September 11, 2019
Rehearing Denied: November 18, 2019
[Copyrighted Material Omitted]
Below: Superior Court of the State of Delaware, C.A. No.
appeal from the Superior Court. REVERSED.
Heyman, Esq. (argued), Aaron M. Nelson, Esq., HEYMAN, ENERIO,
GATTUSO & HIRZEL LLP, Wilmington, Delaware; Scott B.
Schreiber, Esq., James W. Thomas, Jr., Esq., William C.
Perdue, Esq., ARNOLD & PORTER KAYE SCHOLER LLP, Washington,
D.C.; Robert Reeves Anderson, Esq., ARNOLD & PORTER KAYE
SCHOLER LLP, Denver, Colorado; Attorneys for
Defendants-Appellants Illinois National Insurance Co. and
National Union Fire Insurance Co. of Pittsburgh, PA.
W. McCullough, Esq., BODELL BOVÉ, LLC, Wilmington,
Delaware; Ronald P. Schiller, Esq. (argued), Daniel J.
Layden, Esq., Jason A. Levine, Esq., HANGLEY, ARONCHICK,
SEGAL, PUDLIN & SCHILLER, Philadelphia, Pennsylvania;
Attorneys for Defendant-Appellant/Cross-Appellee Zurich
American Insurance Company.
Phillips, Jr., Esq., David A. Bilson, Esq., PHILLIPS,
GOLDMAN, MCLAUGHLIN & HALL, P.A., Wilmington, Delaware;
Joseph A. Bailey III, Esq., CLYDE & CO U.S. LLP, Washington,
D.C.; Attorneys for Defendant-Appellant U.S. Specialty
C. Wasson, Esq., Carla M. Jones, Esq., POTTER ANDERSON &
CORROON LLP, Wilmington, Delaware; Robin L. Cohen, Esq.
(argued), Keith McKenna, Esq., Michelle R. Migdon, Esq.,
McKOOL SMITH P.C., New York, New York; Attorneys for
Plaintiffs Below-Appellees/Cross-Appellants Verizon
Communications Inc., Verizon Financial Services LLC, and GTE
VALIHURA, VAUGHN, and SEITZ, Justices.
appeal turns on the definition of a Securities Claim in an
insurance policy. Under the policy, a Securities Claim is a
claim against an insured that "alleg[es] a violation of
any federal, state, local or foreign regulation, rule or
statute regulating securities ...." The Superior Court
found the definition ambiguous. Using extrinsic evidence, the
court held that fiduciary duty, unlawful dividend, and
fraudulent transfer claims brought by a bankruptcy trustee
against Verizon Communications Inc. and others are Securities
Claims covered under the policy. We disagree, and find that,
applying the plain meaning of the Securities Claim definition
in the policy, the litigation trustees complaint did not
allege any violations of regulations, rules, or statutes
regulating securities. Thus, we reverse the Superior Courts
grant of summary judgment to Verizon and direct that summary
judgment be entered for the Insurers.
2006, Verizon divested its print and electronic directories
business to its stockholders in a tax-free
"spin-off" transaction. As part of the transaction,
Verizon created Idearc, Inc. and appointed John W. Diercksen,
a Verizon executive, to serve as Idearcs sole director.
Idearc obtained Verizons print and online directory business
in exchange for about 146 million shares of Idearc stock,
$7.1 billion in Idearc debt, and $2.5 billion in cash.
Verizon then distributed Idearc common stock to Verizon
shareholders. Idearc launched as a separate business with
$9.1 billion in debt.
connection with the Idearc spinoff, Verizon and Idearc
purchased primary and excess Executive and Organizational
Liability Policies ("Idearc Runoff
Policies"). Illinois National, an affiliate of
AIG, issued the primary policy. Zurich American Insurance
Company and other carriers issued follow form excess
policies, meaning that the excess policies incorporate the
coverage provisions of the primary policy. We refer to the
primary and excess insurer parties as the
Idearc Runoff Policies covered certain claims made against
the defined insureds during the six-year policy period that
exceeded a $7.5 million retention. Relevant to the dispute
before us, Endorsement No. 7 to the policies states that
"[i]n connection with any Securities Claim," and
"for any Loss ... incurred while a Securities Claim is
jointly made and maintained against both the Organization and
one or more Insured Person(s), this policy shall pay 100% of
such Loss up to the Limit of
Liability of the policy." "Securities
Claim" is defined in pertinent part as a
"Claim" against an "Insured Person"
"[a]lleging a violation of any federal, state, local or
foreign regulation, rule or statute regulating securities
(including, but not limited to, the purchase or sale or offer
or solicitation of an offer to purchase or sell
securities)." Under the policy, Verizon could
recover its "Defense Costs" when a Securities Claim
was brought against it and covered directors and officers,
and Verizon indemnified those directors and
operated as an independent, publicly traded company until it
filed for bankruptcy in 2009. During the reorganization, the
bankruptcy court appointed U.S. Bank N.A. as trustee of a
litigation trust to pursue claims against Verizon and others
on behalf of creditors. In 2010, U.S. Bank filed suit in
Texas federal court against Verizon, two related entities,
and John Diercksen, the Idearc director at the time of the
spin off. U.S. Bank as trustee sought $14 billion in damages
allegedly caused by saddling Idearc with excessive debt at
the time of the spin-off. Its complaint alleged violations of
fraudulent transfer statutes; payment of unlawful dividends
in violation of Delaware General Corporation Law; and
common-law counts for breach of fiduciary duty, aiding and
abetting a breach of fiduciary duty, promoter liability,
unjust enrichment, and alter ego liability.
bench trial, Verizon prevailed. The United States Court of
Appeals for the Fifth Circuit affirmed the district courts
decision. During the nearly five years of
litigation, Verizon and Diercksen incurred more than $48
million in defense costs. Verizon notified Illinois National
of the U.S. Bank action and sought coverage for its
joint defense costs under the Idearc Runoff Policies. In a
June 21, 2011 letter, Illinois refused to ...