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Delaware Supreme Court Applies Delaware Law Even When Insured Is Headquartered Elsewhere

In a unanimous decision, the Delaware Supreme Court recently held that Delaware law applies to a D&O policy issued to a Delaware corporation, ruling that the place of incorporation outweighed other factors such as where the company is headquartered, where its management team is located, or where the policy was negotiated and issued.

RSUI Indem. Co. v. Murdock, 2021 WL 803867 (Del. March 3, 2021) involved a declaratory judgment action filed by Dole Food Company’s D&O insurers seeking a declaration that they were not obligated to fund a series of settlements relating to a “going private” transaction. The Delaware Superior Court disagreed with RSUI, holding that it was responsible for funding the settlements. Id. at *2.

On appeal, RSUI argued that the Superior Court erred in multiple respects, including that it had overemphasized the fact that Dole was incorporated in Delaware, as “the negotiation and procurement of the policies occurred at Dole’s headquarters in Westlake Village, California, through a California-based insurance broker,” and “the policies were ultimately issued to that broker in its Los Angeles office and then delivered to Dole’s [California] headquarters.” Id. at *6. RSUI argued that these facts made clear that California had the most significant relationship to the case so its law should control.

The Delaware Supreme Court rejected this argument, holding that “the state of incorporation is the center of gravity of the typical D&O policy.” Id. at *9. The Court noted that placing an emphasis on physical location “underrates the significance of Dole’s status as a Delaware corporation,” and the protections afforded to it as a “citizen” of Delaware. Id. The Court also held that “it is by virtue of [Delaware] statute” that Dole even had the ability to purchase a D&O policy that provided such “broad indemnification and advancement rights to their directors and officers.” Id. In one key passage, the Court linked duties and coverage, noting that in the vast majority of cases, “Delaware law governs the duties of the directors and officers of [a] Delaware corporation” so “corporations must assess their need for D&O coverage with reference to Delaware law.” Id. Accordingly, the Court held that Dole’s contacts with California did not outweigh the significance its incorporation in Delaware carried, and upheld the Superior Court’s decision.

This decision could significantly affect the way courts interpret policies issued to Delaware corporations, both in Delaware and other jurisdictions. For example, just days before the RSUI ruling, another Delaware Superior Court decision required insurers to provide coverage because Delaware law, unlike New York, does not disfavor coverage for restitution or disgorgement.1

1 See Sycamore Partners Mgmt., L.P. v. Endurance Am. Ins. Co., 2021 WL 761639, at *10-11 (Del. Super. Ct. Feb. 26, 2021).

© 2021 Bracewell LLPNational Law Review, Volume XI, Number 81
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About this Author

Vincent Morgan Insurance Lawyer Bracewell
Partner

Vince Morgan has helped clients obtain billions of dollars in insurance proceeds and other recoveries. He represents corporate policyholders in complex coverage matters related to all types of policies, including commercial property and business interruption, reps and warranties, CGL, cyber, professional and fiduciary liabilities, D&O, E&O, environmental, trade credit, and intellectual property. Many of these have involved some of the most pressing issues of recent times, ranging from the COVID-19 pandemic, the 9/11 terrorist attacks, the Deepwater Horizon disaster,...

713.221.1450
David Shargel, commercial litigation, white collar criminal defense attorney, Bracewell Law firm
Partner

David Shargel is a senior counsel in the trial section of Bracewell's New York office. His litigation practice focuses general commercial litigation, internal investigations and white collar criminal defense. Mr. Shargel's practice also involves issues surrounding electronic discovery and data management.

Mr. Shargel has litigated complex commercial disputes involving contract, business torts, insurance coverage, technology and fraud, and has litigated disputes concerning federal and state constitutional law, including the Commerce and Due...

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Rachel goldman, complex commercial litigation, attorney, Bracewell law
Partner

Rachel Goldman is an experienced litigator in both federal and state courts, at the trial and appellate levels. Her practice focuses on complex commercial matters, including claims for breach of contract, post-acquisition disputes, class actions, False Claims Act cases, insurance coverage disputes, contested bankruptcy matters, challenges under the Commerce Clause and the Supremacy Clause, government regulation, securities litigation, construction law, First Amendment and libel actions. Additionally, Rachel's tenure as in-house counsel provides a valuable perspective of...

212-508-6135
Joshua H. Gold-Quirós Litigation Attorney Bracewell Houston, TX
Associate

Joshua Gold-Quirós focuses his practice on complex commercial litigation and appeals. During law school, he served as a judicial intern for the Honorable Gray H. Miller in the United States District Court for the Southern District of Texas. Prior to law school, Josh was an adjuster for two large commercial insurers. He applies that experience in assisting corporate policyholders navigate insurance placements, claims and coverage disputes.

713-221-1447
Kyle A. Mason Energy Litigation Attorney Bracewell Houston, TX
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Kyle Mason’s practice focuses on matters related to complex commercial litigation and energy litigation. He represents plaintiffs and defendants in state and federal courts across the country.

Prior to joining Bracewell, Kyle interned for the US Trustee Program at the Department of Justice. He was also a judicial extern for Magistrate Judge Kimberly Priest Johnson of the US District Court for the Eastern District of Texas and a judicial intern for Justice Bill Whitehill of the Fifth District Court of Appeals of Texas. Kyle also worked as a corporate counsel extern for a large oil...

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