CVR Refining, LP v. XL Specialty Insurance Company

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
CVR REFINING, LP, et al., )
)
Plaintiffs, )
) C.A. No. N21C-01-260 EMD CCLD
v. )
)
XL SPECIALTY INSURANCE COMPANY, et )
al., )
)
Defendants. )
Submitted: July 7, 2021
Decided: November 23, 2021
Upon Plaintiffs’ Motion for Partial Summary Judgment on Count I
GRANTED
Jennifer C. Wasson, Esquire, Carla M. Jones, Esquire, Potter Anderson & Corroon LLP,
Wilmington, Delaware, Robin L. Cohen, Esquire, Alexander M. Sugzda, Esquire, Cohen Ziffer
Frenchman & McKenna, New York, New York. Attorneys for Plaintiffs CVR Refining, LP, CVR
Refining GP, LLC, CVR Refining Holdings, LLC, CVR Energy, Inc. and David Lamp
Herbert Beigel, Esquire, Law Offices of Herbert Beigel, Tucson, Arizona. Attorney for Plaintiffs
Carl C. Icahn and Icahn Enterprises L.P.
Robert J. Katzenstein, Esquire, Smith Katzenstein & Jenkins LLP, Wilmington, Delaware,
Leland H. Jones, Esquire, Chiara Tondi Resta, Esquire, Wiley Rein LLP, Washington, D.C.
Attorneys for Defendant XL Specialty Insurance Company.
John C. Phillips, Jr., Esquire, David Bilson, Esquire, Phillips McLaughlin & Hall, P.A.,
Wilmington, Delaware, Michael P. Duffy, Esquire, Scarlett M. Rajbanshi, Esquire, Boston,
Massachusetts. Attorneys for Defendant Twin City Fire Insurance Company.
John C. Phillips, Jr., Esquire, David Bilson, Esquire, Phillips McLaughlin & Hall, P.A.,
Wilmington, Delaware, Erica J. Kerstein, Esquire, Robinson & Cole LLP, New York, New
York. Attorneys for Defendant Allianz Global Risk US Insurance Company.
John C. Phillips, Jr., Esquire, David Bilson, Esquire, Phillips McLaughlin & Hall, P.A.,
Wilmington, Delaware, Geoffrey W. Heineman, Esquire, Ropers Majeski, P.C. Attorneys for
Defendant Argonaut Insurance Company.
DAVIS, J.
I. INTRODUCTION
This insurance coverage dispute is assigned to the Complex Commercial Litigation
Division of the Court. Plaintiffs CVR Refining, LP (“CVR Refining”), CVR Refining GP, LLC
(the “General Partner”), CVR Refining Holdings, LLC (“CVR Holdings”), CVR Energy, Inc.
(“CVR Energy”), Icahn Enterprises, LP (“IELP”), Carl. C. Icahn, and David L. Lamp
(collectively, the “Insureds” or “Plaintiffs”) assert claims against Defendants XL Specialty
Insurance Company (“XL”), Twin City Fire Insurance Company (“Twin City”), Allianz Global
Risks US Insurance Company (“Allianz”), Argonaut Insurance Company (“Argonaut”), and
Allied World National Assurance Company (“AWAC”) (collectively, the “Insurers”).
Specifically, Plaintiffs allege that: (i) all the Insurers anticipatorily breached insurance policies
by denying defense costs coverage for Mr. Icahn, IELP and CVR Energy (“Count I”); (ii) all the
Insurers anticipatorily breached the policy by denying coverage of Plaintiffs’ indemnity costs
(“Count II”); and (iii) the Insurers breached the implied covenant of good faith and fair dealing
by refusing to cooperate with Plaintiffs prior to a mediation or to provide coverage for any
settlement reached at that mediation (“Count III”).
The Insurers moved to dismiss, or alternatively, to stay this action under McWane1 (the
“McWane Motion”). In addition, Plaintiffs moved for summary judgment on Count I of the
Complaint (the “Partial SJ Motion”). The Court held a hearing on the McWane Motion and the
Partial SJ Motion on July 7, 2021. After the hearing, the Court took both matters under
advisement. On August 11, 2021, the Court issued a decision denying the McWane Motion.
For the reasons set forth below, the Court will GRANT the Partial SJ Motion.
1
McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co., 263 A.2d 281 (Del. 1970).
2
II. RELEVANT FACTS
A. THE PARTIES
All five corporate plaintiffs are Delaware entities. CVR Refining is an oil refiner and
marketer of transportation fuels organized as a limited partnership in Delaware.2 CVR
Refining’s principal place of business is Texas.3 The General Partner is a Delaware LLC and is
an indirectly wholly owned subsidiary of CVR Energy through CVR Holdings.4 The General
Partner is the general partner of CVR Refining, and has direct responsibility for CVR Refining’s
business and operation management.5 CVR Holdings is a Delaware LLC and is an indirectly
wholly owned subsidiary of CVR Energy.6 CVR Energy is a Delaware corporation with its
principal place of business in Texas.7 Finally, IELP is a Delaware limited partnership.8
There are two individual plaintiffs—Mr. Icahn and Mr. Lamp. Mr. Icahn served as the
General Partner’s chairman from January 2013 to July 2018, as well as CVR Energy’s chairman
from June 2012 to July 2018.9 At all relevant times, Mr. Icahn, directly or indirectly, wholly
owned the general partner of IELP and owned approximately 91% of IELP’s outstanding
depositary units.10 Mr. Lamp has been a director of CVR Energy and the General Partner since
January 2018.11 Since December 2017, Mr. Lamp has also been the president and CEO of both
CVR Energy and the General Partner.12
2
Compl. ¶ 11.
3
Id.
4Id. ¶ 12.
5
Id.
6Id. ¶ 13.
7
Id. ¶ 14.
8
Id. ¶ 15.
9
Id. ¶ 16.
10
Id.
11Id. ¶ 17.
12
Id.
3The Defendants are all insurers. XL is a Delaware corporation with its principal place of
business in Connecticut.13 XL is an insurance company licensed to do business in the state of
Delaware.14 Twin City is an Indiana corporation with its principal place of business in
Connecticut and is an insurance company licensed to do business in Delaware.15 Allianz and
Argonaust are Illinois corporations and are licensed to do business in Delaware.16 Allianz has its
principal place of business in Illinois.17 Argonaust has Texas as its principal place of business.18
AWAC is a New Hampshire corporation with its principal place of business in New York and is
an insurance company licensed to do business in Delaware, among other states.19
B. THE POLICIES20
XL issued Executive and Corporate Securities Liability Insurance ELU159007-18 (the
“XL Primary Policy” or “Policy”) to CVR Energy.21
The Policy requires, in part, for XL to advance defense costs:
(C) Upon the written request of:
(1) the Company (or with respect to a Claim or Interview to which
Insuring Agreements (A) or (D) apply, an Insured Person), the
Insurer will advance Defense Expenses, no later than 60 days after
the Insurer’s receipt of invoices and any additional information
reasonably requested by the Insurer documenting such Defense
Expenses, in excess of the applicable Retention, if any, before the
disposition of the Claim, Interview or Investigation Demand for
which this Policy provides coverage; or
(2) an Insured Person with respect to a Claim or Interview to which
Insuring Agreements (B) or (C) apply (or would apply but for the
13
Id. ¶ 18.
14
Id.
15Id. ¶ 19.
16
Id. ¶¶ 20 and 21.
17
Id. ¶ 20.
18
Id. ¶ 21.
19
Id. ¶ 22.
20
The Policies are not directly at issue in the McWane Motion. The Court is discussing the Policies in depth to
provide context as to the coverage dispute between Plaintiffs and the Insurers.
21
Id. ¶ 26.
4
Company’s failure or refusal to pay Defense Expenses on behalf of
such Insured Person), solely in the event that the Company fails or
refuses to indemnify the Insured Person for Defense Expenses
within 60 days of a written request of the Insured Person, the Insurer
will advance Defense Expenses on a current basis, but not later than
60 days, after the Insurer’s receipt of invoices and any additional
information reasonably requested by the Insurer documenting such
Defense Expenses, in excess of the applicable Retention, before the
disposition of the Claim or Interview for which this Policy provides
coverage, subject in all events to Section VI. General Condition (G)
of this Policy.22
The Policy sets out the Limit of Liability:
Item 3. Limit of Liability:23
(A) $1,000,000 Maximum Aggregate Sublimit of Liability each Policy
Period for all Investigation Demands
(B) $10,000,000 Maximum Aggregate Limit of Liability each Policy Period
(including Defense Expenses) for all Loss from all Claims,
Investigation Demands, and Interviews.24
The Policy also specifies the Retentions:
Item 4. Retentions:
$0 Each Insured Person under INSURING AGREEMENT I (A) or
(D)
$1,000,000 each Claim, other than a Securities Claim, under INSURING
AGREEMENT I (B) or (C).
$1,000,000 each Securities Claim under INSURING AGREEMENT I (B) or
(C)
$0 each Investigation Demand under INSURING AGREEMENT I
(F)25
22
Bourne Decl. Ex. 1 (hereinafter “XL Primary Policy”) Endorsement No. 26.
23
Words in bold appear in bold in the XL Primary Policy.
24
Id. Item 3.
25
Id. Item 4.
5
Under the XL Primary Policy, XL provided $10 million in coverage in excess of a $1
million retention. Endorsement No. 23, however, provides a higher retention limit for claims
arising from mergers and acquisitions:
. . . solely with respect to any Claim based upon, arising out of, directly or indirectly
resulting from, in consequence of, or in any way involving any: (a) acquisition,
assumption, merger, consolidation or otherwise of any entity, asset, Subsidiary or
liability described in Section VI General Conditions (D)(1) and (2); or (b) Change
in Control, Item 4 of the Declarations is amended to read in its entirety as follows:
Item 4. Retentions
$0 each Insured Person under Insuring Agreement I (A) or (D)
$2,500,000 each Claim, other than Securities Claim, under INSURING
AGREEMENT I (B) OR (E)
$2,500,00 each Securities Claim under INSURING AGREEMENT I (B) OR
(C)
$0 each Investigation Demand under INSURING AGREEMENT I
(F)26
Endorsement 23 is entitled “Mergers & Acquisitions Endorsement” and is augmented by Section
VI(D) of the Policy.
Section VI General Conditions (D) is titled “Mergers and Acquisitions (Changes in
Exposure or Control)” Section VI(D), in relevant part, provides:
(1) If during the Policy Period the Company acquires any entity by merger,
consolidation or otherwise such that the entity becomes a Subsidiary,
coverage shall be provided for any Loss involving a Claim, Interview or
Investigation Demand for a Wrongful Act occurring after the
consummation of the transaction.
(2) If, however, by reason of the transaction (or series of transactions) described
in (D)(1) above, the assets or liabilities so acquired or so assumed as a result
of such acquisition, exceed forty percent (40%) of the total assets or
liabilities, respectively, of the Company, as represented in the Company's
most recent audited consolidated financial statements, coverage under this
Policy shall be provided for a period of ninety (90) days or to the Expiration
Date, whichever occurs first, for any Loss involving a Claim, Interview or
Investigation Demand for a Wrongful Act that occurred after the transaction
26
Id. Endorsement No. 23.
6
has been consummated. Coverage beyond such period will be provided only
if:
(a) the Insurer receives written notice containing full details of the
transaction(s); and
(b) the Insurer at its sole discretion, agrees to provide such additional
coverage upon such terms, conditions, limitations, and additional
premium that it deems appropriate.27
Sections VI(D)(1) and (2) seems to relate to those situations where the originally anticipated risk
of loss is greater due to a merger or acquisition and, therefore, the retention gets adjusted
upward.
There are three potentially applicable Insuring Agreements:
(A) The Insurer shall pay on behalf of the Insured Persons Loss resulting from
a Claim first made against the Insured Person during the Policy Period
for a Wrongful Act, except for Loss which the Company is permitted or
required to pay on behalf of the Insured Persons as indemnification.
(B) The Insurer shall pay on behalf of the Company Loss resulting from a
Claim first made against the Insured Persons during the Policy Period for
a Wrongful Act to the extent the Company is required or permitted to pay
on behalf of the Insured Persons as indemnification.
(C) The Insurer shall pay on behalf of the Company Loss resulting solely from
any Securities Claim first made against the Company during the Policy
Period for a Wrongful Act.
…28
“Loss” is a defined term:
“Loss” means damages, judgments, settlements, pre-judgment and post-judgment
interest or other amounts (including punitive, exemplary or multiplied damages,
where insurable by law) that any Insured is legally obligated to pay and Defense
Expenses, including that portion of any settlement which represents the claimant’s
attorneys’ fees.29
The definition of Loss also has certain exclusions:
27
Id. § VI(D)(1) and (2).
28
Id. § I.
29
Id. § II(O).
7
. . . Loss will not include that portion which constitutes:
(3) any amount which is uninsurable under the law pursuant to which
this Policy is construed; provided that the Insurer will not assert that
the portion of any settlement or judgment in a Claim arising from
an initial or subsequent public offering of the Company’s securities
constitutes uninsurable loss due to the alleged violations of Section
11 and/or 12 of the Securities Act of 1933 as amended (including
alleged violations of Section 11 and/or 12 of the Securities Act of
1933 by a Controlling Person pursuant to Section 15 of the
Securities Act of 1933);
...
(5) any amount which represents or is substantially equivalent to an
increase in the consideration paid, or proposed to be paid, by the
Company in connection with its purchase of any securities or assets
of any person, group of persons, or entity
. . .30
“Defense Expenses” are defined as:
“Defense Expenses” means 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 Claim . . .31
“Claim” is defined under Endorsement 25:
Section II Definitions (C)(2) of the Policy is amended to read in its entirety as
follows:
(2) any civil, criminal, judicial, administrative or regulatory proceeding
commenced by:
(a) service of a complaint or similar pleading;
. . .32
“Securities Claim,” by contrast, is defined:
30
Id. §§ II(O)(3) and II(O)(5).
31
Id. § II(F)(1).
32
Id. Endorsement No. 25 (Amend Definition of Claim).
8
“Securities Claim” means a Claim, other than an administrative or regulatory
proceeding against or investigation of the Company:
(1) made against an Insured 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 the Company; or
(b) brought by a security holder of the Company with respect to such
security holder’s interest in securities of the Company.
. . . 33
Endorsement No. 42 amends the definition of “Securities Claim”:
“. . .‘Securities Claim,’ as defined in Section II Definitions (S) of the Policy, is
amended to include any Claim, other than an administrative or regulatory
proceeding against or investigation of the Company, made against any Insured for
any actual or alleged act, error, omission, misstatement, misleading statement or
breach of duty arising from or in connection with the purchase or sale of, or offer
to purchase or sell any securities issued by the Company, whether such purchase,
sale or offer involves a transaction with the Company or occurs in the open
market.34
“Insured” means the Insured Persons and the Company.35
“Insured Person” is defined:
“Insured Person” means:
(1) any past, present or future natural person director or officer, or member or
manager of the board of managers, of the Company and those persons
serving in a functionally equivalent role for the Parent Company or any
Subsidiary operating or incorporated outside the United States.36
Endorsement No. 46 further amends the definition of “Insured Person”:
33
Id. § II(S)(1).
34
Id. Endorsement No. 42.
35
Id. § II(I).
36
Id. § II(J).
9
(2) any past, present or future natural person employee or intern of the
Company (other than an individual described in (J)(1) above) to the extent
any Claim is: (a) a Securities Claim, or (b) made and maintained against
both such employee and an Insured Person as defined in (J)(1) above;”37
Endorsement No. 23 of the Policy increased the retention to $2.5 million for claims
related to Mergers and Acquisitions.
“Company” is defined:
“Company” means the Parent Company and any Subsidiary created or acquired
on or before the Inception Date set forth in ITEM 2 of the Declarations or during
the Policy Period, subject to GENERAL CONDITIONS VI (D). The term
Company shall include any such entity as a debtor in possession, as such term is
used in Chapter 11 of the United States Bankruptcy Code or any equivalent
provision in any foreign jurisdiction.38
“Parent Company” means the entity named in ITEM 1 of the Declarations.39
ITEM 1 names CVR Energy as the Company.40
“Subsidiary” is defined:
“Subsidiary” means any entity during any time in which the Parent Company
holds directly or indirectly:
(1) more than fifty percent (50%) of the voting rights or issued share capital of
such entity.
. . .41
“Wrongful Act” means:
(1) any actual or alleged act, error, omission, misstatement, misleading
statement, neglect, or breach of duty by an Insured Person while acting in
his or her capacity as such or due to his or her status as such;
...
37
Id. Endorsement No. 46.
38
Id. § II(D).
39
Id. § II(Q).
40
Id. Item 1.
41
Id. § II(T).
10
(3) solely with respect to Insuring Agreement (C) of the Policy, any actual or
alleged act, error, omission, misstatement, misleading statement, neglect, or
breach of duty by the Company;
. . .42
The XL Primary Policy also contains an allocation provision:
If both Loss covered by this Policy and loss not covered by this Policy are incurred,
either because a Claim, Interview or Investigation Demand made against the
Insured contains both covered and uncovered matters, or because a Claim,
Interview or Investigation Demand is made against both the Insured and others
(including the Company for Claims other than Securities Claims) not insured
under this Policy, the Insured and the Insurer will use their best efforts to determine
a fair and appropriate allocation of Loss between that portion of Loss that is
covered under this Policy and that portion of loss that is not covered under this
Policy. Additionally, the Insured and the Insurer agree that in determining a fair
and appropriate allocation of Loss, the parties will take into account the relative
legal and financial exposures of, and relative benefits obtained in connection with
the defense and/or settlement of the Claim, Interview or Investigation Demand
by, the Insured and others.43
Twin City, Allianz, Argonaut and AWAC issued excess insurance policies (collectively
with XL Primary Policy, the “Policies”) creating an insurance coverage tower.44 The Policies
follow form to the XL Primary Policy.45
C. THE UNDERLYING ACTIONS46
The coverage dispute between Plaintiffs and the Insureds arises out of two putative class
action lawsuits. Certain plaintiffs filed a lawsuit against CVR Refining in the Court of
Chancery, In re CVR Refining, LP Unitholder Litigation, No. 2019-0062-KSJM (the “Delaware
Litigation”).47 In addition, certain other plaintiffs initiated a lawsuit in the Southern District of
New York, White Pine Investments v. CVR Refining, LP, No. 1:20-cv-02863 (the “White Pine
42
Id. § II(U).
43
Id. § V(D).
44
See Compl. ¶¶ 41-44.
45
See id.; see also Bourne Decl. Exs. 2-5.
46
The complaints in the Underlying Actions have been provided to the Court. See Compl. Ex. F, and Bourne Decl.
Exs. 6 and 7.
47
Compl. Ex. F
11
Action”) (collectively, the “Underlying Actions”).48 The factual allegations of both lawsuits are
substantially similar.49 The Underlying Actions contend that Plaintiffs, acting through various
entities, improperly used a call right in CVR Refining’s limited partnership agreement to buy out
CVR Refining’s public common unit holders.50 The Delaware Litigation plaintiffs alleged that
CVR manipulated the price of CVR Refining’s stock to enable CVR Energy to call the plaintiffs’
common units at an artificially depressed price.51 The plaintiffs in the Underlying Actions are
not parties to this civil proceeding.
The Delaware Litigation complaint names CVR Energy, CVR Refining, CVR Holdings,
the General Partner, and Mr. Icahn and various individual directors and officers.52 The Delaware
Litigation alleges breach of contract against the CVR entities, breach of the implied covenant of
good faith and fair dealing against the CVR entities, and tortious interference against CVR
Energy and Mr. Icahn.53
The White Pine Action complaint names as defendants CVR Energy, CVR Refining,
CVR Holdings, the General Partner, IELP, and Mr. Lamp.54 The White Pine Action alleges
violations of Section 10(b) of the Exchange Act and Rule 10b-5; and Section 20(a) of the
Exchange Act.55
The Court has reviewed the Underlying Actions’ complaints. The Court notes that the
complained of transaction involves the purchase of CVR Refining’s own common units through
a multi-step process involving exchange offers, call rights, etc. The transaction does not involve
48
See id. ¶ 45. According to Plaintiffs, the White Pine Action has been voluntarily dismissed without prejudice. See
Partial SJ Mot. Reply Br. at 1, fn. 2.
49
Id.
50
See, e.g., Ex. 6 ¶¶ 1-12.
51
Id. ¶ 46.
52
Id. ¶ 51.
53
Id. ¶ 52.
54
Id. ¶ 53.
55
Id. ¶ 54.
12
the purchase of any entity or the consolidation of an entity into CVR Refining. The Underlying
Actions contend that Plaintiffs improperly obtained the units at a depressed price.
Plaintiffs gave notice of the Underlying Actions to the Insurers.56 On March 25, 2019,
XL contacted CVR Energy regarding coverage.57 XL stated the Delaware Litigation constituted
a Claim against Insured Persons for Wrongful Acts and constituted a Securities Claim against
CVR Energy, CVR Refining, CVR Holdings and the General Partner.58 XL denied coverage as
to Mr. Icahn and IELP.59
D. THE INSURERS DENY COVERAGE.
Mediation for the Delaware Litigation was scheduled for February 17, 2021.60
On January 8, 2021, XL sent a letter to CVR Energy, noting that coverage may not be
available in the Delaware Litigation.61 First, XL argued that the “relief sought in the Litigation
may not constitute covered Loss” because (1) the damages are based solely on contractual
obligations, (2) it is “any amount which represents or is substantially equivalent to an increase in
the consideration paid, or proposed to be paid, by the Company in connection with its purchase
of securities or assets of any person, group of persons, or entity,” and (3) the amount may be
uninsurable under Texas law.62 Furthermore, XL took the position that coverage was
unavailable for IEP and Mr. Icahn because IELP was not an Insured and that Mr. Icahn was not
being sued in his capacity as an Insured Person.63
56
Id. ¶ 55.
57
Id. ¶ 56.
58
Id.
59
Id.
60
Id. ¶ 57.
61
McWane Mot. Reply Br. Ex. K (January 8 XL Letter).
62
Id.
63
Id.
13
On January 15, 2021, CVR Energy responded, setting out its position on why there was
coverage under the Policies.64 CVR requested that XL confirm by February 3, 2021 that XL
“will provide coverage for any settlement reached at mediation…scheduled for February 17,
2021.”65 Instead of responding to the January 15, 2021 letter, the Insurers filed suit in Texas.
E. PROCEDURAL POSTURE
The Insurers filed a petition in Texas District Court on January 27, 2021 (the “Texas
Action”).66 The Insureds then filed the Complaint in this litigation on January 30, 2021 seeking
recovery for (1) Count I—anticipatory breach of contract regarding the Insurers’ denial of
coverage for defense costs to Mr. Icahn, IELP, and CVR Energy; (2) Count II—anticipatory
breach of contract for denying indemnity costs (Count II); and (3) Count III—breach of the
implied covenant of good faith and fair dealing (Count III).67
The Insureds moved for partial summary judgment on Count I—XL’s duty to advance
defense costs on March 12, 2021.68 The Insureds are only moving on Count I as to CVR
Refining, the General Partner, CVR Holdings, CVR Energy, and Mr. Lamp. The Insureds are
not, currently, moving for summary judgment as to IELP and Mr. Icahn. The Insurers oppose
partial summary judgment. The Court held a hearing on the Partial SJ Motion on July 7, 2021.
At the conclusion of the hearing, the Court took the Partial SJ Motion under advisement.
III. PARTIES’ CONTENTIONS
The Insureds argue that the Underlying Actions are covered claims subject to a $1 million
retention under Endorsement No. 26 of the XL Primary Policy. The Insureds also claim that
64
McWane Mot. Op. Br. at 9.
65
McWane Mot. Reply Br. Ex. L (January 15 CVR Letter)
66
McWane Mot. Op. Br. Ex. A (Insurers’ Texas Petition).
67
D.I. No. 1.
68
D.I. No. 24.
14
Endorsement No. 23 of the XL Primary Policy, which provides for a $2.5 million retention, does
not apply because it is subject to Section VI General Conditions (D)(1) and (2). Therefore, the
Insurers contend that the Insurers owe a duty to defend the Insureds under the plain language of
the contract.
The Insurers oppose the relief sought. The Insurers argue that the Partial SJ Motion is
not based on a pleaded claim and, therefore, should be dismissed without prejudice. The Insurers
also contend that Endorsement No. 23 of the XL Primary Policy applies to the Underlying
Actions so the applicable retention is $2.5 million. The Insurers assert that Endorsement No. 23
is not subject to Section VI General Conditions (D)(1) and (2) because, otherwise, the
endorsement would be meaningless.
IV. STANDARD OF REVIEW
The Court will grant summary judgment if, after viewing the record in a light most
favorable to the non-moving party, no genuine issues of material fact exist and the movant is
entitled to judgment as a matter of law.69 In ruling on a summary judgment motion, the Court (i)
construes the record in the light most favorable to the non-moving party;70 (ii) detects, but does
not decide, genuine issues of material fact;71 and (iii) denies the motion if a material fact is in
dispute.72 The movant bears the initial burden of demonstrating its motion is supported by
undisputed material facts.73 If that burden is met, the non-movant must show there are material
issues of fact to be resolved by a fact-finder.74
69
Merrill v. Crothall-Am., Inc., 606 A.2d 96, 99-100 (Del. 1992); see Del. Super. Civ. R. 56.
70
Judah v. Del. Tr. Co., 378 A.2d 624, 632 (Del. 1977).
71
Merrill, 606 A.2d at 99.
72
Ebersole v. Lowengrub, 180 A.2d 467, 468-69 (Del. 1962).
73
Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979).
74
Brzoska v. Olson, 668 A.2d 1355, 1364 (Del. 1995).
15
Although Summary judgment is “encouraged when possible;”75 however, there is no
“right” to summary judgment.76 The Court may deny summary judgment if the Court is not
reasonably certain that there is no triable fact issue.77 The Court may deny summary judgment if
the Court concludes a more thorough inquiry into, or development of, the facts, would clarify the
law or its application.78
V. DISCUSSION
The parties do not contest choice of law in their papers. Although the factual record is
not fully developed on choice of law, there is a very good chance that Delaware law will apply to
the Policies.79 Insurance policies are contracts.80 The interpretation of contractual language,
including in insurance policies, “is a question of law.”81 The principles governing the
interpretation of an insurance contract are well-settled. In attempting to resolve a dispute over
the proper interpretation of an insurance policy, “a court should first seek to determine the
parties’ intent from the language of the insurance contract itself.”82 In reviewing the terms of an
75
AeroGlobal Cap. Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 443 (Del. 2005); see Unbound Partners Ltd.
P’ship v. Invoy Holdings Inc., 2021 WL 1016442, at *4 (Del. Super. Mar. 17, 2021) (“[A] matter should be disposed
of by summary judgment whenever . . . a trial is unnecessary.” (internal quotation marks omitted) (quoting Jeffries v.
Kent Cty. Vocational Tech. Sch. Dist. Bd. of Educ., 743 A.2d 675, 677 (Del. Super. Ct. 1999))).
76
Telxon Corp. v. Meyerson, 802 A.2d 257, 262 (Del. 2002) (internal quotation marks and citation omitted).
77
Cross v. Hair, 258 A.2d 277, 278 (Del. 1969).
78
Alexander Indus., Inc. v. Hill, 211 A.2d 917, 918-19 (Del. 1965); see Cerberus Int’l, Ltd. v. Apollo Mgmt., L.P.,
794 A.2d 1141, 1150 (Del. 2002) (“The trial court may deny summary judgment in a case where there is reason to
believe that the better course would be to proceed to a full trial.” (cleaned up)).
79
See RSUI Indem. Co. v. Murdock, 248 A.3d 887, 896-901 (Del. 2021).
80
Northrop Grumman Innovation Sys., Inc. v. Zurich Am. Ins. Co., 2021 WL 347015, at *7 (Del. Super. Feb. 2,
2021) (citation omitted).
81
O’Brien v. Progressive N. Ins. Co., 785 A.2d 281, 286 (Del. 2001); see Eagle Force Holdings, LLC v. Campbell,
187 A.3d 1209, 1232 (Del. 2018) (“Whether [a] contract’s material terms are sufficiently definite [is] mostly, if not
entirely, a question of law.” (citation omitted)); Exelon Generation Acquisitions, LLC v. Deere & Co., 176 A.3d
1262, 1232 (Del. 2017) (same).
82
Alstrin v. St. Paul Mercury Ins. Co., 179 F. Supp. 2d 376, 388 (D. Del. 2002); see also Emmons v. Hartford
Underwriters Ins. Co., 697 A.2d 742, 745 (Del. 1997) (“The scope of an insurance policy's coverage . . . is
prescribed by the language of the policy.”) (citing Rhone–Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616
A.2d 1192, 1195–96 (Del. 1992); Playtex FP, Inc. v. Columbia Cas. Co., 622 A.2d 1074, 1076–77 (Del. Super.
1992) (citing E.I. du Pont de Nemours & Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985)); Kaiser
Aluminum Corp. v. Matheson, 681 A.2d 392, 395 (Del. 1996).
16
insurance policy, the Court considers “the reasonable expectations of the insured at the time of
entering into the contract to see if the policy terms are ambiguous or conflicting, contain a
hidden trap or pitfall, or if the fine print takes away that which has been provided by the large
print.”83 Ambiguity exists when the disputed term “is fairly or reasonably susceptible to more
than one meaning.”84 Absent any ambiguity, contract terms should be accorded their plain,
ordinary meaning.85 If an insurance policy contains an ambiguous term, then the policy is to be
construed in favor of the insured to further the contract’s purpose and against the insurer, as the
insurer drafts the policy and controls coverage.86
In Delaware, “[i]t is well settled that an insurer’s duty to defend is broader than its duty to
indemnify.”87 “The duty to defend is determined by comparing the allegations contained in the
underlying complaint with the terms of the policy.”88 If there is a possibility that “the underlying
complaint, read as a whole, alleges a risk within the coverage of the policy,” then the insured
owes a duty to defend.89
To determine if an insurer has a duty to defend an action against its insured, a court
should use the following principles:
83
E.I. du Pont de Nemours & Co. v. Admiral Ins. Co., 1996 WL 111205, at *2 (Del. Super. Jan. 30, 1996) (citation
omitted); see Steigler v. Ins. Co. of N. Am., 384 A.2d 398, 401 (Del. 1978) (“[A]n insurance contract should be read
to accord with the reasonable expectations of the purchaser so far as the language will permit.”) (quoting State Farm
Mut. Auto. Ins. Co. v. Johnson, 320 A.2d 345, 345 (Del. 1974) (internal quotation marks omitted)).
84
Alta Berkeley VIC. V. v. Omneon, Inc., 41 A.3d 381, 385 (Del. 2012).
85
See id.; see also Goggin v. Nat'l Union Fire Ins. Co. of Pittsburgh, 2018 WL 6266195, at *4 (Del. Super. Nov. 30,
2018); IDT Corp. v. U.S. Specialty Ins. Co., 2019 WL 413694, at *7 (Del. Super. Jan. 31, 2019).
86
See Alstrin, 179 F. Supp. 2d at 390 (“Generally speaking, however, Delaware . . . courts continue to strictly
construe ambiguities within insurance contracts against the insurer and in favor of the insured in situations where the
insurer drafted the language that is being interpreted regardless of whether the insured is a large sophisticated
company.”) (citations omitted); Nat’l Union Fire Ins. Co. v. Rhone–Poulenc Basic Chems. Co., 1992 WL 22690, at
*8 (Del. Super. Jan. 16, 1992) (“Application of the [contra proferentem] doctrine turns not on the size or
sophistication of the insured, but rather on the fact that the policy language at issue is drafted by the insurer and is
not negotiated.” (citation omitted)).
87
Rhone-Poulenc, 1992 WL 22690 at *5.
88
Id.
89Id.
17(a) where there exists some doubt as to whether the complaint against the insured
alleges a risk insured against, that doubt should be resolved in favor of the insured;
(b) any ambiguity in the pleadings should be resolved against the carrier; and
(c) if even one count or theory of plaintiff’s complaint lies within the coverage of
the policy, the duty to defend arises.90
In Delaware, the insurer’s duty to defend an insured arises as soon as the allegations of
the underlying complaint “show a potential that liability within coverage will be established.”91
An insurer then can be excused from its duty to defend only if it can be determined as a matter of
law that there is no possible factual or legal basis upon which the insurer might eventually be
obligated to indemnify the insured.”92 Therefore, an insurer must show that the allegations of the
underlying complaint are “solely and entirely within specific and unambiguous exclusions from
coverage.”93
A. THE SJ MOTION IS NOT PROCEDURALLY DEFICIENT BECAUSE THE MOTION RELATES TO
A PLEADED CLAIM.
The Insurers argue that the Partial SJ Motion is procedurally deficient because it is based
on a claim not pleaded in the plaintiff’s complaint.94 Count I is cause of action for anticipatory
breach of contract regarding the Policy’s duty to defend. The Insureds allege that their claim
under the policy relating to the Underlying Actions constitutes a cover claim implicating
indemnification for “Defense Expenses.”95 The Insureds contend that no “conditions,
exclusions, or provisions of the [Policy] bar coverage for any Defense Expenses relating to the
Underlying Actions.”96
90
Continental Casualty Co. v. Alexis I. du Pont School Dist., 317 A.2d 101, 105 (Del. 1974).
91
Rhone-Poulenc, 1992 WL 22690 at *7.
92
Id.
93Id. (quoting Avondale Indus., Inc. v. The Travelers Indem. Co., 887 F.2d 1200, 1204 (2d Cir. 1989)).
94
Partial SJ Mot. Answer. Br. 12.
95
Compl. ¶ 64,
96
Id. ¶ 67.
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“The function of pleading is to give notice.”97 The Court’s rules “encourage notice
pleading and do not require pleading of technical exactitude.”98 The Insurers claim that the
Partial SJ Motion requires the Court to rule on an unpled claim, i.e., that Endorsement No. 23
does not apply to the claims based on the Underlying Actions, and therefore a $1 million
retention applies.
The Partial SJ Motion, however, is based on the claim that the Insurers must advance
defense costs.99 The Complaint alleges that no provisions of the Policy bar coverage for defense
costs. Endorsement No. 23 is a provision of the Policy. XL raised the retention issue by
claiming it applies so that XL does not have to advance defense costs. XL also claimed that the
$2.5 million retention applied on March 25, 2019.100 Therefore, XL had notice that Endorsement
No. 23’s applicability would be an issue when determining its liabilities under the XL Primary
Policy. The Court finds that the Partial SJ Motion is not procedurally deficient.
B. THE POLICY IS NOT AMBIGUOUS, AND THE INSUREDS ARE ENTITLED TO SUMMARY
JUDGMENT ON COUNT I AS TO THE DUTY TO DEFEND.
Whether Endorsement No. 23 applies is a question of contract interpretation. A threshold
inquiry, however, when presented with a contract dispute on a motion for summary judgment is
whether the contract is ambiguous.101 “[W]here reasonable minds could differ as to the
contract’s meaning, a factual dispute results and the fact-finder must consider admissible
extrinsic evidence.” 102 Ambiguity exists “when the provisions in controversy are fairly
97
Mut. Ben. Life Ins. Co. of Newark, N.J. v. Bailey, 190 A.2d 757, 760 (Del. 1963).
98
Deluca v. Martelli, 200 A.2d 825, 828 (Del. Super. 1964).
99
Partial SJ Mot. Op. Br. 14.
100
Bourne Decl. Ex. 8.
101
United Rentals, Inc. v. RAM Holdings, Inc., 937 A.2d 810, 830 (Del.Ch. 2007).
102
GMC Capital Invest., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 783 (Del. 2012); see also Eagle
Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997) (reversing a grant of summary
judgment where two parties had conflicting but reasonable interpretations of a contract’s indemnification provision
and extrinsic evidence was needed to resolve the dispute).
19
susceptible to different interpretations or may have two different meanings.”103 In these cases,
summary judgment is improper because the Court must look to extrinsic evidence to resolve the
interpretation dispute.104 The Court does not find Endorsement No. 23 to be ambiguous.
The parties disagree whether Endorsement No. 23 applies to the claims related to the
Underlying Actions. Endorsement No. 23 provides for a $2.5 million retention limit:
. . . solely with respect to any Claim based upon, arising out of, directly or indirectly
resulting from, in consequence of, or in any way involving any: (a) acquisition,
assumption, merger, consolidation or otherwise of any entity, asset, Subsidiary or
liability described in Section VI General Conditions (D)(1) and (2); or (b) Change
in Control, Item 4 of the Declarations is amended to read in its entirety as follows:
Item 4. Retentions
$0 each Insured Person under Insuring Agreement I (A) or (D)
$2,500,000 each Claim, other than Securities Claim, under INSURING
AGREEMENT I (B) OR (E)
$2,500,00 each Securities Claim under INSURING AGREEMENT I (B) OR
(C)
$0 each Investigation Demand under INSURING AGREEMENT I
(F)105
Subsection (a) involves a situation where the Insured increases the risk of loss through a
merger or acquisition. Section VI General Conditions (D)(1) provides:
(1) If during the Policy Period the Company acquires any entity by merger,
consolidation or otherwise such that the entity becomes a Subsidiary,
coverage shall be provided for any Loss involving a Claim, Interview or
Investigation Demand for a Wrongful Act occurring after the
consummation of the transaction.106
Section VI General Conditions (D)(2) provides for the same type of transaction but one that
results in the acquired assets or liabilities exceeding 40% of the Company’s total assets or
103
Id.
104GMC Capital Invest., 36 A.3d at 780.
105
Id. Endorsement No. 23.
106
Id. § VI(D)(1).
20
liabilities.107 Subsection (b) does not apply here as the situation does not involve a “Change of
Control.”
The Insurers argue that Endorsement No. 23 applies because the Underlying Actions “in
any way” involve the acquisition of any entity or asset.108 Essentially, the Insurers argue that
Endorsement No. 23 applies when a claim involves acquiring (i) an entity, (ii) an asset, (iii) a
Subsidiary or (iv) a liability described in Section VI General Conditions D(1) and (2). This
seems like a reasonable interpretation based on the provision’s ordinary meaning except it does
not faithfully include all the language of the endorsement.
The Insurers seem to make Section VI General Conditions into a number of separate
transactions; however, Section VI General Conditions D(1) and (2) are there to create two
categories of transactions in subsection (a) that would increase the deductible—one involving
acquisition of a Subsidiary and one where the Company assets or liabilities by 40%. Moreover,
that is the most sensible way to read Endorsement No. 23. The purpose of Endorsement No. 23
is to increase the deductible in those situations where the insurable risk is increased, i.e., where
entities have been added or assets and liabilities have increased due to acquisition.
The Insureds argue that Endorsement No. 23 does not apply because it is limited to
situations described in Section VI General Conditions (D)(1) and (2).109 The Insureds interpret
Endorsement No. 23 to apply when a claim involves acquiring an entity, an asset, a Subsidiary or
a liability described in Section VI General Conditions D(1) and (2). The Court finds that the
Insureds position tracks the unambiguous language of Endorsement No. 23.
107
See id. §V(D)(2).
108
Partial SJ Mot. Answer. Br. 15.
109
Partial SJ Mot. Op. Br. 15.
21
Therefore, the Court finds that the plain and unambiguous language of Endorsement No.
23 limits the increase in deductible to Securities Claims arising from mergers or acquisitions as
“described in Section VI General Conditions (D)(1) and (2).” The Underlying Actions challenge
a transaction that does not involving acquisition of a subsidiary so (D)(1) does not apply. In
addition, (D)(2) is not involved as the buyback does not involve a situation where assets or
liabilities were acquired let alone assets or liabilities that exceed 40% of the total assets or
liabilities of CVR Refining. Accordingly, the Court will grant the Partial SJ Motion.
VI. CONCLUSION
For the reasons set forth above, the Court finds that no genuine issues of material fact
exist, and Plaintiffs are entitled to partial summary judgment on Count I of the Complaint. The
summary judgment on Count I only applies to CVR Refining, the General Partner, CVR
Holding, CVR Energy and Mr. Lamp.
Dated: November 23, 2021
Wilmington, Delaware
/s/ Eric M. Davis
Eric M. Davis, Judge
cc: File&ServeXpress
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