relief can be granted.

         The Court also held that it could not grant summary judgment on (i) the Defendants' violation of the Written Consent Provision because the Insurers had not shown that the Insurers suffered sufficient prejudice, (ii) the Defendants' violation of the Cooperation Clause because there were genuine issues of material facts about whether there was a substantial breach of the Cooperation Clause, and (iii) the Defendants' bad faith claim in Counterclaim 3 because the parties had not fully developed the record and genuine issues of material fact remained.[80]

         Thereafter, on August 22, 2018, Insurers filed Plaintiff Insurer's Brief in Support of Second Motion for Summary Judgment ("Insurers' Motion"). Then, on September 19, 2018, Defendants' filed Defendants' Answering Brief in Opposition to Plaintiff Insurers' Second Motion for Summary Judgment (the "Defendants' Opposition"). Insurers filed Plaintiff Insurers' Reply Brief in Support of Second Motion for Summary Judgment (the "Insurers' Reply") on October 10, 2018.

         In addition, on August 22, 2018, Defendants filed David H. Murdock's Opening Brief in Support of His Motion for Summary Judgment ("Mr. Murdock's Motion"), Defendant Dole Food Company, Inc.'s Opening Brief in Support of its Motion for Summary Judgment ("Dole's Motion"), and Defendant DFC Holdings, LLC's Opening Brief in Support of its Motion for Summary Judgment ("DFC's Motion") (collectively "Defendants' Motions"). Next, on September 19, 2018, Insurers' filed Plaintiff Insurers' Brief in Opposition to Defendants' Motions for Summary Judgment ("Insurers' Opposition"). Finally, on October 10, 2018, Defendants' filed Defendants' Reply Brief in Support of Defendants' Motions for Summary Judgment ("Defendants' Reply").

         The Court held hearings (the "Hearings") on December 7, 2018 and January 22, 2019 hearings. After the Hearings, the Court took the matters under advisement.

         III. STANDARD OF REVIEW

         The standard of review on a motion for summary judgment is well-settled. The Court's principal function when considering a motion for summary judgment is to examine the record to determine whether genuine issues of material fact exist, "but not to decide such issues."[81]Summary judgment will be granted if, after viewing the record in a light most favorable to a nonmoving party, no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law.[82] If, however, the record reveals that material facts are in dispute, or if the factual record has not been developed thoroughly enough to allow the Court to apply the law to the factual record, then summary judgment will not be granted.[83] The moving party bears the initial burden of demonstrating that the undisputed facts support his claims or defenses.[84] If the motion is properly supported, then the burden shifts to the non-moving party to demonstrate that there are material issues of fact for the resolution by the ultimate fact-finder.[85]

         Where, as here, the parties have filed cross motions for summary judgment and have not argued that there are genuine issues of material fact, "the Court shall deem the motions to be the equivalent of a stipulation for decision on the merits based on the record submitted with the motions."[86] Neither party's motion will be granted unless no genuine issue of material fact exists and one of the parties is entitled to judgment as a matter of law.[87]

         IV. PARTIES' CONTENTIONS

         A. Insurers' Motion

         In the Insurers' Motion, the Insurers contend that the Court should grant summary judgment finding that (i) the Insurers' had no obligation to provide insurance coverage because Dole and Mr. Murdock violated the Written Consent Provision, (ii) the Insurers' had no obligation to provide insurance coverage because Dole and Mr. Murdock violated the Cooperation Clause, and (iii) the Insurers did not act in bad faith with respect to Dole and Mr. Murdock. In addition, the Insurers argue that the Insurers are entitled to summary judgment under Count II of the Amended Complaint against DFC. The Defendants oppose the Insurers' Motion.

         B. Defendants' Motion

         In the Defendants' Motion, the Defendants argue that the Court should grant summary judgment rejecting the following coverage defenses that the Insurers asserted in the Amended Complaint: (i) the Settlement payment does not constitute "Loss," (ii) no coverage is available under the Policies because the underlying limits of liability have not been exhausted by payment of Loss, (iii) the Insurers' performance is excused because Mr. Murdock violated the policies' subrogation condition by interfering with the Insurers' subrogation rights, (iv) the Insurers' performance is excused because Mr. Murdock did not comply with the Cooperation Clause, (v) the Insurers' performance is excused because Mr. Murdock did not comply with the Written Consent Provision, and (6) to the extent any portion of the Settlement is covered, any amounts to be paid must be allocated between covered and uncovered Loss.

         On May 1, 2019, the Court entered its Order Granting Summary Judgment on Counterclaim 3-Breach of Implied Covenant of Good Faith and Fair Dealing (the "Counterclaim 3 Order").[88] Through the Counterclaim 3 Order, the Court granted summary judgment in favor of the Insurers on Counterclaim 3. The Court will not, therefore, further discuss Counterclaim 3 in this decision; however, the Counterclaim 3 Order is incorporated by reference here.

         In addition, the Court does not feel that the record, as provided the Court through briefing, was developed enough to rule on issues relating to allocation and exhaustion. The Court will issue an ...


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