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Solera Holdings, Inc. v. XL Specialty Insurance Co.

Superior Court of Delaware

September 26, 2019

SOLERA HOLDINGS, INC., Plaintiff,
v.
XL SPECIALTY INSURANCE COMPANY, ACE AMERICAN INSURANCE COMPANY, ILLINOIS NATIONAL INSURANCE COMPANY, ARGUONAUT INSURANCE COMPANY, HUDSON INSURANCE COMPANY, ENDURANCE AMERICAN INSURANCE COMPANY, ZURICH AMERICAN INSURANCE COMPANY, LIBERTY INSURANCE UNDERWRITERS INC., FEDERAL INSURANCE COMPANY, Defendants.

          Submitted: September 16, 2019

          ORDER GRANTING LEAVE TO APPEAL FROM INTERLOCUTORY ORDER

          Abigail M. LeGrow, Judge.

         Defendants seek to certify an interlocutory appeal of this Court's opinion denying Defendants' motion for summary judgment. Although denial of a dispositive motion ordinarily would not warrant the extraordinary step of interlocutory appellate review, such review is justified in this case because the Court's opinion decided two issues of first impression, one of which would resolve the case entirely if Defendants prevail on appeal. In light of the novel issues decided in the Court's opinion, and the potential that those issues have broader implications within the insurance industry, I grant Defendants' application and certify the interlocutory appeal.

         FACTS AND PROCEDURAL BACKGROUND

         The opinion for which Defendants seek interlocutory review involves the Court's interpretation of a directors' and officers' insurance policy (the "Policy"), [1] specifically whether that policy covers attorneys' fees and pre-judgment interest the insured company, Solera, incurred defending an appraisal action in the Court of Chancery.[2]

         On January 11, 2019, Defendants ACE Insurance Company ("ACE") and Federal Insurance Company ("Federal, " and collectively with ACE, the "Moving Defendants") filed a motion for summary judgment seeking confirmation that "ACE and Federal have no obligation to pay defense expenses or indemnify Solera in connection with the appraisal action."[3] The Moving Defendants argued summary judgment was appropriate because the Policy only provided coverage for "Loss[es] resulting solely from any Securities Claim, "[4] and the Moving Defendants contended an appraisal action under 8 Del. C. § 262 is not a "Securities Claim" as the Policy defines that term. The Moving Defendants alternatively argued summary judgment should be granted because (1) the pre-judgment interest award did not constitute a Loss[5] under the Policy since the underlying fair value award was not a covered Loss; and (2) coverage for most of Solera's Defense Expenses[6]was barred because Solera incurred those expenses without Defendants' consent.

         This Court issued its opinion on July 31, 2019 denying Defendants' motion for summary judgment (the "July 31 Opinion").[7] In the July 31 Opinion, the Court held an appraisal action filed under 8 Del. C. § 262 is a Securities Claim within the meaning of the Policy because the definition of "Securities Claim" is not limited to claims of wrongdoing. As to the pre-judgment interest award, the Court concluded the Policy's plain language did not limit the definition of "Loss" to pre-judgment interest on a covered judgment, but ruled that factual issues, including mitigation of damages, precluded summary judgment.[8] Finally, the Court held as a matter of Delaware law that the Policy's clause requiring the insurer's prior consent to Defense Expenses (the "Consent Clause") impliedly contained a prejudice requirement. Whether the Moving Defendants suffered such prejudice, the Court ruled, also was a disputed factual issue.[9]

         Defendant Sompo International[10] filed a motion for reconsideration or clarification on August 7, 2019, seeking to clarify that "notwithstanding [the Court's] comment in the Opinion that Delaware law applied to certain issues at this juncture, choice of law issues remain to be explored through discovery and, ultimately, in further motions on pretrial proceedings in this case[.]"[11] The Court entered its letter opinion on August 29, 2019 (the "August 29 Opinion") regarding the motion for reconsideration or clarification.[12] The August 29 Opinion confirmed that the July 31 Opinion did not resolve any choice of law question because that issue was not ripe for consideration, and the parties remained free to argue choice of law at a later date, if appropriate.[13]

         On September 4, 2019, Defendants ACE and Federal submitted an application (the "Application") to certify the July 31 Opinion for interlocutory appeal to the Delaware Supreme Court.[14] Solera responded on September 16th, stating that it does not oppose interlocutory review and that the parties had stipulated to continue discovery and pretrial work while the interlocutory appeal is pending.[15] Solera, of course, does not agree with the Moving Defendants' underlying challenges to the Court's summary judgment ruling.[16]

         ANALYSIS

         Although the parties agree that this matter should be certified for interlocutory appeal, this Court independently must determine that such certification is appropriate. An interlocutory appeal only should be certified where the relevant order decides a "substantial issue of material importance that merits appellate review before a final judgment."[17] In making its determination, this Court must consider: (1) the factors set forth in Delaware Supreme Court Rule 42, (2) the most efficient and just schedule to resolve the case, and (3) "whether and why the likely benefits of interlocutory review outweigh the probable costs, such that interlocutory review is in the interests of justice."[18] This Court should refrain from certifying an interlocutory appeal if the balance between the benefits and costs is uncertain.[19]

         Initially, the Court must determine whether the July 31 Opinion "decides a substantial issue of material importance that merits appellate review before a final judgment."[20] A "substantial issue of material importance" is one that addresses the merits of the case, not merely collateral matters.[21] The Court's opinion resolved key issues in this matter, including interpretation of several contractual provisions, and therefore interlocutory appellate review will resolve substantial issues of material importance.[22]

         A. The Rule 42 factors support certification.

         The Court also must consider whether one or more of the eight Rule 42 factors apply to the interlocutory order. After reviewing the parties' arguments and the July 31 Opinion, I conclude three of those factors are met in this case: (A) "[t]he interlocutory order involves [questions] of law resolved for the first time in [Delaware];" (G) "[r]eview of the interlocutory order may terminate the litigation;" and (H) "[r]eview of the interlocutory order may serve considerations of justice."[23]

         1. The July 31 Opinion involved questions of law addressed for the first time in Delaware.

         The July 31 Opinion decided two issues of first impression in Delaware: (1) the meaning of "Securities Claim" within a D&O policy and whether an appraisal action is such a claim, and (2) whether a consent clause relating to defense expenses contains an implied prejudice requirement under Delaware law. As to the definition of a Securities Claim, the Court's interpretation of the Policy was a question of law.[24] No prior Delaware decision defined that term or considered whether the term encompasses an appraisal action under Section 262. Although the Court applied settled principles of contractual interpretation to the relevant Policy language, the interpretive question never has been addressed in Delaware (or any other jurisdiction) and may have implications beyond just the Policy at issue in this case.[25]

         As to the Consent Clause, the Court held that settled Delaware law implies a prejudice requirement in insurance policy consent-to-settle clauses, and that prejudice requirement also should be implied in consent-to-defense-expenses clauses. The Court reasoned:

I cannot find any reason why the implied prejudice requirement that Delaware courts apply to consent-to-settle clauses would not also apply to the Consent Clause in this case. Both consent-to-settle and consent-to-defense provisions are meant to allow the insurer a meaningful opportunity to participate in litigation and to protect the insurer from prejudice, but a strict interpretation of either provision would lead to forfeiture of coverage. Implying the prejudice requirement in both circumstances protects an insured who has breached a consent provision ...

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