First Solar, Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
FIRST SOLAR, INC.,
Plaintiff,
V. C.A. No. N20C-10-156 MMJ CCLD
NATIONAL UNION FIRE
INSURANCE COMPANY OF
PITTSBURGH, PA and XL
SPECIALITY INSURANCE
COMPANY,
a ae eee ee ee ee
Defendants.
Submitted: April 23, 2021
Decided: June 23, 2021
On Defendant XL Specialty’s Motion to Dismiss
GRANTED
On Defendant National Union’s Motion to Dismiss
GRANTED
On Plaintiff First Solar’s Motion for Partial Summary Judgment
DENIED
OPINION
Jennifer C. Wasson, Esq., Carla M. Jones, Esq., Potter Anderson & Corroon LLP,
Wilmington, Delaware, Adam Ziffer, Esq. (Argued), Meredith Elkins, Esq.
(Argued), Cohen Ziffer Frenchman & McKenna LLP, New York, New York,
Attorneys for Plaintiff First Solar, Inc.
John C. Phillips, Jr., Esq., David A. Bilson, Esq., Phillips McLaughlin & Hall,
P.A., Wilmington, Delaware, Charles C. Lemley, Esq. (Argued), Kim Melvin,
Esq., Anna Schaffner, Esq., Wiley Rein LLP, Washington, DC, Attorneys for
Defendant XL Specialty Insurance Company.
Kurt M. Heyman, Esq. (Argued), Aaron M. Nelson, Esq., Heyman Enerio Gattuso
& Hirzel LLP, Wilmington, Delaware, Scott B. Schreiber, Esq., Arthur Luk, Esq.,
Omomah Abebe, Esq., Cole Kroshus, Esq., Arnold & Porter Kaye Scholer LLP,
Washington, DC, Attorneys for Defendant National Union Fire Insurance
Company of Pittsburgh, Pa.
JOHNSTON, J.
FACTUAL AND PROCEDURAL CONTEXT
Parties
This is an insurance coverage dispute. Plaintiff First Solar, Inc. (“First
Solar”) is a Delaware corporation with its principal place of business in Tempe,
Arizona.! Defendant National Union Fire Insurance Company of Pittsburgh,
Pennsylvania (“National Union”) is a Pennsylvania corporation with its principal
place of business in New York.” XL Specialty Insurance Company (“XL
Specialty”) is a is a Delaware corporation with its principal place of business in
Connecticut.
First Solar’s Insurance Policies
First Solar is seeking coverage for a lawsuit under policies provided by
National Union and XL Specialty. National Union issued two relevant policies to
First Solar: (1) policy no, 01-593-93-44, which was effective November 16, 2013
to November 16, 2014; and (2) policy no. 01-84274-10, which was effective
November 16, 2014 to November 16, 2015 (together, the “Primary Policy”).4 XL
Specialty issued policy no. ELU132247-13 and policy no. ELU136925-14
‘Compl. § 9.
2 Id. 410.
31d. 11.
4 Td. 23.
(together, the “XL Specialty Policy”) to cover First Solar for the same time
period.» The XL Specialty Policy follows form to the Primary Policy.®
Smilovits Action
On March 15, 2012, First Solar shareholders filed a class action lawsuit in
the United States District Court for the District of Arizona.’ The shareholder suit
alleged that First Solar violated federal securities laws under Sections 10b-5 and 20
of the Federal Securities Act of 1934.8 The shareholder plaintiffs contended that
First Solar, its directors, and its officers: (1) misrepresented that it “had a winning
formula for reducing manufacturing costs so rapidly and dramatically as to make
solar power competitive with fossil fuels”; (2) “perpetuated [its] fraudulent self-
portrayal by concealing and misrepresenting the nature and extent of major
manufacturing and design defects in [its] solar modules”; (3) misrepresented its
financials; (4) artificially inflated its stock prices; (5) allowed individuals to engage
in insider trading; (6) manipulated the cost-per-watt metrics; and (7) understated its
expenses in violation of General Accepted Accounting Principles (‘“GAAP”).’ The
class period covered April 30, 2008 to February 28, 2012."
5 Id. 924.
® Id.
7 Id. 439.
8 Id.
? See Ex. 1, Smilovits Compl.
10 Id.
First Solar sought coverage for the Smilovits Action from National Union
under a policy covering 2011-12.!! National Union provided coverage for the suit
and exhausted the policy.'”
Maverick Action
In March 2014, a number of shareholders opted out of the Smilovits
Action.!3 On June 23, 2015, the opt-out plaintiffs filed the Maverick Action.’ The
Maverick Action asserted claims for violations of SEC Rules 10b-5 and 20, fraud,
negligent misrepresentation, and violations of Arizona statutes.'> In support of the
claims, the Maverick plaintiffs alleged that First Solar, its directors, and its
4
officers: (1) misrepresented how close it was to achieving grid parity—“the point
at which solar electricity became cost competitive with conventional methods of
producing electricity without government subsidies”; (2) concealed defects in First
Solar’s panels and manufacturing process; (3) concealed problems with First
Solar’s modules that resulting in increased costs; (4) manipulated the cost-per-watt
metrics; (5) misrepresented the value of a pipeline project; (6) falsely represented
that it was on track to meet its financial targets; (7) refused to adjust its targets in
light of an influx of panels globally; (8) issued false financials that violated GAAP;
1! National Union OB at 2.
12 Id
3 Compl. § 41.
4 Id 4 42.
'5 See Compl. Ex. E, Maverick Compl.
and (9) artificially inflated its stock price.'° The class period in the Maverick
Action covered May 2011 to December 2011.”
First Solar notified National Union of the Maverick Action in 2015.'8 XL
Specialty was notified of the lawsuit on June 1, 2020.'9 First Solar and the
Maverick plaintiffs reached a settlement agreement. First Solar agreed to pay $19
million, and the plaintiffs agreed to dismiss the lawsuit.”°
National Union and XL Specialty denied coverage for the Maverick Action
under their respective policies.”! First Solar, National Union, and XL Specialty
attempted to resolve the coverage dispute through mediation, but were
unsuccessful.”
Procedural History
First Solar filed suit in this Court on October 17, 2020 asserting claims for:
(1) breach of contract; and (2) declaratory relief. XL Specialty filed a Motion to
Dismiss on December 11, 2020. National Union filed a joinder to XL Specialty’s
motion on December 15, 2020. First Solar filed a Motion for Partial Summary
Judgment as to Relatedness on January 28, 2021. The Court heard oral argument
16 Td.
17 Td.
'8 Compl. ¥ 48.
9 1d. 951.
20 Td. 4 45.
21 Td. 52.
22 Id. TF 60, 61.
on April 15, 2021. The parties submitted post-argument letters to the Court on
April 16, 2021 and April 23, 2021.
STANDARDS OF REVIEW
Failure to State a Claim Upon Which Relief Can be Granted
In a Rule 12(b)(6) Motion to Dismiss, the Court must determine whether the
claimant “may recover under any reasonably conceivable set of circumstances
susceptible of proof.”” The Court must accept as true all well-pleaded
allegations.** Every reasonable factual inference will be drawn in the non-moving
party’s favor.’ If the claimant may recover under that standard of review, the
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Court must deny the Motion to Dismiss.’
Summary Judgment Standard
Summary judgment is granted only if the moving party establishes that there
are no genuine issues of material fact in dispute and judgment may be granted as a
matter of law.?’ All facts are viewed in a light most favorable to the non-moving
party.”8 Summary judgment may not be granted if the record indicates that a
material fact is in dispute, or if there is a need to clarify the application of law to
3 Spence v. Funk, 396 A.2d 967, 968 (Del. 1978).
24 Id.25 Wilmington Sav. Fund. Soc., F.S.B. v. Anderson, 2009 WL 597268, at *2 (Del. Super.) (citing
Doe v. Cahill, 884 A.2d 451, 458 (Del. 2005)).
26 Snence, 396 A.2d at 968.
27 Super. Ct. Civ. R. 56(c).
28 Burkhart v. Davies, 602 A.2d 56, 58-59 (Del. 1991).
7
the specific circumstances.”” When the facts permit a reasonable person to draw
only one inference, the question becomes one for decision as a matter of law? If
the non-moving party bears the burden of proof at trial, yet “fails to make a
showing sufficient to establish the existence of an element essential to that party’s
case,” then summary judgment may be granted against that party.*
Insurance Contract Interpretation Standards
The proper interpretation of an insurance policy is a question of law.*
Policies should be read as a whole.*? Terms are given their plain and ordinary
meaning.** Where the terms are unambiguous, “a party will be bound by its plain
meaning because creating an ambiguity where none exists could, in effect, create a
new contract with rights, liabilities and duties to which the parties had not
assented.’>>
ANALYSIS
First Solar’s Contentions
First Solar has moved for summary judgment on the issue relatedness
between the Smilovits Action and the Maverick Action. First Solar argues that the
2° Super. Ct. Civ. R. 56(c).
30 Wooten v. Kiger, 226 A.2d 238, 239 (Del. 1967).
31 Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
32 Intel Corp. v. Am. Guarantee & Liab. Ins. Co., 51 A.3d 442, 446 (Del. 2012).
33 Viking Pump, Inc. v. Century Indem. Co., 2 A.3d 76, 90 (Del. Ch. 2009), aff'd, 148 A.3d 633(Del. 2016).
34 Id.35 Hallowell v. State Farm Mut. Auto. Ins. Co., 443 A.2d 925, 926 (Del. 1982).
8
two lawsuits are not fundamentally identical because they involve different
operative facts. For example, the two lawsuits involve different plaintiffs, different
allegedly wrongful conduct, different causes of action, and different time periods
for the alleged harms. Because the Smilovits Action and Maverick Action are not
identical, the Maverick Action is covered by the Primary Policy and the XL
Specialty Policy.
Defendants’ Contentions
Defendants argue the Maverick Action is not covered by the Primary Policy
or the XL Specialty Policy because it relates back to the Smilovits Action and is a
Claim first made in 2012. Because the relevant policies’ coverage did not begin
until 2013, the Maverick Action predates the inception of the policies. Both
policies exclude coverage for claims first made prior to the inception date.
Therefore, the Maverick Action is not covered by either policy.
Defendants further argue that even if the Maverick Action is not a Claim
first made in 2012, First Solar still is not entitled to coverage because: (1) the
Special Matter Exclusion applies to the Maverick Action; (2) First Solar violated
the policies’ notice provisions by failing to provide notice to Defendants about the
Maverick Action; and (3) First Solar violated the policies’ consent-to-settle
provisions by failing to obtain consent before settling the Maverick Action.
Relatedness and Fundamental Identity
Relevant Policy Provisions
The following policy provisions are relevant to this case. As an initial
matter, the XL Specialty Policy states that “[c]overage hereunder will apply in
conformance with the terms, conditions, endorsements and warranties of the
Primary Policy.”°® Therefore, the Court will focus on the terms of the Primary
Policy.
Section 7 of the Primary Policy provides:
(a) Reporting a Claim, Pre-Claim Inquiry or Crisis: An Organization
or an Insured shall, as a condition precedent to the obligations of the
Insurer under this policy:
(1) notify the Insurer in writing of a Claim made against an
Insured[.] ... as soon as practicable after (i) the Named Entity’s
Risk Manager or General Counsel (or equivalent position) first
becomes aware of the Claim or Pre-Claim Inquiry; or (ii) the
Crisis commences. In all such events, notification must be
provided no later than 90 days after the end of the Policy Period
or the Discovery Period (if applicable).
(b) Relation Back to the First Reported Claim or Pre-Claim Inquiry:
Solely for the purpose of establishing whether any subsequent Related
Claim was first made ... during the Policy Period or Discovery Period
(if applicable), if during any such period:
(1) A Claim was first made and reported in accordance with
Clause 7(a) above, then any Related Claim that is subsequently
made against an Insured and that is reported to the Insurer shall
be deemed to have been first made at the time that such
previously reported Claim was first made.... Claims actually first
36 Compl., Ex. D, XL Specialty Policy, § I.
10
made or deemed first made prior to the inception date of this
policy ... are not covered under this policy[.]*’
A Claim is defined as “a civil, criminal, administrative, regulatory or
arbitration proceeding for monetary, non-monetary or injunctive relief which is
commenced by: (i) service of a complaint or similar pleading....”°3 A Related
Claim is defined as “a Claim alleging, arising out of, based upon or attributable to
any facts or Wrongful Acts that are the same as or related to those that were ...
alleged in a Claim made against an Insured.”*?
Regarding settlements, the Primary Policy provides:
The Insurer shall have the right, but not the obligation, to fully and
effectively associate ... in the defense and prosecution of any Claim ...
including, but not limited to, negotiating a settlement.... The Insureds
shall not admit or assume any liability, enter into any settlement
agreement, stipulate to any judgment or incur any Defense Costs or Pre-
Claim Inquiry Costs, without the prior written consent of the Insurer.
Such consent shall not be unreasonably withheld.”°
The Special Matter Exclusion provides:
[T]he Insurer shall not be liable to make any payment for Loss in
connection with: (i) any of the Claim(s), notices, events, investigations
or actions listed under EVENT(S) below (hereinafter “Events”; (ii) the
prosecution, adjudication, settlement, disposition, resolution or defense
of: (a) any Event(s); or (b) any Claim(s) or Pre-Claim Inquiry(ies)
arising from any Event(s); or (iii) any Wrongful Act, underlying facts,
circumstances, acts or omissions in any way relating to any Event(s).*!
37 Compl., Ex. B, Primary Policy § 7.
38 Id § 13.
39 Td.
4 1d § 9,
41 Iq, Endorsement No. 8.
11
The Exclusion further states that there is no coverage for Claims:
[A]lleging, arising out of, based upon, attributable to or in any way
related directly or indirectly, in part or in whole, to an Interrelated
Wrongful Act (as that term is defined below), regardless of whether or
not such Claim . . . involved the same or different Insureds, the same or
different legal causes of action or the same or different claimants or is
brought in the same or different venue or resolved in the same or
different forum.”
As related to the Special Matter Exclusion, “Event” is specifically defined to
include the “Class Action entitled: Mark Smilovits v. First Solar, Michael J. Ahern
et al. USDC District of Arizona No. 2:12-cv-00555-DGC.”” Finally, “Interrelated
Wrongful Event” is defined as “(i) any fact, circumstance, act or omission alleged
in any Event(s) and/or (ii) any Wrongful Act which is the same as, similar or
related to or a repetition of any Wrongful Act alleged in any Event(s).”"4
Case Precedent
The issues of relatedness and relating back turn on whether or not the
Maverick Action is “a Claim alleging, arising out of, based upon or attributable to
any facts or Wrongful Acts that are the same as or related to those that were ...
alleged in” the Smilovits Action. A number of cases have interpreted similar
42 Id.
43 Id.
44 Id.
12
insurance provisions and applied the language to situations that are factually
similar to this case.
In Pfizer Inc. v. Arch Insurance Company,® an insured sought coverage for
a class action lawsuit. The insurers had denied coverage for the suit and reasoned
that it arose out of a related prior class action lawsuit. The relevant insurance
policy barred coverage for claims “alleging, arising out of, based upon or
attributable to the facts alleged, or to the same or related Wrongful Acts alleged or
contained in any Claim which has been reported . . . under any policy of which this
policy is a renewal or replacement or which it may succeed in time.”“° When
analyzing the provision, this Court noted that prior cases involving “arising out of”
language found “coverage to be precluded only where the two underlying claims
are ‘fundamentally identical.’”*’
Ultimately, this Court found that the two class action suits in Pfizer were not
“fundamentally identical” because, while they shared “thematic similarities,” the
actions were different in various respects. As this Court summarized in another
opinion, there was a “myriad of differences” between the underlying actions in
Pfizer where “/d/Jifferent plaintiffs brought separate actions against different
45.9019 WL 3306043, at *1 (Del. Super.).
46 Td. at *9-10,
47 Id. at *9 (citing Med. Depot, Inc., 2016 WL 5539879, at *14 (Del. Super.).
13
defendants regarding different misrepresentations about different products and
associated health risks.”**
Other cases have found that lawsuits are “fundamentally identical” where
they involve the “same subject” and “common facts, circumstances, transactions,
events, and decisions.””’ The phrase “arising out of’ has been held to “impl[y] a
causal connection.”*’ Similarly, courts have found that “interrelated wrongful
acts” are those that have a “common nexus of any fact, circumstance, situation,
event, transaction, cause, or series of causally connected facts, circumstances,
situations, events, transactions or causes.”*!
Most recently, this Court has summarized the applicable analysis as follows:
[I]n Delaware, when an insurer invokes an exclusion resting on the
“relatedness” of Wrongful Acts, coverage for the purportedly-excluded
Act will be “precluded only where the two underlying claims are
fundamentally identical.” To determine whether two claims are
fundamentally identical, Delaware courts look to the “subject” of the
claims to see if they are “the exact same” and do not merely share
“thematic similarities.” When doing so, the underlying claimant's
“unilateral characterizations” of the claims need not be credited.
Instead, the Court will draw reasonable inferences from the complaint
as a whole.”
48 Ferrellgas Partners L.P. v. Zurich American Ins. Co., 2020 WL 363677, at *8 (Del. Super.).
49 United Westlabs, Inc. v. Greenwich Ins. Co, 2011 WL 2623932, at *11 (Del. Super.).
50 Fimbres v. Fireman’s Fund Ins. Co., 708 P.2d 756, 758 (Ariz. Ct. App. 1985).
5! Ferrellgas, 2020 WL 363677, at *10.
°2 Northrop Grumman Innovation Sys., Inc. v. Zurich Am. Ins. Co., 2021 WL 347015, at *11
(Del. Super.) (internal citations omitted), 2021 WL 772312 (Del. Super.) (certification of
interlocutory appeal denied).
14
Smilovits Action Compared to Maverick Action
In the instant case, First Solar argues that the Smilovits Action and Maverick
Action are not fundamentally identical. First Solar points to a series of differences
between the underlying actions, including: (1) different plaintiffs; (2) different
class period; (3) different allegedly wrongful conduct; (4) different allegations
regarding grid parity; (5) different dates of alleged corrective disclosures; (6)
different legal basis; and (7) different relief sought. However, the Court need not
accept First Solar’s “unilateral characterizations of the claims.”°?
After reviewing the complaints for the underlying actions, the Court finds
that the Smilovits Action and the Maverick Action have substantial similarities.
The Maverick plaintiffs were originally part of the Smilovits Action before they
opted-out and filed a new suit. The plaintiffs in both actions sued identical
defendants. With respect to the class periods, the Smilovits Action covered April
2008 to February 2012 while the Maverick Action covered May 2011 to December
2011. Although these periods are technically different, they clearly overlap and
cover the same 10 months in 2011. Likewise, while the underlying actions do not
have identical legal bases for the claims, both suits clearly overlap by alleging
violations of SEC Rules 10b-5 and 20. Finally, the disclosures overlap. The
underlying actions rely on an overall different number of disclosures, but they both
53 Td.
15
rely on the disclosures made on October 25, 2011; December 14, 2011; and
February 28, 2012.
With respect to the allegedly wrongful conduct in the underlying actions,
both cases involve the same fraudulent scheme—artificially raising stock prices by
misrepresenting First Solar’s ability to produce solar electricity at costs
comparable to the costs of conventional energy production. In other words, both
actions allege that First Solar misrepresented its ability to achieve grid parity.
Both actions allege that First Solar concealed defects in the design and
manufacturing of modules and panels. Both actions allege that First Solar
manipulated its costs, including cost-per-watt metrics. Both actions allege that
First Solar issued false financial reports in violation of GAAP. Both actions allege
that First Solar’s deceptions came to light on February 28, 2012.
The most apparent striking difference between the underlying actions is the
type of damages sought by the Maverick plaintiffs, with the apparent intent of
garnering greater recovery. However, this difference is not enough to separate the
underlying actions. The Court finds that the similarities between the Smilovits and
Maverick cases outweigh any differences and go beyond mere “thematic
similarities.” Both actions are based on the same subject, have a causal
connection, and primarily rely on the same facts or occurrences. Therefore, the
16
Court finds that the Smilovits Action and the Maverick Action are fundamentally
identical.
The Court further finds that the terms of the Primary Policy are clear and
unambiguous. The Maverick Action clearly is a Related Claim. Therefore, under
Section 7(b) of the Primary Policy, the Maverick Action relates back to the
Smilovits Action and is a claim first made at the time of the Smilovits Action.
Under the unambiguous terms of Section 7(b), First Solar’s claim for the Maverick
Action is not covered by the National Union policy. Further, because the claim for
the Smilovits Action was made in 2012, before the 2013 inception date of the XL
Specialty policy, First Solar also is not entitled to coverage under that policy.
CONCLUSION
The Court finds that the Smilovits Action and the Maverick Action are
fundamentally identical. The Court further finds that the Maverick Action is a
Claim first made at the time of the Smilovits Action in 2012. The unambiguous
terms of the Primary Policy and the XL Specialty Policy preclude coverage for
claims that predate the inception of the policies. Therefore, First Solar has failed
to state a claim for relief.
The Court need not address Defendants’ secondary arguments based on the
Special Matter Exclusion, notice provisions, or consent-to-settle provisions.
17
THEREFORE, Defendant XL Specialty’s Motion to Dismiss is hereby
GRANTED. National Union’s Joinder Motion to Dismiss is hereby GRANTED.
Plaintiff First Solar’s Motion for Partial Summary Judgment as to Relatedness is
hereby DENIED.
IT IS SO ORDERED.
18