Submitted: April 16, 2019
Defendants ACE American Insurance Company and Federal
Insurance Company's Motion for Summary Judgment: Denied
J. Baldwin, Esquire, Carla M. Jones, Esquire of POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware, and Peter
M. Gillon, Esquire, Alexander D. Hardiman, Esquire, Tamara D.
Bruno, Esquire of PILLSBURY WINTHROP SHAW PITTMAN LLP,
Washington, D.C., Attorneys for Plaintiff.
Gregory F. Fischer, Esquire of COZEN O'CONNOR,
Wilmington, Delaware, and Angelo G. Savino, Esquire of COZEN
O'CONNOR, New York, NY, Attorneys for Defendants ACE
American Insurance Company and Federal Insurance Company.
Carmella P. Keener, Esquire of ROSENTHAL, MONHAIT &
GODDESS, P.A, Wilmington, Delaware, Attorney for Defendants
Endurance American Insurance Company and Liberty Insurance
P. Schiller, Esquire, Michael R. Carlson, Esquire, Matthew N.
Klebanoff, Esquire of HANGLEY ARONCHICK SEGAL PUDLIN &
SCHILLER, Philadelphia, Pennsylvania, Attorneys for Defendant
Endurance American Insurance Company.
A. Schechter, Esquire, Matthew E. Mawby, Esquire of KAUFMAN
BORGEEST & RYAN LLP, Valhalla, New York, Attorneys for
Defendant Liberty Insurance Underwriters Inc.
W. McCullough, Esquire, of BODELL BOVÉ, LLC,
Wilmington, Delaware, Attorney for Defendant Zurich American
E. Jameson, Esquire, John G. Day, Esquire of PRICKETT, JONES
& ELLIOTT, P.A., Wilmington, Delaware, and Tammy Yuen,
Esquire, Kenneth M. McBrady, III, Esquire of SKARZYNSKI BLACK
LLC, New York, New York Attorneys for Defendant XL Specialty
M. Heyman, Esquire, Aaron M. Nelson, Esquire of HEYMAN ENERIO
GATTUSO & HIRZEL LLP, Wilmington, Delaware, and Scott B.
Schreiber, Esquire, James W. Thomas, Jr., Esquire of ARNOLD
& PORTER KAYE SCHOLER LLP, Washington, D.C., Attorneys
for Defendant Illinois National Insurance Company.
Stephen F. Dryden, Esquire of WEBER GALLAGHER SIMPSON
STAPLETON FIRES & NEWBY, LLP, New Castle, Delaware,
Attorney for Defendant Hudson Insurance Company.
C. Phillips, Jr., Esquire, David A. Bilson, Esquire, of
PHILLIPS, GOLDMAN, MCLAUGHLIN & HALL, P.A., Wilmington,
DE, and Geoffrey W. Heineman, Esquire, Jung H. Park, Esquire
of ROPERS, MAJESKI KOHN & BENTLEY, New York, New York,
Attorneys for Defendant Argonaut Insurance Company.
case involves the interpretation of a directors' and
officers' insurance policy, specifically whether that
policy covers attorneys' fees and pre-judgment interest
the insured company incurred defending an appraisal action.
Plaintiff purchased primary and excess directors' and
officers' liability insurance policies from Defendants.
After Plaintiff was acquired by a private company in March
2016, several of Plaintiff's shareholders filed an
appraisal action in the Delaware Court of Chancery. Plaintiff
first notified Defendants of the appraisal action in January
2018, after a substantial portion of the litigation was
complete. This dispute arose when Defendants denied Plaintiff
coverage for expenses incurred defending the appraisal
action. In response, Plaintiff initiated this breach of
contract and declaratory judgment action against Defendants
seeking coverage for pre-judgment interest and defense
expenses incurred in the appraisal action. Defendants moved
for summary judgment on all claims.
pending motion presents three questions: (1) whether a
"Securities Claim" under the insurance policies is
limited to a claim alleging wrongdoing, (2) whether the
policies cover pre-judgment interest on a non-covered loss,
and (3) whether Plaintiff's acknowledged breach of the
policies' consent-to-defense clause bars recovery of
Plaintiff's defense expenses. Based on the policies'
plain language, I conclude the appraisal action qualifies as
a covered "Securities Claim" because that
term's definition is not limited to claims of wrongdoing.
Additionally, because there is no limiting language in the
policies' definition of "Loss," coverage for
pre-judgment interest is not limited to covered losses. As to
the defense expenses, Delaware law implies a prejudice
requirement in insurance contract consent clauses, and
Plaintiff's breach of the consent clause therefore does
not bar coverage for defense expenses absent a showing of
prejudice. Defendants' motion for summary judgment
therefore is denied.
AND PROCEDURAL BACKGROUND
otherwise noted, the following facts are drawn from the
complaint and the record provided by the parties.
Solera Holdings, Inc. ("Solera") is a software
company incorporated in Delaware. Defendants issued
Solera's primary and excess directors' and
officers' liability insurance policies. Defendants
provided Solera's tower of insurance coverage for
securities claims made between June 10, 2015 and June 10,
2016. Defendant XL Specialty Insurance Company
("XL") issued the primary policy (the
"Policy") and the remaining defendants issued
excess policies, which follow-form and incorporate the
Policy's provisions. The Policy provides $10 million in
coverage, and the excess policies provide a total of $45
million in additional coverage.
the Policy, Defendants agreed to pay any "Loss resulting
solely from any Securities Claim first made against [Solera]
during the [p]olicy [p]eriod for a [w]rongful
[a]ct." The Policy defines a "Securities
Claim" as a claim:
(1) [M]ade against [Solera] for any actual or alleged
violation of any federal, state or local statute, regulation,
or rule or common law regulating securities, including but
not limited to the purchase or sale of, or offer to purchase
or sell, securities, which is:
(a) brought by any person or entity resulting from, the
purchase or sale of, or offer to purchase or sell, securities
of [Solera]; or
(b) brought by a security holder of [Solera] with respect to
such security holder's interest in securities of [Solera]
. . .
Policy covers any "Loss" resulting from a
Securities Claim, which includes "damages, judgments,
settlements, pre-judgment and post-judgment interest or other
amounts (including punitive, exemplary or multiplied damages,
where insurable by law)" that Solera legally is
obligated to pay and "Defense Expenses, including that
portion of any settlement which represents the claimant's
attorney's fees." The policy defines "Defense
Expenses" as the "reasonable and necessary legal
fees, expenses and other costs (including experts' fees):
(1) incurred in the investigation, adjustment, settlement,
defense and/or appeal of any [c]laim, [i]nvestigation
[d]emand or [i]nterview . . ." Under Section V of the
Policy, Solera must obtain Defendants' consent before
incurring any Defense Expenses (the "Consent
Clause"). The Consent Clause makes clear that Solera may
not "incur any Defense Expenses . . . or admit liability
for, make any settlement offer with respect to, or settle any
[c]laim without [Defendants'] consent, such consent not
to be unreasonably delayed or withheld . .
." Section VI of the Policy also contains a
provision requiring Solera to provide Defendants timely
notice of a claim as a condition to coverage (the
"Notice Provision"). The Notice Provision contains
a prejudice requirement, specifically:
[a]s a condition precedent to any right to payment under [the
Policy] . . . [Solera] shall give written notice to
[Defendants] of each [c]laim or [i]nvestigation [d]emand as
soon as practicable after it is first made . . . [i]n the
event that [Solera] fail to provide timely notice to
[Defendants] . . . [Defendants] shall not be entitled to deny
coverage solely based on such untimely notice unless
[Defendants] can demonstrate its interests were materially
prejudiced by reason of such untimely notice.
was a publicly traded company until it was acquired by an
affiliate of Vista Equity Partners in March 2016. Solera
first announced the merger in September 2015. Following the
announcement, a group of Solera's shareholders filed a
class action against Solera, its directors and officers, and
other companies involved in the merger for breach of
fiduciary duty (the "Shareholder
Action").The Shareholder Action later was dismissed
by the Court of Chancery for failure to state a
claim. In the meantime, a majority of
Solera's shareholders approved the merger, and the
transaction closed on March 3, 2016 for an agreed merger
price of $55.85 per share.
March 7, 2016, several shareholders filed an appraisal action
under 8 Del. C. § 262 (the "Appraisal
Action") seeking fair value for their
shares. The petitioners in the Appraisal Action
claimed Solera's value at the time of the merger actually
was $84.65 per share. A trial was held in the Appraisal
Action in June 2017. On July 30, 2018, after post-trial
briefing and argument, the Court of Chancery issued its final
decision, finding the fair value of the petitioners'
shares at the time of the merger was $53.95 per share, an
amount less than the merger price. The Court of Chancery
ordered Solera to pay the petitioners fair value for their
shares at $53.95 per share plus pre-judgment interest of $38,
387, 821.61.Solera incurred more than $13 million in
attorneys' fees and other costs defending the Appraisal
notified Defendants of the Shareholder Action on October 13,
2015, but the Court of Chancery dismissed that case before
Solera's costs met the Policy's retention. On January
31, 2018, Solera notified Defendants of the Appraisal Action
and requested coverage under the Policy. On April 17, 2018,
XL issued Solera a letter denying coverage. Following the
denial, Solera filed this action against Defendants for
breach of contract and declaratory judgment, seeking coverage
for the pre-judgment interest and defense expenses incurred
in the Appraisal Action. Defendants ACE American Insurance
Company ("ACE") and Federal Insurance Company
("Federal") moved for summary judgment (the
"Motion"). Solera settled with XL after ACE and
Federal filed the Motion,  and the remaining Defendants
(the "Joining Defendants"), with the exception of
Hudson Insurance Company, joined in the Motion.