Northrup Grumman Innovation Systems, Inc. v. Zurich American Insurance Co.

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
NORTHROP GRUMMAN )
INNOVATION SYSTEMS, INC., )
)
)
Plaintiff, )
)
v. )
)
ZURICH AMERICAN INSURANCE )
COMPANY, CERTAIN UNDERWRITERS )
AT LLOYDS OF LONDON, ) C.A. No. N18C-09-210
CONTINETAL CASUALTY INSURANCE ) PRW CCLD
COMPANY, CAROLINA CASUALTY )
INSURANCE COMPANY, TRAVELERS )
CASUALTY AND SURETY COMPANY )
OF AMERICA, NATIONAL UNION FIRE )
COMPANY OF PITTSBURGH, PA, U.S. )
SPECIALTY INSURANCE COMPANY, )
TWIN CITY FIRE INSURANCE COMPANY, )
ALLIED WORLD ASSURANCE )
COMPANY, STARR INDEMNITY & )
LIABILITY COMPANY, XL SPECIALTY )
INSURANCE COMPANY, BERKLEY )
INSURANCE COMPANY, QBE )
INSURANCE CORPORATION, )
)
Defendants. )
Submitted: January 7, 2021
Decided: February 2, 2021
Upon Plaintiff Northrop Grumman Innovation Systems, Inc.’s Motion for
Judgment on the Pleadings
GRANTED
Upon Plaintiff Northrop Grumman Innovation Systems, Inc.’s Motion for Summary
Judgment
GRANTED
Upon for Defendants Certain Underwriters at Lloyd’s of London, Continental
Casualty Company, and Carolina Casualty Insurance Company’s Motion for
Summary Judgment
GRANTED in part, DENIED in part
Upon Defendant National Union Fire Insurance Company of Pittsburgh, Pa.’s
Motion for Summary Judgment
GRANTED in part, DENIED in part
Upon Defendants U.S. Specialty Insurance Company, Twin City Fire Insurance
Company, and Allied World National Assurance Company’s Motion for Summary
Judgment
GRANTED in part, DENIED in part
Upon Defendants Travelers Surety and Casualty Company of America and Starr
Indemnity & Liability Company’s Motion for Summary Judgment
GRANTED in part, DENIED in part
Upon Defendants Berkley Insurance Company and QBE Insurance Corporation’s
Motion for Summary Judgment
DENIED
MEMORANDUM OPINION AND ORDER
David J. Baldwin, Esquire, Peter C. McGivney, Esquire, BERGER HARRIS LLP,
Wilmington, Delaware; Barry J. Fleishman (argued), Esquire, Joseph D. Jean
(argued), Esquire, Tamara D. Bruno, Esquire, PILLSBURY WINTHROP SHAW
PITTMAN LLP, Washington, D.C., Attorneys for Plaintiff Northrop Grumman
Innovation Systems, Inc.
Bruce W. McCullogh, Esquire, BODELL BOVÉ, LLC, Wilmington, Delaware;
Wayne E. Borgeest, Esquire, Matthew I. Schiffhauer, Esquire, KAUFMAN
BORGEEST & RYAN LLP, New York, New York, Attorneys for Defendant
Certain Underwriters at Lloyd’s of London.
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Bruce W. McCullogh, Esquire, BODELL BOVÉ, LLC, Wilmington, Delaware;
David F. Cutter (argued), Esquire, Jonathan R. Walton, Esquire, Emily R.
Tripicchio, Esquire, BATESCAREY LLP, Chicago, Illinois; Karen Ventrell,
Esquire, CNA COVERAGE LITIGATION GROUP, Washington, D.C., Attorneys
for Defendant Continental Casualty Company.
Bruce W. McCullogh, Esquire, BODELL BOVÉ, LLC, Wilmington, Delaware;
David F. Cutter (argued), Esquire, Jonathan R. Walton, Esquire, Emily R.
Tripicchio, Esquire, BATESCAREY LLP, Chicago, Illinois, Attorneys for
Defendant Carolina Casualty Insurance Company.
Robert J. Katzenstein, Esquire, Kathleen M. Miller, Esquire, SMITH
KATZENSTEIN & JENKINS, LLP, Wilmington, Delaware; Michael L. Manire
(argued), Esquire, Craig W. Kavanagh, Esquire, MANIRE GALLA CURLEY LLP,
New York, New York, Attorneys for Defendant Travelers Surety and Casualty
Company of America.
Timothy S. Martin, Esquire, WHITE AND WILLIAMS LLP, Wilmington,
Delaware; Sean P. Mahoney (argued), Esquire, WHITE AND WILLIAMS LLP,
Philadelphia, Pennsylvania, Attorneys for Defendant National Union Fire Insurance
Company of Pittsburgh, Pa.
Robert J. Katzenstein, Esquire, SMITH KATZENSTEIN & JENKINS, LLP,
Wilmington, Delaware; Joseph A. Bailey III, Esquire, M. Addison Draper (argued),
Esquire, CLYDE & CO US LLP, Washington, D.C., Attorneys for Defendant U.S.
Specialty Insurance Company.
Robert J. Katzenstein, Esquire, SMITH KATZENSTEIN & JENKINS, LLP,
Wilmington, Delaware; Ronald P. Schiller, Esquire, Bonnie M. Hoffman, Esquire,
Cary L. Rice, Esquire, HANGLEY ARONCHICK SEGAL PUDLIN & SCHILLER,
Philadelphia, Pennsylvania, Attorneys for Defendant Twin City Fire Insurance
Company.
Eileen M. Ford, Esquire, MARKS, O’NEILL, O’BRIEN, DOHERTY & KELLY,
P.C., Wilmington, Delaware; David H. Topol, Esquire, Matthew W. Beato, Esquire,
WILEY REIN LLP, Washington, D.C., Attorneys for Defendant Allied World
National Assurance Company.
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Barry M. Klayman, Esquire, COZEN O’CONNOR, Wilmington, Delaware;
Michael R. Davisson (argued), Esquire, COZEN O’CONNOR, Los Angeles,
California, Attorneys for Defendant Starr Indemnity & Liability Company.
John C. Phillips, Jr., Esquire, David A. Bilson, Esquire, PHILLIPS MCLAUGHLIN
& HALL, P.A., Wilmington, Delaware; Geoffrey W. Heineman, Esquire, Jung H.
Park (argued), Esquire, ROPERS MAJESKI KOHN & BENTLEY, P.C., New York,
New York, Attorneys for Defendant Berkley Insurance Company.
David C. Malatesta, Esquire, KENT & MCBRIDE, P.C., Wilmington, Delaware;
David A. Wilford, Esquire, Anthony J. D’Agostino (argued), Esquire, WILFORD
CONRAD LLP, Barrington, Illinois, Attorneys for Defendant QBE Insurance
Corporation.
WALLACE, J.
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This sprawling insurance coverage dispute involves one transaction, two
alleged federal securities law violations, three policy towers, seven motions, and a
baker’s dozen parties. Northrop Grumman Innovation Systems, Inc. (“Northrop”)
asserts its insurance companies have wrongfully denied it coverage for defense fees
and settlement costs incurred from a class action lawsuit (the “Knurr Litigation”)
challenging proxy solicitation statements (the “14(a) Claim”) about the merger of
Alliant Techsystems, Inc. (“Alliant”) and Orbital Sciences Corporation (“Orbital
Sciences”) and post-closing financial reports (the “10(b) Claim”) about the value of
the resulting entity—Orbital ATK, Inc. (“OATK”).
Resolution of the parties’ dueling and cross-dispositive motions requires the
Court to address Delaware and Virginia contract principles, corporate law, insurance
definitions, provisions and exclusions, and payment allocation and exhaustion.
Many of these issues are purely legal and will be decided now. A jury will have to
handle the rest.
Northrop moves under Rule 12(c) against Berkley Insurance Company and
QBE Insurance Corporation (collectively, the “OATK Insurers”) to knock out those
insurers’ resistance to the 10(b) Claim’s coverage via the “Prior Acts Exclusion.”
That Exclusion precludes coverage for intertwined misconduct engaged by OATK
prior to the policy period. The OATK Insurers respond with their own summary
judgment motion asking the Court to hold, as a matter of law, that the Prior Acts
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Exclusion applies, certain investigatory fees are not covered, and that they are liable
only for a specific distribution of loss.
Next, Continental Casualty, Carolina Casualty, and Certain Underwriters at
Lloyd’s of London (collectively, the “Orbital Sciences Insurers”) move for summary
judgment against Northrop, contending that: (1) Northrop failed to give them timely
notice of the Knurr Litigation; and (2) neither the 10(b) nor 14(a) Claim is covered.
Finally, Northrop moves for summary judgment against National Union, U.S.
Specialty, Twin City, Allied World, Starr, and Travelers (collectively, the “Alliant
Insurers”), contending that the 14(a) Claim’s coverage is not barred by the so-called
“Bump Up Provision.” That “Provision”—which looks an awful lot like an
exclusion—carves out indemnity for losses that “effectively increase” “inadequate
consideration” given for the “acquisition of all or substantially all the ownership
interests or assets of an entity.” This is where things will later get a bit complicated.
Together, the Alliant Insurers cross-move for summary judgment and ask the Court
to hold, as a matter of law, that coverage is unavailable for both the 14(a) and 10(b)
Claims and certain defense costs. And separately (though relatedly), all of the
Alliant Insurers but National Union (collectively—where relevant—the “Excess
Alliant Insurers”) say Northrop’s allocation and exhaustion doesn’t add up.
Applying well-settled Delaware law, the Court holds the following and,
thereafter discusses in some detail the reasons for those rulings.
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First, the OATK Insurers (1) must cover the 10(b) Claim; (2) have not met
their burden to show there is no genuine issue of material fact about Northrop’s
investigatory fees; and (3) are not entitled to a conclusive allocation or exhaustion
ruling. Accordingly, Northrop’s motion for judgment on the pleadings is
GRANTED and the OATK Insurers’ summary judgment motion is DENIED.
Second, the Orbital Sciences Insurers (1) have not met their burden to show
there is no genuine issue of material fact about the reasonableness of and prejudice
caused by Northrop’s notice; (2) need not cover the 10(b) Claim; but (3) have not
met their burden to show their policies provide no coverage for the 14(a) Claim and
associated defense costs as a matter of law. Accordingly, the Orbital Sciences
Insurers’ summary judgment motion is GRANTED in part, and DENIED in part.
Third, the Alliant Insurers (1) must cover the 14(a) Claim; but (2) need not
cover the 10(b) Claim; and (3) have not met their burden to show there is no genuine
issue of material fact about coverage for Northrop’s investigatory fees and defense
costs. To the extent the Excess Alliant Insurers moved separately on exhaustion and
allocation, they also have not met their summary judgment burdens. Accordingly,
Northrop’s summary judgment motion is GRANTED and all of the Alliant Insurers’
summary judgment motions are GRANTED in part, and DENIED in part.
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I. FACTUAL BACKGROUND
The parties have amassed an immense amount of discovery. This being so,
they have crafted various competing iterations of what appear to be facts of interest
in this and the underlying litigation. But the Court confines itself here to those which
the parties agree are central to their instant motions.
A. THE OATK POLICIES.
The OATK Insurers issued excess directors’ and officers’ (“D&O”) liability
coverage to OATK and its management that encompasses the April 15, 2016 to April
15, 2017 period (the “OATK Policies”).1 The OATK Policies cover “Loss” incurred
by an insured “Organization” arising from any “Claim,” including “Securities
Claims,” brought against an “Insured Person” for a “Wrongful Act.” “Loss” is
defined to include settlements.2 “Organization” is defined as OATK and its
subsidiaries.3 “Claim” is defined as a “civil action for monetary relief.”4 “Securities
Claim” is defined to include Claims alleging violations of the federal securities
1
Northrop Amended Complaint ¶¶ 104-05 (D.I. 36) (“Northrop Compl.”); Exhibit B (D.I. 132)
(“OATK Policies”).
2
OATK Policies §§ 1, 13.
3
Id. § 13.
4
Id.
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laws.5 “Insured Person” includes OATK executives.6 “Wrongful Act” is defined to
include “any actual or alleged breach of duty, neglect, error, misstatement,
misleading statement, omission or act by an Organization . . . solely in regard to a
Securities Claim.”7 And “Defense Costs” is defined to include “reasonable fees,
costs and expenses [incurred from] the investigation . . . of a Claim.”8
The OATK Policies also contain an exclusion relieving the OATK Insurers of
their duty to indemnify “Prior Acts.”9 Under the OATK Policies, the Insurers “shall
not be liable to make any payment for Loss in connection with any Claim made
against [OATK and its management] occurring prior to February 9, 2015. . . . Loss
arising out of the same or related Wrongful Act shall be deemed to arise from the
first such same or related Wrongful Act.”10 Stated less esoterically, the Prior Acts
Exclusion strips coverage from an otherwise covered Wrongful Act if the latter is
infected by a Wrongful Act that occurred before the coverage period commenced.
5
Id.
6
Id.
7
Id.
8
Id.
9
Id. Endorsement #39.
10
Id.
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B. THE ALLIANT POLICIES.
Alliant purchased primary and excess D&O liability policies from the Alliant
Insurers covering the March 1, 2014 to March 1, 2015 period with an extended six-
year run-off period thereafter (the “Alliant Policies”).11 The Alliant Policies
indemnify “Loss” incurred by an “Organization” arising from a “Securities Claim”
brought against an “Insured Person” for any “Wrongful Act.”12 Loss is defined to
include damages and settlements.13 Organization is defined to include Alliant.14
Insured Person is defined to include an “Executive,” which, in turn, is defined as
“any past, present or future” director or officer of Alliant.15 A Wrongful Act may
be committed by an Executive and is defined as “any actual or alleged breach of a
duty, error, neglect, misstatement, misleading statement, omission or act . . . by such
an Executive in his or her capacity as such or any matter claimed against such
Executive solely by reason of his or her status as such.”16 And a Securities Claim is
defined to include a suit alleging violations of the federal securities laws.17
11
See generally Exhibit A of Alliant Insurers’ Joint Appendix (D.I. 519) (“Alliant Policies”).
12
Alliant Policies §§ 1(B), 13.
13
Id. § 13.
14
Id.
15
Id.
16
Id.
17
Id. Endorsement #14.
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The Alliant Policies were subsequently redrafted to capture more persons,
entities and costs. Alliant negotiated an endorsement that added two Orbital
Sciences executives (David Thompson and Garrett Pierce) to coverage as Insured
Persons along with Alliant Executive Mark DeYoung.18 The “Capacity” in which
Thompson and Pierce were added is described this way: for “[c]ertification of
[OATK f/k/a Alliant’s] SEC Form No. 10K and 10Q filings as required by the
Sarbanes-Oxley Act of 2002 and provided in connection with the merger agreement
[or its plan] or similarly titled contract executed by and between [Alliant and Orbital
Sciences].”19 Too, Alliant purchased an endorsement to extend coverage to
“Successor Entities,” including OATK.20 And the Alliant Policies’ “Defense Costs”
definition was expanded in the Securities Claims context to cover those “(i) jointly
incurred by, . . . [OATK and Insured Persons].”21
The Alliant Policies contain a carve-out from the definition of Loss for certain
types of Loss incurred from Securities Claims: the so-called “Bump Up Provision.”
18
Id. Endorsement #45.
19
Id.
20
Id. Endorsement #49.
21
Id. Endorsement #32 § 9(D). “Defense Costs” otherwise has the same meaning here as it does
in the OATK Policies. See OATK Policies, supra note 8 & accompanying text.
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It declares –
In the event of a Claim alleging that the price or consideration
paid for the acquisition or completion of the acquisition of all or
substantially all the ownership interest or assets in an entity is
inadequate, Loss with respect to such Claim shall not include any
amount of any judgment or settlement representing the amount
by which such price is effectively increased. . .; provided,
however, that this paragraph shall not apply to Defense Costs or
to any Non-Indemnifiable Loss in connection therewith.22
The Alliant Policies also grant coverage for “Wrongful Acts” that occur
outside the Policies’ period but are “Interrelated” with those that occur within it.23
C. THE ORBITAL SCIENCES POLICIES.
Orbital Sciences purchased primary and excess D&O liability insurance from
the Orbital Sciences Insurers covering the July 1, 2014 to February 9, 2015 period
with a six-year run-off period thereafter (the “Orbital Sciences Policies”).24 Their
definitions are substantially similar to the Alliant Policies’ outlined above. They
also expand coverage for “Interrelated Wrongful Acts” in the same way the Alliant
Policies do.25
22
Id. § 13.
23
See, e.g., id. Endorsement #49.
24
Northrop Compl. ¶ 32.
25
Orbital Sciences Policies, Endorsement #36.
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Some permutations exist, however. The Orbital Sciences Policies contain an
endorsement providing coverage to “Successors-in-Interest.” That endorsement
states: “[C]overage . . . for Claims made against any Insured shall extend to the
Buyer, Buyer’s Acquisition Company and its Insured Persons solely in their capacity
as the successor to the Policyholder.”26 Buyer is defined as Alliant.27 Buyer’s
Acquisition Company is defined as Vista Merger Sub, Inc. (i.e., the special purpose
vehicle used to facilitate the merger).28 Insured Person is defined to include Orbital
Sciences executives.29 And Policyholder is defined as Orbital Sciences.30
Additionally, the Orbital Sciences Policies condition coverage on written
notice. In its own language –
As a condition precedent to their rights under this policy, the
Insureds shall give the Underwriter written notice of any Claim
made against the Insureds as soon as practicable after the
Company’s risk manager or general counsel first learns of such
Claim, but in no event later than (i) ninety (90) days after
expiration of the Policy Period or (ii) expiration of the Extended
Reporting Period or Run-Off Coverage Period, if exercised.31
26
Exhibit 9, Endorsement #36 (D.I. 668) (“Orbital Sciences Policies”).
27
Id. § 3 & Endorsement #36.
28
Id.
29
Id.
30
Id.
31
Id. Endorsement #18.
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Company is defined to include Orbital Sciences and its subsidiaries.32
D. THE TRANSACTION.
On April 29, 2014, Alliant and Orbital Sciences—two firms supplying the
aerospace and national defense industries—proposed a reverse triangular stock-for-
stock merger out of which OATK would be born.33 Their stockholders received
proxy forms and other disclosures and ultimately approved. The transaction closed
on February 9, 2015,34 and went like this.
After spinning out its sporting goods arm, Alliant formed a wholly-owned
special purpose vehicle and merged it with Orbital Sciences.35 Orbital Sciences
survived.36 Orbital Sciences’s stock was converted into a right to receive Alliant
stock—an option that approving stockholders exercised.37 Alliant issued a few
32
Affidavit, Exhibit 1 at pdf. p. 21 (D.I. 482).
33
Exhibit B, Knurr Amended Complaint, Knurr v. Orbital ATK, Inc., C.A. No. 1:16-CV-01031-
TSE-MSN (E.D. Va. Oct. 10, 2017), ECF No. 78, ¶¶ 49-55 (D.I. 346) (“Knurr Compl.”). In a
generic reverse triangular merger, the target merges with the acquirer’s subsidiary, with the target
surviving. The economic effect is that the target becomes a subsidiary of the acquirer “as if” the
acquirer purchased all of the target’s outstanding stock. As here, the target’s stock may then be
converted into the right to receive stock in the acquirer. Once that option is exercised, the target’s
stockholders exchange ownership in the target to become owners of the acquirer. W. Standard,
LLC v. Sourcehov Holdings, Inc., 2019 WL 3322406, at *6 (Del. Ch. July 24, 2019) (citing Meso
Scale Diagnostics, LLC v. Roche Diagnostics GmbH, 62 A.3d 62, 63 (Del. Ch. 2013)).
34
Knurr Compl. ¶¶ 49-55.
35
Id.36
Id.37
Id. Orbital Sciences stockholders also received cash for any fractional residual.
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million shares to consummate the exchange. That primary offering and the swap
linked to it diluted pre-existing control of Alliant and created an ownership split
comprising a 53.8% stake for Alliant stockholders and a 46.2% stake for Orbital
Sciences stockholders.38
Alliant then was renamed OATK and the former’s stock cancelled and
converted accordingly.39 OATK absorbed Alliant’s portfolio, but not Orbital
Sciences’s.40 Based on the deal’s structure, commingling was avoided (1) to
minimize unwanted taxation (the merger vehicle was the “buyer”); and (2) to
complement OATK’s aerospace and defense assets that were located in an unspun
subsidiary sitting on the same organizational branch. On the management side,
Thompson and Pierce became OATK executives and DeYoung became one of its
directors. They conducted business from Orbital Sciences’s old headquarters.41
E. THE KNURR LITIGATION.
Though the firms celebrated the lift off, their investors radioed a problem. A
class of OATK stockholders brought the Knurr Litigation against OATK, DeYoung,
38
Id.39
Id.40
Id.41
Id.-11-
Thompson and Pierce under Section 10(b) of the Securities Exchange Act. 42 In the
10(b) Claim, the class alleged that OATK and the managers intentionally
disseminated false, post-merger data about OATK’s financial health to mislead
securities holders about the value of their investments.43
Sensing further wrongdoing, a class of former Orbital Sciences stockholders
added a violation of Securities Exchange Act Section 14(a) to the fray. They targeted
DeYoung, Thompson, and Pierce, in their former roles, and OATK.44 They alleged
the control groups pronounced false or misleading statements in the proxy
solicitation materials and other filings distributed and certified in advance of the
transaction.45 At its core, the 14(a) Claim’s accusations declared a coerced vote, as
the misinformed stockholders decried OATK and the managers: (1) misrepresented
Alliant’s net value; (2) omitted Alliant’s most detrimental liabilities, including an
underperforming government contract (the “Lake City Contract”); (3) omitted flaws
in Alliant’s operations; and (4) oversold the near-half OATK split, which, due to
then-concealed, highly-leveraged assets, was actually less financially advantageous
42
Id. ¶¶ 160-230, 249.
43
Id. ¶¶ 64-122.
44
Id. ¶ 258. The Knurr class did not explain precisely in what capacity OATK was liable for
misconduct engaged before it existed.
45
Id. ¶¶ 1, 15, 258-301.
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than the boards suggested.46 According to the Orbital Sciences stockholders, “[t]he
false and misleading statements . . . caused Alliant to be overvalued and impacted
the [OATK ownership split],” which, in turn, deprived them “of their right to a fully
informed vote and induc[ed] them to vote their shares and accept inadequate
consideration.”47
The Knurr class sought joint and several “compensatory damages” for both
Claims.48 In due course, the defendants settled the Claims for approximately $62.4
million (10(b)) and $45.6 million (14(a)).49 No defendant admitted wrongdoing.50
F. THE PRESENT COVERAGE DISPUTE.
Northrop, which later acquired OATK, noticed the Insurers of all three
Policies for settlement and defense coverage. But the Insurers largely declined for
one reason or another.51 Pertinent to their denials and instant motions are the
following reasons why, in the Insurers’ views, they owed Northrop little to nothing
in reimbursement. The Alliant Insurers felt that the 14(a) Claim was a forbidden
46
Id. ¶¶ 258, 260, 268, 290, 292, 303-308, 311-14.
47
Id. ¶ 260.
48
See generally id. Prayer for Relief.
49
See Exhibit A-1, Proposed Settlement, Knurr v. Orbital ATK, Inc., C.A. No. 1:16-CV-01031-
TSE-MSN (E.D. Va. Jan. 30, 2019), ECF No. 439-1, at pdf. pp. 48-50, 63.
50
Id. at 63.
51
Northrop Compl. ¶¶ 143-59. Zurich and Northrop reached a confidential settlement.
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“Bump Up” Claim. The Orbital Sciences Insurers thought all coverage was barred
due to untimely notice. And the OATK Insurers opined that the 10(b) Claim was
related to a pre-Policy Wrongful Act.
Left in the lurch, Northrop sued. It now brings breach-of-contract claims and
requests coverage declarations.52
At this stage, the parties seek to cull the herd of issues with a volley of dueling
and cross-dispositive motions. Northrop moves under Rule 12(c) (against the OATK
Insurers) and Rule 56 (against the Alliant Insurers) to establish coverage for the 14(a)
and 10(b) Claims under one or more policies. All Insurers bring their own Rule 56
motions to withhold coverage on the same bases Northrop seeks it. Each also raises
challenges not presented in Northrop’s motions but to which Northrop nevertheless
has responded. Last month, the Court heard argument on the motions and they are
all now ripe for decision.53
The issues before the Court are segregable by policy. Indeed, some of the
Insurers are territorial enough to err procedurally in getting their points across.54
52
Id. ¶¶ 160-89.
53
See Transcript (D.I. 722) (“Or. Arg. Tr.”).
54
See OATK Insurers’ “Reply” Briefs (D.I. 660, 661) (arguing against the Alliant and Orbital
Sciences’ Insurers without filing a crossclaim or otherwise creating adversity among co-defendants
as required by Del. Super. Ct. Civ. R. 56(c)). To be clear, these briefs were not considered.
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And so, the Court attempts to terminate—or, at least, impose a temporary ceasefire
in—the warfare waged within each tower on a tower-by-tower basis.
With respect to the OATK Policies, Northrop’s 12(c) motion55 and the OATK
Insurers’ Rule 56 motion56 present the following questions. Does Delaware or
Virginia law apply to the Policies’ interpretations? Do the Policies exclude coverage
for the 10(b) Claim either by definition or through the Prior Acts Exclusion? Are
certain fees Policy-defined Defense Costs? And, can or should allocation and
exhaustion be resolved before liability is determined?
With respect to the Orbital Sciences Policies, the Orbital Sciences Insurers’
Rule 56 motion57 presents the following questions. Does Delaware or Virginia law
apply to the Policies’ interpretations—including the notice-based condition? Do the
Policies cover the 10(b) Claim as an “Interrelated Wrongful Act”? Is OATK a
“successor” to Orbital Sciences for the purposes of the 14(a) Claim’s coverage?
And, were certain executive liabilities indemnified?
Finally, with respect to the Alliant Policies, Northrop’s58 and the (Excess)59
55
D.I. 345.
56
D.I. 475 (“OATK Insurers Op. Br.”).
57
D.I. 538 (“Orbital Sciences Insurers Op. Br.”).
58
D.I. 543.
59
D.I. 483 (U.S. Specialty, Twin City and Allied World), D.I. 539 (Starr & Travelers).
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Alliant Insurers’60 dueling and cross Rule 56 motions present the following
questions. Do the Policies cover the 10(b) Claim as an “Interrelated Wrongful Act”?
Does the Bump Up “Provision” bar coverage for the 14(a) Claim? Do certain fees
count as Policy-defined Defense Costs? And, can or should allocation and
exhaustion be resolved before liability is determined?
II. STANDARDS OF REVIEW
A. JUDGMENT ON THE PLEADINGS.
A party may move for judgment on the pleadings under this Court’s Civil Rule
12(c).61 “In determining a Rule 12(c) motion, the Court is required to view the facts
pleaded and the inferences to be drawn from such facts in the light most favorable
to the non-moving party.”62 The Court “must take the well-pleaded facts alleged in
the complaint as admitted.”63 The Court “also assumes the truthfulness of all well-
pled allegations of fact in the complaint.”64 And the Court “accords a party opposing
60
D.I. 518 (“National Union Op. Br.”).
61
Del. Super. Ct. Civ. R. 12(c).
62
Indian Harbor Ins. Co. v. SharkNinja Operating LLC, 2020 WL 6795965, at *2 (Del. Super.
Ct. Nov. 19, 2020) (citing Catlin Specialty Ins. Co. v. CBL & Assocs. Props., Inc., 2017 WL
4784432, at *6 (Del. Super. Ct. Sept. 20, 2017)) (internal quotation marks omitted) (applying
Delaware procedural law).
63
Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199, 1205
(Del. 1993) (citations omitted).
64
CBL & Assocs., 2017 WL 4784432, at *6.
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a Rule 12(c) motion the same benefits as a party defending a motion under Rule
12(b)(6).”65 As a result, the Court may grant a motion for judgment on the pleadings
only “when viewing the facts alleged in the pleadings and the reasonable inferences
to be drawn in favor of the non-moving party, no material issue of fact exists and the
movant is entitled to judgment as a matter of law.”66
B. SUMMARY JUDGMENT.
The Court “cannot grant any party’s motion for summary judgment under
Delaware Superior Court Civil Rule 56 unless no genuine issue of material fact
exists and that party is entitled to judgment as a matter of law.”67 Summary judgment
will not be granted “if there is a material fact in dispute”68 or if “it seems desirable
to inquire thoroughly into [the facts] to clarify the application of the law to the
circumstances.”69 The burden is on the moving party to demonstrate its claim is
65
Id.; see SharkNinja, 2020 WL 6795965, at *2 (“The standard for a motion for judgment on the
pleadings is almost identical to the standard for a motion to dismiss under Rule 12(b)(6).” (citing
Silver Lake Off. Plaza, LLC v. Lanard & Axilbund, Inc., 2014 WL 595378, at *6 (Del. Super. Ct.
Jan. 17, 2014) (internal quotation marks omitted))).
66
V&M Aerospace LLC v. V&M Co., 2019 WL 3238920, at *3 (Del. Super. Ct. July 18, 2019)
(citations omitted).
67
IDT Corp. v. U.S. Specialty Ins. Co., 2019 WL 413692, at *5 (Del. Super. Ct. Jan. 31, 2019)
(citing Del. Super. Ct. Civ. R. 56).
68
IDT Corp., 2019 WL 413692, at *5; see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986) (“Only disputes over facts that might affect the outcome of the suit under the governing
law will properly preclude the entry of summary judgment.”); In re Asbestos Litig., 2006 WL
3492370, at *3 (Del. Super. Ct. Nov. 28, 2006).
69
Ebersole v. Lowengrub, 180 A.2d 467, 468-69 (Del. 1962); CNH Indus. Am. LLC v. Am. Cas.
Co. of Reading, 2015 WL 3863225, at *1 (Del. Super. Ct. June 8, 2015) (observing summary
-17-
supported by undisputed facts.70 If that burden is met, then the non-moving party
must show “there is a genuine issue for trial.”71 And in determining whether there
is, the Court views the facts in the light most favorable to the non-moving party.72
“These well-established standards and rules equally apply [to the extent] the
parties have filed cross-motions for summary judgment.”73 Where cross-motions
for summary judgment are filed and neither party argues the existence of a genuine
issue of material fact, “the Court shall deem the motions to be the equivalent of a
stipulation for decision on the merits based on the record submitted with the
motions.”74 But where cross-motions for summary judgment are filed and an issue
judgment is improper “if . . . the record reveals that material facts are in dispute, or if the factual
record has not been developed thoroughly enough to allow the Court to apply the law to the factual
record. . . .”); Pathmark Stores, Inc. v. 3821 Assocs., L.P., 663 A.2d 1189, 1191 (Del. Ch. 1995)
(“[S]ummary judgment may not be granted when the record indicates a material fact is in dispute
or if it seems desirable to inquire more thoroughly into the facts in order to clarify the application
of law to the circumstances.”).
70
See Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979).
71
Del. Super. Ct. Civ. R. 56(e); see CNH Indus. Am. LLC, 2015 WL 3863225, at *1 (“If the
motion is properly supported, then the burden shifts to the non-moving party to demonstrate that
there are material issues of fact for resolution by the ultimate fact-finder.”); but see Jeffries v. Kent
Cty. Vocational Tech. Sch. Dist. Bd. of Educ., 743 A.2d 675, 677 (Del. Super. Ct. 1999) (“[A]
matter should be disposed of by summary judgment whenever an issue of law is involved and a
trial is unnecessary.”).
72
Judah v. Del. Tr. Co., 378 A.2d 624, 632 (Del. 1977) (“The facts must be viewed in the manner
most favorable to the nonmoving party . . . with all factual inferences taken against the moving
party and in favor of the nonmoving party.”).
73
IDT Corp., 2019 WL 413692, at *5 (citations omitted); see Capano v. Lockwood, 2013 WL
2724634, at *2 (Del. Super. Ct. May 31, 2013) (citing Total Care Physicians, P.A. v. O'Hara, 798
A.2d 1043, 1050 (Del. Super. Ct. 2001)).
74
Del. Super. Ct. Civ. R. 56(h).
-18-
of material fact exists, summary judgment is not appropriate.75 To determine
whether there is a genuine issue of material fact, the Court evaluates each motion
independently.76 And again, where it seems prudent to make a more thorough
inquiry into the facts, summary judgment will be denied.77
III. DISCUSSION
A. THE OATK POLICIES COVER THE 10(b) CLAIM AND SUMMARY JUDGMENT
ISN’T WARRANTED ON NORTHROP’S DEFENSE COSTS.
1. Delaware Law Applies to the Construction of the OATK Policies.
The OATK Insurers suggest a conflict between Delaware and Virginia law on
the 10(b) Claim’s coverage. The Court, therefore, begins with a Delaware choice-
of-law analysis—the governing framework when Delaware is the forum state.78
“There are three steps to take when engaging Delaware’s choice-of-law
75
Motors Liquidation Co. DIP Lenders Tr. v. Allianz Ins. Co., 2017 WL 2495417, at *5 (Del.
Super. Ct. June 19, 2017), aff’d sub nom., Motors Liquidation Co. DIP Lenders Tr. v. Allstate Ins.
Co., 191 A.3d 1109 (Del. 2018); Comet Sys., Inc. S’holders’ Agent v. MIVA, Inc., 980 A.2d 1024,
1029 (Del. Ch. 2008); see also Anolick v. Holy Trinity Greek Orthodox Church, Inc., 787 A.2d
732, 738 (Del. Ch. 2001) (“[T]he presence of cross-motions ‘does not act per se as a concession
that there is an absence of factual issues.’” (quoting United Vanguard Fund, Inc. v. TakeCare, Inc.,
693 A.2d 1076, 1079 (Del. 1997))).
76
Motors Liquidation, 2017 WL 2495417, at *5; see Fasciana v. Elec. Data Sys. Corp., 829 A.2d
160, 167 (Del. Ch. 2003).
77
Ebersole, 180 A.2d at 470-72; Pathmark Stores, 663 A.2d at 1191.
78
See, e.g., Shook & Fletcher Asbestos Settlement Tr. v. Safety Nat’l Cas. Corp., 2005 WL
2436193, at *2 (Del. Super. Ct. Sept. 29, 2005), aff’d, 909 A.2d 125 (Del. 2006).
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analysis[.]”79 Ordinarily, the Court must determine first whether “the parties made
an effective choice of law through their contract[.]”80 Here, however, the OATK
Policies express no choice of law. The Court, then, must treat step two as step one
and determine whether “there is an actual conflict between the laws of the different
states each party believes should apply[.]”81 The word “actual” is key. If the conflict
a party advances is “merely a false . . . conflict,” then there is no choice-of-law
analysis to undertake and Delaware law applies.82 Too, if the alternate state’s law
fails “to address [the] particular issue,” then it cannot conflict with Delaware law
and the Court applies “settled [Delaware] law.”83 Only after the Court finds an
“actual” conflict will it proceed to step three: use of the “‘most significant
relationship test’ to determine which state’s law applies.”84
79
Pfizer Inc. v. Arch Ins. Co., 2019 WL 3306043, at *6 (Del. Super. Ct. July 23, 2019).
80
Id. (citing Certain Underwriters at Lloyds, London v. Chemtura Corp., 160 A.3d 457, 464
(Del. 2017)); accord Travelers Indem. Co. v. CNH Indus. Am., LLC, 2018 WL 3434562, at *3
(Del. July 16, 2018).
81
Pfizer, 2019 WL 3306043, at *6 (citing Chemtura, 160 A.3d at 464).
82
Laguelle v. Bell Helicopter Textron, Inc., 2013 WL 5460164, at *2 (Del. Super. Ct. Oct. 1,
2013) (internal quotation marks omitted); see Gallup, Inc. v. Greenwich Ins. Co., 2015 WL
1201518, at *8-9 (Del. Super. Ct. Feb. 25, 2015) (declining to engage choice-of-law analysis
because defendant asserted a false conflict between Delaware and Nebraska law).
83
Arch Ins. Co. v. Murdock, 2018 WL 1129110, at *8 (Del. Super. Ct. Mar. 1, 2018) (citing Mills
Ltd. P’ship v. Liberty Mut. Ins. Co., 2010 WL 8250837, at *4 (Del. Super. Ct. Nov. 5, 2010)); see
Deuley v. DynCorp Int’l, Inc., 8 A.3d 1156, 1161 (Del. 2010).
84
Pfizer, 2019 WL 3306043, at *6 (citing Chemtura, 160 A.3d at 464).
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a. Delaware and Virginia Law are Not in Conflict.
The OATK Insurers acknowledge that both Delaware and Virginia courts
employ plain meaning tools when interpreting insurance agreements.85
Nevertheless, they say the two states diverge on the term “related” in the Prior Acts
Exclusion. According to the OATK Insurers, Virginia courts construe “related” to
mean “connected in some way,” which is more relaxed than Delaware’s
“fundamentally identical” standard for judging relatedness.
Try as they may, the OATK Insurers simply cannot instigate a true “conflict”
between Delaware and Virginia on this point of law. When pressed, the OATK
Insurers concede that there is no Virginia connected-in-some-way standard.86
Indeed, they merely speculate as to how a Virginia court might define “related” if
given the chance.87 But Delaware courts don’t provoke an actual-conflict analysis
on hypotheticals or guesswork.88 We instead invoke “settled law.”89 Here,
85
OATK Insurers Op. Br. at 33-34.
86
See Or. Arg. Tr. at 64 (“[OATK Insurers’ Counsel]: Your Honor, . . . we weren’t able to find
any Virginia case that actually interprets the words relatable acts. . . .”).
87
See OATK Insurers Op. Br. at 33-34 (failing to cite a Virginia case adopting a connected-in-
some-way standard and resorting to decisions from around the country).
88
See Mills, 2010 WL 8250837, at *4 (rejecting defendant’s actual conflict argument on grounds
that it required a prediction about how the alternate forum would rule).
89
Murdock, 2018 WL 1129110, at *8 (citations omitted); see Deuley, 8 A.3d at 1161.
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Delaware’s “fundamentally identical” test is settled law on relatedness.90
Accordingly, the conflict is false. Delaware contract law controls both generally and
the Prior Acts Exclusion.
b. Delaware Plain Meaning Analysis Applies Generally.
“Insurance policies are contracts.”91 And “[u]nder Delaware law, the
interpretation of contractual language, including that of insurance policies, is a
question of law.”92 The objective of interpretation is to give effect to the parties’
mutual intent at the time of contracting.93 So, in construing insurance terms, the
Court interprets the policy in a manner intelligible to objectively reasonable minds.94
Absent ambiguity, all contract terms—including those in insurance policies—are
accorded their plain, ordinary meaning.95 A term is not ambiguous merely because
the parties say it is.96 Ambiguity exists only when the disputed term “is fairly or
90
See, e.g., Pfizer, 2019 WL 3306043, at *9 (discussing and applying this standard).
91
IDT Corp., 2019 WL 413692, at *7 (citation omitted).
92
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, 1263 (Del. 2017) (same).
93
Exelon, 176 A.3d at 1263.
94
See Med. Depot, Inc. v. RSUI Indem. Co., 2016 WL 5539879, at *7 (Del. Super. Ct. Sept. 29,
2016); see also Salamone v. Gorman, 106 A.3d 354, 367–68 (Del. 2014).
95
Alta Berkeley VI C.V. v. Omneon, Inc., 41 A.3d 381, 385 (Del. 2012).
96
Id.-22-
reasonably susceptible to more than one meaning.”97 And a truly ambiguous
insurance contract will be construed most strongly against the insurer and in favor
of the insured.98
Too, in the insurance context, coverage language is construed broadly “to
protect the insured’s objectively reasonable expectations.”99 Exclusionary language,
however, is construed narrowly and strictly.100 Accordingly, Delaware courts will
not enforce an exclusion unless it is “specific, clear, plain, conspicuous and not
contrary to public policy.”101 And that is so even when exclusionary language is
unambiguous.102 Otherwise, diversification afforded sophisticated counterparties by
corporate-wide insurance programs may be forfeited and exposure to risk
potentially unlimited.103 As a result, the insurer bears the burden of demonstrating
97
Id.; see Urdan v. WR Cap. Partners, LLC, 2020 WL 7223313, at *6 n.17 (Del. Dec. 8, 2020)
(“Absent some ambiguity, Delaware courts will not destroy or twist policy language under the
guise of construing it.” (internal quotation marks omitted)).
98
See Ferrellgas Partners L.P. v. Zurich Am. Ins. Co., 2020 WL 363677, at *4 (Del. Super. Ct.
Jan. 21, 2020), appeal denied, 2020 WL 764155 (Del. Feb. 17, 2020).
99
Med. Depot, 2016 WL 5539879, at *7 (citations omitted).
100
Id. (internal quotation marks omitted).
101
Pfizer, 2019 WL 3306043, at *9 (internal quotation marks omitted).
102
See Med. Depot, 2016 WL 5539879, at *7 (citing AT&T Corp. v. Clarendon Am. Ins. Co., 2006
WL 1382268, at *9 & n.123 (Del. Super. Ct. Apr. 25, 2006), rev’d on other grounds sub nom.,
AT&T Corp. v. Faraday Cap. Ltd., 918 A.2d 1104 (Del. 2007)).
103
See Med. Depot, 2016 WL 5539879, at *11 (“Delaware law abhors forfeiture where to do so
would deny the insured the very thing paid for.” (citing State Farm Mut. Auto. Ins. Co. v. Johnson,
320 A.2d 345, 347 (Del. 1974))).
-23-
an exclusion precludes coverage the insured reasonably expected.104
2. The 10(b) Claim is Covered.
a. The OATK Policies Concern OATK’s Prior Acts Only.
The OATK Insurers argue the Prior Acts Exclusion bars coverage for the
10(b) Claim because it is related to the 14(a) Claim that occurred before the Policies’
period. But in order for the Prior Acts Exclusion to apply, the “Wrongful Act” must
be taken by the Policy-defined insured.105 Plainly, the OATK Policies define
“Organization” and “Insured Persons” to include OATK and its management.106
They do not define those terms to include Alliant or Orbital Sciences. The 14(a)
Claim, though, was brought against Alliant and Orbital Sciences personnel in their
capacities as directors and executives of those firms.107 It was not brought against
OATK qua OATK or the managers in their roles at OATK. It couldn’t have been.
The 14(a) Claim alleges wrongdoing engaged before OATK was created.108 The
10(b) Claim, in contrast, alleged wrongdoing by OATK and its management
104
See Gallup, 2015 WL 1201518, at *9 (citations omitted).
105
See Ferrellgas, 2020 WL 363677, at *11-13 (analyzing similar exclusion by looking to the
definitions in the subject policy); OATK Policies, Endorsement #39.
106
OATK Policies § 13.
107
See, e.g., Knurr Compl. ¶¶ 258, 260, 268, 290, 292, 303-308, 311-14.
108
Id.
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squarely within the Policies’ period and purpose.109 Unambiguously, then, the Prior
Acts Exclusion does not reach the 14(a) Claim. Accordingly, coverage for the 10(b)
Claim is unaffected by the 14(a) Claim.
To avoid this straightforward result, the OATK Insurers mouth a few meritless
arguments. They start by urging the Court to examine every Policy but their own.110
No need. When policy language, like theirs, is plain, the Court doesn’t look
elsewhere to divine its meaning.111
Next, they say OATK and Alliant really are the same firm because Alliant
merely changed its name to OATK as part of the transaction. But these Policies
unambiguously were issued to OATK—a legally distinct entity, regardless of the
effect a name change might have—and don’t use the word “Alliant” at all.112 So,
narrowly construed or not,113 the Exclusion simply doesn’t concern Alliant’s
109
See, e.g., id. ¶¶ 160-230, 249.
110
See, e.g., OATK Insurers Op. Br. at 28-30.
111
See GMG Cap. Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 783 (Del. 2012)
(“If a contract is unambiguous, extrinsic evidence may not be used to interpret the intent of the
parties. . . .” (internal quotation marks omitted).
112
See OATK Policies, Endorsement #39 (“This endorsement . . . forms a part of policy number
[redacted] issued to Orbital ATK, Inc.”); Or. Arg. Tr. at 67 (“[The Court:] Let’s look at the policy
itself. Does it list Alliant as the insured?” [OATK Insurers’ Counsel:] It does not, Your Honor.”);
see also Ferrellgas, 2020 WL 363677, at *11-13 (using policy definitions to orient analysis of
same exclusion).
113
See, e.g., Med. Depot, 2016 WL 5539879, at *7 (observing that exclusions are interpreted
narrowly).
-25-
Wrongful Acts. And why would it? Alliant had its own Policies and OATK
reasonably expected that it was purchasing separate insurance for its separate
liabilities.114
Last, the OATK Insurers complain that this reading renders the Prior Acts
Exclusion superfluous. Not so. If an insured’s management were sued for
misconduct arising prior to and during the policy period but attributable to an overlap
in their pre-period and in-period roles, then a prior acts exclusion might apply.115
Or, if OATK were sued for pre-period wrongdoing both under Delaware’s “blue
sky,” Rule 10(b) counterpart, and Rule 10(b) itself, the Exclusion might apply to the
substantively indistinct factual predicates for those claims.116 But just because
OATK’s managers were sued in unconnected capacities for wrongdoing with
different aims engaged at different firms doesn’t mean the Exclusion is
inconsequential. It simply means the Exclusion is of no consequence under these
facts117—and that the OATK Policies cover the 10(b) Claim.
114
See Med. Depot, 2016 WL 5539879, at *7 (observing that insurance contract interpretation
should mind the insured’s reasonable expectations where language is unambiguous); see also
Exelon, 176 A.3d at 1263 (observing that all contract interpretation must respect the parties’
mutual intent at the time of contracting).
115
See Tile Shop Holdings, Inc. v. Allied World Nat’l Assurance Co., 981 F.3d 655, 659-60 (8th
Cir. 2020) (resolving this fact pattern in the insurer’s favor).
116
Compare 17 C.F.R. § 240.10b-5 (2000) with DEL. CODE ANN. tit. 6 § 73-201 (2020) (setting
forth same elements as Rule 10b-5 and authorizing private suits).
117
Cf. Sonitrol Holding Co. v. Marceau Invs., 607 A.2d 1177, 1183 (Del. 1992) (“[A] contract
should be interpreted in such a way as to not render any of its provisions illusory or meaningless”
-26-
b. The 14(a) and 10(b) Claims are Neither “Fundamentally
Identical” Nor “Interrelated” Under Delaware Law.
If this decision only were about the OATK Policies, then the coverage
discussion would stop here. Since it is not, the Court will entertain—and reject—
the OATK Insurers’ Prior Acts Exclusion arguments on the merits as a means of
resolving the parallel question of whether the 10(b) Claim is covered under the
Alliant and Orbital Sciences Policies as an “Interrelated Wrongful Act.”
Again, Delaware law applies. And in 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.”118 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.”119 When doing so, the
underlying claimant’s “unilateral characterizations” of the claims need not be
or in a way that “frustrates the meaning, purpose and intent of the parties’ agreement.” (citations
omitted)).
118
Pfizer, 2019 WL 3306043, at *9 (internal quotation marks omitted); see United Westlabs, Inc.
v. Greenwich Ins. Co., 2011 WL 2623932, at *11-12 (Del. Super. Ct. June 13, 2011) (same).
119
Pfizer, 2019 WL 3306043, at *10.
-27-
credited.120 Instead, the Court will draw reasonable inferences from the complaint
as a whole.121
In support of the Exclusion, the OATK Insurers start by contending the 14(a)
and 10(b) Claims are not simply related—they are one “Claim.” They insist that
because the Policies define Claim in a singular way, a lawsuit meeting that definition
must be one Claim, no matter how many theories of relief a plaintiff seeks therein.122
Not according to our Supreme Court.123 A single litigation can involve multiple
Claims potentially-covered even where the Claims grow from a common nucleus of
misconduct. As a result, the 14(a) and 10(b) Claims are two “Claims” and coverage
is barred only if they are fundamentally identical.
They aren’t. The 14(a) Claim alleged wrongdoing pertaining to pre-merger
proxy solicitation misstatements about Alliant and Orbital Sciences’ synergies that
were calculated to coerce stockholder approval of a transaction saddled with low-
return prospects.124 The 10(b) Claim alleged wrongdoing in connection with
120
IDT Corp., 2019 WL 413692, at *10 (internal quotation marks omitted).
121
Id. (citing Blue Hen Mech., Inc. v. Atl. States Ins. Co., 2011 WL 1598575, at *2 (Del. Super.
Ct. Apr. 21, 2011), aff’d, 29 A.3d 245 (Del. 2011)).
122
OATK Insurers Op. Br. at 31-38.
123
AT&T Corp., 918 A.2d at 1108-10.
124
See, e.g., Knurr Compl. ¶¶ 258, 260, 268, 290, 292, 303-308, 311-314; see also 17 C.F.R. §
240.14a-9 (2009) (setting forth liability elements for proxy violations).
-28-
OATK’s post-merger financial reporting that defrauded investors into trading
OATK stock substantially-less-valuable than OATK and its managers led the
secondary market to believe.125 Variations in timing, breed of securities violation,
mens rea, motive, and burdens of proof, under each regulation, indicate these Claims
do not involve “the exact same subject.”126 And so, though the two Claims might
seem “thematic[ally] similar[]”—e.g., the alleged wrongdoers, dual-status investors,
financial reporting misconduct about the Lake City Contract,127 and the transaction
itself—that doesn’t make them fundamentally identical.128 Accordingly, the 10(b)
Claim isn’t “related” to the 14(a) Claim under Delaware law and the Prior Acts
Exclusion doesn’t apply.
In contrast to the Prior Acts Exclusion, the “Interrelated Wrongful Acts”
endorsements in the Alliant and Orbital Sciences Policies are coverage-granting.129
Put differently, under those Policies, the 10(b) Claim would be covered if it were
125
See, e.g., Knurr Compl. ¶¶ 64-122; see also 17 C.F.R. § 240.10b-5 (setting forth liability
elements for fraud in sales of securities).
126
Pfizer, 2019 WL 3306043, at *10 (internal quotation marks and citations omitted); see Med.
Depot, 2016 WL 5539879, at *14; United Westlabs, 2011 WL 2623932, at *11-12.
127
The OATK Insurers stress the importance of this liability. But the Court is not limited to a
plaintiff’s unilateral characterizations of its claims. When looking to the complaint as a whole,
the Lake City Contract is a thematic similarity—not a dispositive motif. See IDT Corp., 2019 WL
413692, at *10.
128
See Pfizer, 2019 WL 3306043, at *9 (construing exclusions strictly).
129
Alliant Policies, Endorsement #49; Orbital Sciences Policies, Endorsement #36.
-29-
fundamentally identical to the 14(a) Claim. But because they are not fundamentally
identical, coverage for the 10(b) Claim is unavailable under the Alliant and Orbital
Sciences Policies. This, Northrop concedes.130 And, therefore, Northrop need not
take the (untenable) position of arguing the Claims are related under two Policy sets
but unrelated under a third. Accordingly, coverage for the 10(b) Claim lies only
with the OATK Policies.
3. The OATK Insurers Have Not Met Their Burden to Show
Northrop’s Investigation Fees are Not Defense Costs.
The OATK Insurers also move for summary judgment131 on investigatory
expenses which, in their view, are not Defense Costs. Their Policies define Defense
Costs to include “reasonable fees, costs and expenses [incurred from] the
investigation . . . of a Claim.”132 Nevertheless, they say the challenged fees were
incurred pre-Knurr Litigation and thus were charged before “a Claim” existed. But
Delaware law takes an expansive view of Defense Costs. In Delaware, “all expenses
reasonably necessary to conduct the defense are covered, whether or not they have
an ancillary benefit to the insured.”133
130
See, e.g., Or. Arg. Tr. at 30-31.
131
Northrop does not seek a judgment here or elsewhere on any of its fees.
132
OATK Policies § 13 (emphasis added).
133
Legion Partners Asset Mgmt., LLC v. Underwriters at Lloyds London, 2020 WL 5757341, at
*11 n.87 (Del. Super. Ct. Sept. 25, 2020) (internal quotation marks omitted).
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Here, there is opposing testimony about whether defense counsel used pre-
Knurr insights to defend Knurr once filed.134 As a result, there is a genuine issue of
material fact—or at least a need for clarification135—about whether those fees were
“reasonably necessary” to minimizing litigation expenses and developing strategies
for defeating the Knurr class. Indeed, as the OATK Insurers have suggested,136 the
investigatory fees, though spent pre-Knurr, benefitted the Knurr defendants and may
have been incurred during discovery anyway. After all, assistance was secured to
account for the Lake City Contract and the OATK Insurers have maintained that the
entire Knurr Litigation revolved around that liability. And so, even if the costs’
benefits were “ancillary,” that does not necessarily render them non-Defense
Costs.137 The OATK Insurers can fight that bill at trial.138
134
See, e.g., Exhibits 51-52 (D.I. 671).
135
See IDT Corp., 2019 WL 413692, at *5 (“[W]here it seems prudent to make a more thorough
inquiry into the facts, summary judgment is denied and the matter submitted for resolution by
trial.” (citing Ebersole, 180 A.2d at 470-72)); accord Pathmark Stores, 663 A.2d at 1191 (Court
may exercise discretion to deny summary judgment “if it seems desirable to inquire more
thoroughly into the facts in order to clarify the application of law to the circumstances.”).
136
See Or. Arg. Tr. at 70 (“[OATK Insurers’ Counsel:] I’d submit to the Court that’s a fortuitous
coincidence [that] the work required for the internal investigation had useful application to the
subsequently filed Knurr [L]itigation.”).
137
Legion, 2020 WL 5757341, at *11 n.87 (internal quotation marks omitted).
138
CNH Indus., 2015 WL 3863225, at *1 (burden on movant to show no genuine issue of material
fact); see Moore, 405 A.2d at 680 (same).
-31-
B. THE ORBITAL SCIENCES POLICIES MAY COVER THE 14(a) CLAIM
AND SUMMARY JUDGMENT IS UNWARRANTED ON THE LATE-NOTICE
DEFENSE.
The Orbital Sciences Insurers also raise a conflict between Delaware and
Virginia law.
1. Under Delaware law, the Late-Notice Defense Cannot be Resolved
on Summary Judgment.
a. Delaware and Virginia Law are Not in Conflict Here.
The Orbital Sciences Policies do not specify a governing law. The Court,
then, will determine if an actual conflict exists between Delaware and Virginia law
on the particular issues involved.139 But the Court can “avoid a choice-of-law
analysis altogether if the result would be the same under the law of either of the
competing jurisdictions.”140 For identical outcomes occasion false conflicts and
necessitate application of Delaware law.141
Central to the putative conflict here is the Orbital Sciences’ Insurers late-
notice defense. The parties agree that both Delaware and Virginia courts usually
assess late notice under two rubrics: (1) justification for the delay, i.e., the
reasonableness of an insured’s excuse for its untimely notice; and (2) prejudice to
139
Pfizer, 2019 WL 3306043, at *6.
140
Id.141
Laguelle, 2013 WL 5460164, at *2; see Gallup, 2015 WL 1201518, at *8-9.
-32-
the insurer’s ability to participate in the defense.142 They disagree, though, about
how that evaluation would turn out. The Orbital Sciences Insurers contend that
Virginia courts disregard prejudice when a justification is unreasonably lengthy, but
that Delaware courts do not.143 Northrop attacks the Virginia decisions in which
prejudice was ignored and insists the result would be the same under either law on
these facts.144 If Northrop is right, then the Orbital Sciences Insurers concede they
are not entitled to summary judgment on the late-notice defense.145 And so, the
Court must review the law that thumbs their motion’s fate.
i. Virginia Late-Notice Law
Under Virginia law, a “delay in providing notice” precludes coverage when
the delay amounts to a “substantial and material” failure to timely notice the
142
See, e.g., Wilhelm v. Nationwide Gen. Ins. Co., 2011 WL 4448061, at *4 (Del. Super. Ct. May
11, 2011), aff’d, 29 A.3d 246 (Del. 2011); Falcon Steel Co., Inc. v. Md. Cas. Co., 366 A.2d 512,
514 (Del. Super. Ct. 1976); Penn-Am. Ins. Co. v. Mapp, 461 F. Supp. 2d 442, 452 (E.D. Va. 2006);
Atlas Ins. Co. v. Chapman, 888 F. Supp. 742, 745-46 (E.D. Va. 1995) (citing State Farm Mut.
Auto. Ins. Co. v. Douglas, 148 S.E.2d 775, 777 (Va. 1966)).
143
See, e.g., Orbital Sciences Insurers Op. Br. at 25 (claiming that under Delaware law, “prejudice
cannot be established by the passage of time,” and that Northrop waited 438 days); Or. Arg. Tr. at
11 (“[Orbital Sciences Insurers’ Counsel:] [U]nder Virginia law insurers can receive summary
judgment without consideration of prejudice on a late notice defense. Delaware has no such body
of case law, and that means that there is a clear outcome determinative conflict. . . .”).
144
See, e.g., Or. Arg. Tr. at 27 (“[Northrop’s Counsel:] Northrop isn’t arguing that there is no
conflict just based on the fact that prejudice exists in both of the standards. The reality is . . . the
same result is achieved here if you apply either. . . .”).
145
Id. at 16 (“[Orbital Sciences Insurers’ Counsel:] [I]f Delaware law applies to the late notice
defense, the parties agree that the late notice issue is not amenable to resolution on summary
judgment.”).
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insurer.146 To determine whether such failure is substantial and material, Virginia
courts apply “a three-factor test” that balances “the reasonableness of the delay, the
duration of the delay, and whether the insurer suffered prejudice.”147 The
“reasonableness” or justification factor is measured “from an objective standpoint”
and generally asks whether the insured notified the insurer when it “reasonably
appear[ed] . . . that the policy may be involved.”148 And a delay too long “may
breach the policy even absent a showing of prejudice.”149
But Virginia courts don’t consider these factors in the abstract. At the
threshold, they look to the “plain and ordinary meaning” of the notice provision.150
Too, timing is critical. Virginia courts focus on party-inserted deadlines, which
serve as metrics for quantifying a delay’s reasonableness.151 And those measures
146
Builders Mut. Ins. Co. v. Wedge Constr., Inc., 423 F. Supp. 3d 253, 257 (E.D. Va. 2019)
(internal quotation marks omitted); see State Farm Mut. Auto. Ins. Co. v. Porter, 272 S.E.2d 196,
199 (Va. 1980).
147
Wedge Constr., 423 F. Supp. 3d at 257 (citing N. River Ins. Co. of N.Y. v. Gourdine, 135 S.E.2d
120, 124 (Va. 1964)) (internal quotation marks omitted).
148
Wedge Constr., 423 F. Supp. 3d at 257 (citing Dan River Inc. v. Commercial Union Ins. Co.,
317 S.E.2d 485, 489 (Va. 1984)) (internal quotation marks omitted).
149
Wedge Constr., 423 F. Supp. 3d at 257 (internal quotation marks omitted); see State Farm Fire
& Cas. Co. v. Walton, 423 S.E.2d 188, 192 (Va. 1992).
150
Wedge Constr., 423 F. Supp. 3d at 256 (citing Transcon. Ins. Co. v. RBMW, Inc., 551 S.E.2d
313, 318 (Va. 2001)) (internal quotation marks omitted).
151
See Wedge Constr., 423 F. Supp. 3d at 256-57 (“It is well-settled in Virginia that provisions
requiring written notice of an accident be give as soon as practicable . . . are reasonable and
enforceable. [These] notice provisions are designed to afford the insurer the opportunity to make
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appear most exacting when insurance counterparties agree that notice must be
provided “as soon as practicable” in policies covering personal or property injuries
but the insured notices the insurer months or years later without sufficient excuse or
any justification at all.152 It is with that language and those circumstances only that
Virginia courts seem at all likely to relieve insurers of demonstrating prejudice.153
ii. Delaware Late-Notice Law
Delaware law is less nuanced in this area, but the relevant principles are clear.
When a casualty insurance policy requires notice be given “as soon as practicable,”
an insurer must demonstrate: “(1) that the insured did not provide notice as soon as
practicable, and (2) that the insurer suffered prejudice as a result of the delay.”154
And in general, “an insured’s breach of the notice provision, without prejudice to
a timely investigation . . . and to prepare an adequate defense. . . .” (cleaned up)); see also
Gourdine, 135 S.E.2d at 123.
152
See, e.g., Wedge Constr., 423 F. Supp. 3d at 258-59 (fifteen-month delay was not “as soon as
practicable” in accident context when justification was not based on “reason of health” or other
non-subjective circumstance (citations omitted)); Va. Farm Bureau Mut. Ins. Co. v. Sutherland,
2004 WL 2360162, at *3 (W.D. Va. Oct. 19, 2004) (601-day delay was not “as soon as practicable”
in accident context when insured “failed to provide any notice” (citations omitted)); Chapman,
888 F. Supp. at 746 (four-month delay was not “as soon as practicable” in accident context when
insured did not offer “any excuse or sufficient justification” (citations omitted)).
153
See, e.g., Walton, 423 S.E.2d at 191-92; State Farm Fire & Cas. Co. v. Scott, 372 S.E.2d 383,
384-85 (Va. 1988); Porter, 272 S.E.2d at 199-200; but see Gourdine, 135 S.E.2d at 123-25
(requiring demonstration of prejudice, though policy contained “as soon as practicable” clause,
because insured had tried to put the insurer on notice of his car accident several times).
154
Wilhelm, 2011 WL 4448061, at *4 (citing Falcon Steel, 366 A.2d at 514-17), aff’d, 29 A.3d
246.
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the insurer, will not relieve the company of its liability under the contract.”155 Still,
Delaware courts recognize that “an inordinate lapse of time” may put an insurer “in
a less favorable position to defend [a] claim than it would have been had the
notification been as soon as practicable.”156 In other words, a sufficiently
unreasonable or totally unjustified delay might, a fortiori, establish prejudice.157 As
a result, though Delaware courts almost without fail articulate “prejudice” as a
required element, they nevertheless have on occasion treated prejudice as
commensurate with delay where notice was required as soon as practicable but the
insured’s tardiness was unexcused as a matter of law. That’s not too far from
skipping a prejudice analysis altogether.
iii. The Result Under Either Would Be the Same Here.
What unifies Virginia and Delaware law on the prejudice prong is also what
dissembles the Orbital Sciences Insurers’ conflict arguments.
155
Johnson, 320 A.2d at 346.
156
Wilhelm, 2011 WL 4448061, at *5 (citing Johnson, 320 A.2d at 346-47) (internal quotation
marks omitted).
157
See Wilhelm, 2011 WL 4448061, at *5-6 (titling discussion “Defendant is Prejudiced as a
result of Plaintiffs’ Eleven Year Delay in Filing” and equating factual circumstances surrounding
11-year delay with prejudice (emphasis in original)). The Court’s research reveals that the only
case in which prejudice was considered despite a total absence of pre-litigation notice involved
Delaware’s “uninsured motorist” statute—not a policy-based notice provision. See Drainer v. AIG
Annuity Ins. Co., 2009 WL 1638641, at *1 (Del. Super. Ct. May 14, 2009); cf. Wilhelm, 2011 WL
4448061, at *4-5 (distinguishing Drainer for additional reasons).
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First, both states are inclined to eliminate—indiscriminately or functionally—
prejudice in casualty cases involving lesser-sophisticated insureds who sleep on their
duties and squander evidence integral to a potent defense. But here, neither would
be likely to remove prejudice from the equation. This case concerns a securities
class action that accused sophisticated corporate and high-ranking insureds of
harming investors with information publicly filed and readily available for an
insurer’s attention.
Second, both jurisdictions impose a heightened diligence standard on insureds
when their agreements only require notice be sent “as soon as practicable.” But here,
neither jurisdiction’s time-sensitive logic would obtain. The Orbital Sciences
Policies require notice to be sent “as soon as practicable” or “in no event later than
. . . (ii) expiration of the Extended Reporting Period or Run-Off Coverage Period”
(i.e., six years).158 A 438-day delay may be facially prejudicial when notice is
required “as soon as practicable,” but not when an insured may wait six years.
And third, the controlling Virginia and Delaware cases involved a complete
or near-complete default on notice obligations. But here, Northrop has gathered an
array of (genuinely-disputed) facts suggesting that the Insurers were notified—
158
Endorsement #18.
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directly or constructively—but did nothing.159 The Orbital Sciences Insurers, as
movants, had to show those facts were immaterial and that notice was unexcused as
a matter of law. They didn’t. Accordingly, the result would be the same: the Orbital
Sciences Insurers must demonstrate prejudice under either state’s law. The conflict,
then, is false. Delaware law, therefore, applies. And by concession, summary
judgment is denied and the Orbital Sciences Insurers’ late-notice defense will be
subject to trial.
b. Even if Delaware and Virginia Law Were in Conflict, Delaware Law
Still Would Apply.
If the Court here is wrong and there is indeed an actual conflict then a most
significant relationship analysis must be conducted.160 The Second Restatement of
Conflict of Laws § 188’s network of contacts connects the most interested state
among competing fora with the litigation’s subject.161 In theory, this state is the one
that would have been chosen bilaterally. Indeed, predictability, among other
considerations, drives the Second Restatement.162 As a result, the § 188 factors are
159
See, e.g., Exhibits 9, 14, 18, 20-24, 26-29, 30-37, 40-44, 46-47 49-50, 52 (D.I. 668, 671, 695);
see also Northrop’s Answering Brief at 13-25 (D.I. 667) (raising disputes in these exhibits in
opposition to Orbital Sciences Insurers’ motion).
160
See Pfizer, 2019 WL 3306043, at *6 (citing Chemtura, 160 A.3d at 464).
161
See RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188 (AM. L. INST. 1971) (hereinafter,
“RESTATEMENT (SECOND)”) (listing contacts).
162
See Chemtura, 160 A.3d at 470-71; accord CNH Indus., 2018 WL 3434562, at *5.
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not merely check-boxed—they’re ascribed differing weight in differing
circumstances—so as to promote legal consistency and litigants’ justified
expectations.163
This in mind, the Orbital Sciences Insurers summon the following
relationships between their Policies, this lawsuit and Virginia: (1) Orbital Sciences
was headquartered in Virginia; (2) the Knurr Litigation was filed in Virginia federal
court; (3) the Policies were solicited in Virginia; (4) the Policies were brokered,
negotiated and issued “in Virginia or New York, but certainly not in Delaware”; and
(5) the Policies contain endorsements that reference Virginia law.164 But the Insurers
fail to mention that the Orbital Sciences Policies are D&O liability insurance
agreements sold to reduce a Delaware organization’s exposure to claims concerning
its management and internal affairs.
This Court has held consistently that, in the D&O insurance context, Delaware
takes an overriding interest in disputes involving coverage for fiduciary
163
See Chemtura, 160 A.3d at 465 (“The § 188 factors . . . are meant to be evaluated based on
their relative importance in the particular case and in light of the Second Restatement’s general
considerations. . . .” (citations omitted)); see also Focus Fin. Partners, LLC v. Holsopple, 241 A.3d
784, 805 (Del. Ch. 2020) (“The comments to Section 188 explain that a particularly significant
factor for contract cases is upholding the justified expectations of the parties. Protecting this
interest promotes ‘the values of certainty, predictability and uniformity of result.’” (citing
RESTATEMENT (SECOND) § 188 cmt. a)).
164
Orbital Sciences Insurers Op. Br. at 25-27; see RESTATEMENT (SECOND) §§ 188(a)-(b), (d)-(e).
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mismanagement of Delaware organizations.165 That is so because predictability for
and the justified expectations of Delaware firms are vindicated when their state of
incorporation resolves questions about the “honesty and fidelity” of their Delaware
officials (e.g., violating federal law by defrauding investors).166 And in vindicating
those interests, this Court eschews claims-centric approaches to coverage and
focuses instead on the insurance policies as a whole.167 Accordingly, where, as here,
some Second Restatement § 188 factors lean in favor of an alternate state, these
unique Delaware D&O contacts supersede and ultimately tip the rest in Delaware’s
favor.168
165
See, e.g., Ferrellgas, 2020 WL 363677, at *4 & n.42; Pfizer, 2019 WL 3306043, at *8; IDT
Corp., 2019 WL 413692, at *6-7; Murdock, 2018 WL 1129110, at *10-11; Mills, 2010 WL
8250837, at *5-6.
166
Murdock, 2018 WL 1129110, at *9 (observing that D&O insurance is implicated whenever
“the directors’ and officers’ ‘honesty and fidelity’” to a Delaware corporation has been challenged
(quoting Mills, 2010 WL 8250837, at *6)); accord Pfizer, 2019 WL 3306043, at *8 (“Where D&O
coverage is at issue ‘and the choice of law is between the headquarters and state of incorporation,
the state of incorporation has the most significant relationship.’” (quoting Murdock, 2018 WL
1129110, at *9); IDT Corp., 2019 WL 413692, at *6; see DEL. CODE ANN. tit. 8, § 145 (2020)
(enabling Delaware entities to purchase insurance for their fiduciaries and making indemnification
mandatory in certain cases).
167
See Pfizer, 2019 WL 3306043, at *8 (“[W]hen applying the Second Restatement factors to a
corporate-wide insurance program, ‘the inquiry should center on the insurance contracts and not
the underlying claims.’” (quoting CNH Indus., 2018 WL 3434562, at *1)).
168
See Pfizer, 2019 WL 3306043, at *6-8 (evaluating RESTATEMENT (SECOND) § 188 factors and
concluding presence of a D&O insurance policy and insured’s Delaware incorporation status
diminished New York’s—but strengthened Delaware’s—contacts); cf. Focus Fin., 241 A.3d at
805 (“[T]he parties’ contractual expectations should not be disappointed by application of [a state
law] which would strike down the contract or a provision thereof unless the value of protecting the
expectations of the parties is substantially outweighed” by the interests of another state. (citing
RESTATEMENT (SECOND) § 188 cmt. a) (internal quotation marks omitted)).
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Orbital Sciences was a Delaware corporation and its fiduciaries were sued for
managerial misconduct construed fairly to lack “honesty and fidelity” to it.169 So,
the Orbital Sciences Insurers’ attempts to colonize Virginia with principal places of
business and negotiation sites fail. Moreover, that the Knurr plaintiffs picked
Virginia federal court is of no moment. When “a corporate-wide insurance
program” is implicated, the Court “center[s] on the insurance contracts and not the
underlying claims.”170 The Orbital Sciences Policies are D&O liability policies
insuring a Delaware-organized business’s fiduciaries no matter the wrongdoing
alleged, the principal place of business or the state in which the suit was brought.171
Delaware law applies and summary judgment on the late-notice defense is denied.
2. The Orbital Sciences Insurers Have Not Met Their Burdens to
Show that OATK is Not Orbital Science’s “Successor” and that
Orbital Sciences’ Directors’ Liability is Not Covered.
Aside from their late-notice defense, the Orbital Sciences Insurers contend
169
IDT Corp., 2019 WL 413692, at *6 (internal quotation marks omitted); see Murdock, 2018
WL 1129110, at *9; Mills, 2010 WL 8250837, at *6 (“When the conduct of a corporation’s
directors and officers is centrally implicated, the place of incorporation is important.”).
170
Pfizer, 2019 WL 3306043, at *8 (internal quotation marks omitted).
171
See CNH Indus., 2018 WL 3434562, at *5 (When faced with “a comprehensive, nationwide
insurance scheme that would invariably involve underlying claims from multiple states,”
application of a state’s law “not . . . contrary to the parties’ initial expectations . . . avoid[s] the risk
of a court inconsistently applying identical policy language within a single integrated insurance
scheme.” (internal quotation marks and citations omitted)); see also Or. Arg. Tr. at 36 (Orbital
Sciences Insurers acknowledging Delaware’s D&O jurisprudence undercuts the Insurers’ conflict
arguments).
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that coverage is unavailable for the 14(a) Claim because OATK was not sued
“solely” as “successor” to Orbital Sciences and Thompson and Pierce never were
indemnified by Orbital Sciences.172 Under the Policies, “coverage . . . for Claims
made against any Insured shall extend to the Buyer, Buyer’s Acquisition Company
and its Insured Persons solely in their capacity as the successor to the
Policyholder.”173 And Loss includes amounts “for which [Orbital Sciences] grants
indemnification to . . . Insured Persons.”174 The Insurers concede this coverage
language is unambiguous.175
Read broadly,176 the Successor-in-Interest endorsement triggers whenever an
entity177 becomes a pinch-hitter for Orbital Sciences. Here, the 14(a) stockholders
tagged OATK with liability for pre-merger proxy misstatements made by Orbital
172
Orbital Sciences Insurers Op. Br. at 46-48.
173
Orbital Sciences, Endorsement #36.
174
Id. Side B Coverage.
175
See Or. Arg. Tr. at 10.
176
See Med. Depot, 2016 WL 5539879, at *7 (Court construes coverage language broadly to
protect insured’s “reasonable expectations.” (citations omitted)).
177
Though the Insurers implied in their brief that only the defined entities can be successors, at
oral argument they seemed to accept that OATK, which isn’t a defined entity, can be a successor.
See Or. Arg. Tr. at 21. That shifted position better reflects the nature of a non-illusory
endorsement, as neither Alliant nor Vista Merger Sub, Inc. survived post-closing. See O’Brien,
785 A.2d at 287 (“Contracts are to be interpreted in a way that does not render any provisions
illusory or meaningless.” (internal quotation marks omitted)); SS&C Techs. Holdings v. Endurance
Assurance Corp., 2020 WL 6335898, at *7 (Del. Super. Ct. Oct. 29, 2020) (applying this principle
to resolve policy dispute on summary judgment).
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Sciences (vicariously) through its managers.178 But OATK didn’t exist at the time
the proxy statements were made. So, it could have been sued “solely” as a
“successor” to Orbital Sciences—not as a primary wrongdoer.179 Accordingly, the
Orbital Sciences Insurers haven’t demonstrated non-coverage as a matter of law.
Resisting this natural interpretation, the Orbital Sciences Insurers try to
weaken OATK’s successor status by mixing its responsibility for both Alliant and
Orbital Sciences’s pre-merger conduct. But the key language says “solely in the
capacity as a successor” to Orbital Sciences. Alliant is irrelevant to this clause. And
still, even with respect to Alliant, it could have been sued solely as a successor—
Alliant dissolved when its stock was converted. As long as OATK was not sued for
its own wrongdoing, coverage may lie here.
Finally, on the Insurers’ read, the indemnification requirement in the Policies’
Side B coverage could make post-transaction insurance for pre-transaction liabilities
illusory.180 Orbital Sciences could not indemnify Thompson and Pierce after they
left the firm to run OATK. Yet, the Policies were renegotiated—due to the
178
See, e.g., Knurr Compl. ¶¶ 1, 15, 258-301.
179
This possibility is reinforced by the plain meaning of “successor” and because Northrop, as
the non-movant, is entitled to the benefit of favorable inferences. See Successor, BLACK’S LAW
DICTIONARY (11th ed. 2019) (“A corporation that, through . . . consolidation . . . of interests[,] is
vested with the rights and duties of an earlier corporation.”); see In re Verizon Coverage Appeals,
222 A.3d 566, 578-79 (Del. 2019) (endorsing plain meaning analysis of undefined insurance
terms); Judah, 378 A.2d at 632 (affording favorable inferences to non-movant).
180
But see O’Brien, 785 A.2d at 287.
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consolidation—to extend coverage for a six-year run-off period. As a result, the
counterparties plainly contemplated coverage for liabilities arising from that
transaction. But construing the indemnification requirement to thwart coverage
would make the run-off endorsement worthless and frustrate the parties’ mutual
intent at the time of contracting.181 And so, even if Northrop has not shown Orbital
Sciences’s indemnification as a matter of fact, the Insurers have not demonstrated a
non-illusory purpose to this requirement as a matter of Delaware contract law.
Accordingly, summary judgment on these points can’t be granted.182
C. THE ALLIANT POLICIES COVER THE 14(a) CLAIM AND THE ALLIANT
INSURERS HAVE NOT MET THEIR BURDEN TO SHOW THE CHALLENGED
DEFENSE COSTS ARE NOT COVERED.
As an initial matter, Delaware law applies to the construction of these Policies
for the reasons discussed above. The parties agree the language involved in the 14(a)
Claim analysis is unambiguous.183 And the Alliant Insurers also admit the language
pertinent to the Defense Costs analysis is plain.184 So the Court follows the drafter’s
words and resolves any ambiguity in them against the Alliant Insurers.
181
See Exelon, 176 A.3d at 1263; Med. Depot, 2016 WL 5539879, at *7; see also Salamone, 106
A.3d at 367–68.
182
See, e.g., IDT Corp., 2019 WL 413692, at *5 (Court “cannot grant any party’s motion for
summary judgment under Delaware Superior Court Civil Rule 56 unless no genuine issue of
material fact exists and that party is entitled to judgment as a matter of law.” (citing Del. Super.
Ct. Civ. R. 56) (emphasis added)).
183
See, e.g., Or. Arg. Tr. at 92 (Northrop’s argument); id. at 106, 117 (Alliant Insurers’ argument).
184
See id. at 123.
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1. The Bump Up “Provision” is an Exclusion.
Northrop and the Alliant Insurers have cross-moved on the application of a
term in the Alliant Policies excepting certain Loss from coverage. But a proper
construction of this term first requires a determination of whether it is a coverage
provision or an exclusion.185 If it is a coverage provision, then the burden is on
Northrop to satisfy its elements,186 which will be broadly construed.187 But if it is an
exclusion, then the burden is on the Alliant Insurers to satisfy its elements,188 which
will be strictly and narrowly construed.189
The Bump Up “Provision” is housed in the Policies’ definition of Loss, rather
than in the section enumerating exclusions.190 Its language, though, has an
exclusionary ring: “Loss . . . shall not include any amount” that “effectively
increased” “inadequate” “consideration” “paid for the acquisition . . . of all or
185
See Pfizer, 2019 WL 3306043, at *9 (“Proper construction of insurance policies depends
largely on the type of policy provision at issue.”).
186
See Zurich Am. Ins. Co. v. Syngenta Crop Prot., LLC, 2020 WL 5237318, at *5 (Del. Super.
Ct. Aug. 3, 2020) (citing E.I. du Pont de Nemours & Co. v. Allstate Ins. Co., 693 A.2d 1059, 1061
(Del. 1997)).
187
See Pfizer, 2019 WL 3306043, at *9.
188
See, e.g., Gallup, 2015 WL 1201518, at *9.
189
See Pfizer, 2019 WL 3306043, at *9.
190
Alliant Policies § 13.
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substantially all the ownership interest . . . in an entity.”191 Plainly read, the provision
says an otherwise-covered Loss—e.g., a settlement—suddenly loses coverage if the
Insurers conclude it falls into this carve-out. As a result, a reasonable insured—and
really any reasonable person192—would think “bump up” Loss is excluded from
coverage.
Though the Alliant Insurers argue this is a coverage provision, they don’t
explain why.193 Presumably, they think simply because it has been classified with
Loss, it is, de facto, an element of coverage. But that formalism has been rejected
by this Court and the only decision on which they rely. In Gallup, the insured argued
that a Loss provision carving out “matters which are uninsurable” functioned as an
exclusion which must be strictly construed.194 This Court tacitly accepted that
reasoning in finding the insurer failed to establish the Loss was uninsurable.195 And
191
Id. (emphasis added).
192
See, e.g., Salamone, 106 A.3d at 367–68 (Court should interpret contractual language as it
“would be understood by an objective, reasonable third party.”).
193
See Or. Arg. Tr. at 113 (“[Alliant Insurers’ Counsel:] Now, Northrop actually has the burden
of proving the 14(a) settlement constitutes covered loss. We discussed the case law in our brief
supporting this.”); but National Union Op. Br. at 19-25 (repeatedly referring to the bump-up term
as a “provision,” though not discussing why it isn’t an exclusion).
194
2015 WL 1201518, at *4-5.
195
Id. at *9-11.
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in Onyx Pharms. Inc. v. Old Republic Ins. Co.,196 the Superior Court of California—
interpreting the exact same “bump up” language in a National Union policy—
concluded it was an exclusion, not a condition precedent to coverage.197 No one
disputes that the Knurr settlement is a settlement and therefore, Loss.198
Accordingly, the Insurers must show the Bump Up Exclusion withstands narrow
construction and clearly negates, after the fact, coverage extant in the first place.
2. The 14(a) Claim is Covered.
In relevant part, the Bump Exclusion provides –
In the event of a Claim alleging that the price or consideration
paid for the acquisition or completion of the acquisition of all or
substantially all the ownership interest or assets in an entity is
inadequate, Loss with respect to such Claim shall not include any
amount of any judgment or settlement representing the amount
by which such price is effectively increased. . . .199
196
No. CIV 538248 (Cal. Super. Ct. filed Oct. 1, 2020) (Exhibit BB, (D.I. 528)). This case is
available only as a slip opinion, and per California procedural rules, was marked “tentative” at the
time of decision pending objections. The parties discussed and relied upon it during oral argument
last month; so, the Court assumes it is still good law.
197
Id. slip op. at 15 (“The Court finds that the Loss Exclusion [i.e., the Bump Up “Provision”] is
an exclusion, and should be treated as an exclusion[,] as there is coverage in the initial definition
of Loss, only potentially limited by the subsequent Loss Exclusion.” (emphasis in original)); but
see National Union Op. Br. at 20-21 (citing Onyx and suggesting insured failed to meet its coverage
burden, not that an exclusion applied).
198
Alliant Policies § 13 (defining Loss to include settlements).
199
Id.
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Narrowly and strictly construed, the string of terms weaves an exclusion of a lawsuit
(“Claim”) that “alleg[es]” only the “consideration” exchanged—nothing else—as
part of only one specific control transaction (an “acquisition” of “all or substantially
all ownership interest or “assets” of an “entity”) was “inadequate.” The Exclusion
pushes out Loss only that “represent[s] an “effective[] increase[]” of the claimant’s
inadequate consideration; no other Loss will do. Almost every term is undefined,
and so must be “afforded . . . separate and independent” plain meaning.200 Heavy is
that load, and the Alliant Insurers can’t unambiguously201 shoulder it.
To begin, the 14(a) Claim wasn’t exclusively about the Orbital Sciences
stockholders’ “inadequate” “consideration” (i.e., unwisely-exchanged stock).202
Looking to the whole complaint,203 the 14(a) Claim primarily was about Orbital
Sciences’s fiduciaries’ “dissemination of a materially false and misleading Joint
200
IDT Corp., 2019 WL 413692, at *9 (citations omitted); see In re Verizon, 222 A.3d at 578-79
(reviewing dictionary meanings in construing undefined policy terms).
201
See Pfizer, 2019 WL 3306043, at *9 (Exclusionary language must be “specific, clear, plain
[and] conspicuous” to be enforceable. (internal quotation marks omitted)).
202
Consideration, BLACK’S LAW DICTIONARY (11th ed. 2019) (“Something . . . bargained for and
received by a promisor from a promise; that which motivates a person to do something, esp. to
engage in a legal act. . . .”); Inadequate, Merriam-Webster.com, https://www.merriam-
webster.com/dictionary/inadequate (last visited Jan. 25, 2021) (“not enough or good enough;
insufficient”).
203
See IDT Corp., 2019 WL 413692, at *10 (citing Blue Hen, 2011 WL 1598575, at *2, aff’d, 29
A.3d 245).
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Proxy Statement . . . used to obtain approval of the [m]erger.”204 Because of their
alleged violations of federal law, the fiduciaries’ misstatements “caused Alliant to
be overvalued and impacted the [OATK ownership split]” and “depriv[ed] . . . the
[c]lass of their right to a fully informed shareholder vote.”205 So, this particularized
species of wrongdoing not only coerced the Orbital Sciences stockholders to “accept
inadequate consideration” but also “induc[ed] them to vote their shares” when they
otherwise wouldn’t have.206 Indeed, “inadequate consideration” alone would not
sustain a 14(a) suit. To the contrary, Rule 14(a) prevents a corporation’s fiduciaries
from lying to or misleading its investors. It does not grant stockholders a revised
appraisal of the equity they sold or compel a firm to redraw its ownership split.
Perhaps that is why the Exclusion applies to Claims—not only “Securities
Claims.”207 Paradigmatic dissenting stockholder cases in which the consideration
for a control sale is challenged as unfair might likely be excluded.208 When
204
Knurr Compl. ¶ 260.
205
Id.206
Id. Though the Alliant Insurers would prefer the Court to read the phrase “inadequate
consideration” in isolation every time it appears, the Court looks to the complaint as a whole and
shuns “unilateral characterizations” made by a claimant. IDT Corp., 2019 WL 413692, at *10
(internal quotation marks omitted).
207
Alliant Policies § 13.
208
See, e.g., LongPath Cap., LLC v. Ramtron Int’l Corp., 2015 WL 4540443, at *9-15 (Del. Ch.
June 30, 2015) (explaining the remedies available in an appraisal lawsuit to assure fair market
value of sold stock had been paid). As discussed below, Onyx was such a case.
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compared, a federal securities class action about fabricated proxy forms is not the
narrowly tailored fit this Exclusion imagined. Accordingly, the Insurers fail to
establish this element.
Next, the Exclusion applies solely to a special type of transaction: an
acquisition of all or substantially all of an entity’s assets or ownership. An
“acquisition” in the corporate transactions context means a “takeover of one
corporation by another if both parties retain their legal existence after the
transaction.”209 But here, the 14(a) allegations are replete with references to a
“merger,” which is what the Orbital Sciences managers and stockholders understood
the deal to be.210 Indeed, both sets of stockholders voted—the hallmark of a
merger.211 Too, Alliant did not retain a separate legal existence once the transaction
had been completed. Its stock was cancelled and converted to OATK stock.212
The Alliant Insurers contend that the reverse triangular structure of the merger
“involved” an acquisition, especially since Orbital Sciences survived.213 But the
209
Corporate Acquisition, BLACK’S LAW DICTIONARY (11th ed. 2019).
210
Knurr Compl. ¶¶ 260-286; Exhibit U, Joint Proxy Statement at 59-74 (D.I. 544) (explaining
the structure and background of the “merger”) (hereinafter, “Joint Proxy”).
211
See DEL. CODE ANN. tit. 8 §§ 251, 271 (2020) (providing distinct procedures for mergers and
acquisitions); cf. Hollinger Inc. v. Hollinger Int’l, Inc., 858 A.2d 342, 376-77 (Del. Ch. 2004)
(explaining the purpose of an acquisition, which eliminates “all or substantially all” of the target’s
stockholders’ interests (citations omitted)).
212
Joint Proxy at 59.
213
National Union Op. Br. at 21.
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Bump Up Exclusion doesn’t use the word “involved.” Narrowly read, it bars Loss
from a transaction which can only be called an “acquisition.” It does not exclude an
“acquisition” that is the penultimate step in a stock-for-stock merger. Two
transactions that may be the same economically but are titled differently and demand
dissimilar execution procedures have independent legal significance.214 If the
Policies were intended to exclude all transaction-based Claims—even though the
Policies were renegotiated for a post-merger run-off period and added OATK as a
successor—then their drafters could have written them that way.
Still, even with the Insurers’ insertion, the Exclusion wouldn’t apply. Alliant,
which dissolved, didn’t acquire all or substantially all the ownership of anyone in
the end. The Alliant and Orbital Sciences stockholders shared 53.8% and 46.2%
(respectively) in OATK once the transaction-as-challenged in Knurr closed.215 That
214
See, e.g., Quadrant Structured Prods. Co., Ltd. v. Vertin, 102 A.3d 155, 201-02 (Del. Ch. 2014)
(“The mere fact that the result of actions taken under one [transactional procedure] may be the
same as the result taken [through a different one] does not require that the legality of the result
must be tested by the requirements [of the one not chosen].” (internal quotation marks and citations
omitted)); Warner Comms. Inc. v. Chris-Craft Indus., Inc., 583 A.2d 962, 970 (Del. Ch. 1989)
(same). Delaware courts in noting the resemblance between stock acquisitions and reverse
triangular mergers still have regarded them as independent transactions. See Meso Scale, 62 A.3d
at 8 (“Both stock acquisitions and reverse triangular mergers involve changes in legal ownership,
and the law should reflect parallel results.”); id. at 84-85 (applying doctrine of independent legal
significance to distinguish acquisitions and reverse triangular mergers).
215
See Hollinger, 858 A.2d at 377-80 (collecting cases and analyzing the qualitative and
quantitative factors Delaware courts consider when determining if the sale involved substantially
all assets and, in any event, rejecting an “approximately half” standard).
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joint ownership stake was the Knurr Litigation’s chokepoint, as it could not have
been so divided or bargained-for without allegedly illegal proxy materials.216 At
bottom, the Knurr class was indifferent to the transaction’s shape or what became of
Orbital Sciences after a barrage of transactional moves. Their gripe was with the
negligent manner in which their former fiduciaries secured their votes and the bad
ownership deal that mismanagement produced.
Finally, the Alliant Insurers can’t show that the Knurr settlement
“represent[s]” an “effective increase” of whatever “inadequate consideration” the
Orbital Sciences stockholders bemoaned. Again, they rest on the same faulty
premise here as before: that a Rule 14(a) claim is solely about an unfair equity
exchange. To this end, the Onyx case is instructive.
In Onyx, the underlying stockholders brought a state law breach of fiduciary
duty claim against Onyx’s management for putting Onyx up for sale in response to
an unsolicited, all-cash tender offer.217 No doubt, that transaction was a takeover.218
Its “auctioneer” duties activated, the board’s mandate was to maximize profit for
216
Knurr Compl. ¶¶ 284-94.
217
See Onyx, slip op. at 6 (“This was not a situation where the class action plaintiffs asserted a
misrepresentation/nondisclosure theory in order to obtain an injunction against the tender offer in
the first place. This was not a situation where the class action plaintiffs pursued a remedy of
obtaining revised disclosures to the shareholders for their consideration prior to consummation of
the tender offer.” (emphasis in original)).
218
Id. at 5-6.
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Onyx’s stockholders, who would emerge on the other side without any investment
interests.219 It didn’t. As a result, the stockholders sought as relief the upward-
adjusted buyout price they should have obtained had Onyx’s directors not “shut[]
out or subvert[ed] any other” bidders.220 In other words, they sought a “bump up”
of the cash paid for their equity. And that is what the Onyx court found the excluded
settlement did—“effectively increased” the sale price.221
The Knurr Litigation is different. Orbital Sciences wasn’t sold to Alliant. It
was merged indirectly with Alliant to spawn OATK. The Orbital Sciences
stockholders didn’t vanish post-closing. They and their former fiduciaries received
measurable control over the new entity. The Orbital Sciences stockholders didn’t
seek an appraisal to “effectively increase[]” their stake or its value. They sought
unelaborated “compensatory damages” for the “overvalued” Alliant-turned-OATK
stock extracted through falsified proxy forms to effectively decrease what they
“paid.” And so, if the Knurr settlement—which admitted no wrongdoing—
219
See MacAndrews & Forbes Holdings, Inc. v. Revlon, Inc., 501 A.2d 1239, 1248 (Del. 1985)
(When the board of directors elects to sell the corporation, its role changes “to that of an auctioneer
attempting to secure the highest price. . . .”). In corporate law parlance, this is known as “Revlon
mode.” See TW Servs., Inc. v. SWT Acquisition Corp., 1989 WL 20290, at *7-8 (Del. Ch. Mar. 2,
1989) (“When a corporation is in Revlon mode, . . . the board [has a duty] to maximize[] . . . the
company’s value at a sale for the stockholders’ benefit.” (internal quotation marks omitted)); see
also Air Prods. & Chems., Inc. v. Airgas, Inc., 16 A.3d 48, 111-12 (Del. Ch. 2011) (explaining
these duties further). California corporate law seems to have adopted the same principle. E.g.,
Onyx, slip op. at 4-6.
220
Onyx, slip op. at 6.
221
Id. at 33-34.
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“represent[s]” anything at all, then it represents a “bump down”—not a “bump up.”
Accordingly, the Bump Up Exclusion doesn’t apply as a matter of law.
3. Summary Judgment is Unwarranted on All Defense Costs.
The Alliant Insurers also seek to preclude coverage for expenses they believe
are not “Defense Costs”: (1) the same investigatory fees disputed by the OATK
Insurers; (2) DeYoung’s private counsel’s fees; and (3) expenses for Thompson and
Pierce’s liability in “certifying” SEC-compliance and proxy materials. The Court
focuses solely on the second and third batches because summary judgment is denied
on the first for the reasons set forth above.222
a. DeYoung’s Fees May Have Been “Jointly Incurred” with
His Co-Defendants.
Though the Alliant Insurers acknowledge DeYoung is an “Insured Person,”
they insist many of his expenses do not reach the applicable retention because he
hired separate counsel.223 But the import of this fact is not without genuine issue.
According to the Policies, “Defense Costs” include legal fees “(i) jointly incurred by
. . . [OATK and Insured Persons].”224 And “incurred” in the legal fees context
222
See supra Section III.Part A.3; Or. Arg. Tr at 124 (“[Alliant Insurers’ Counsel:] [W]e would
agree that the Hogan and Alvarez costs are not defense costs . . . because [the Alliant Policies]
have the same definition of defense costs as the [OATK] insurers. . . .”).
223
National Union Op. Br. at 27-28.
224
Alliant Policies Endorsement #32 § 9(D).
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plainly means “liable for payment at some point.”225 Here, record evidence suggests
that lead counsel for all Knurr defendants participated with DeYoung’s counsel to
avoid taking duplicative or inconsistent positions.226 As a result, DeYoung may have
been “liable at some point” for the benefits conferred on him by the other defendants’
counsel.227 Accordingly, summary judgment is unwarranted and the Alliant Insurers
may argue at trial that DeYoung’s defense fees actually were not “jointly incurred.”
b. Pierce and Thompson May Have Been Liable for “Certification”
of the Joint Proxy Forms.
The Alliant Policies were amended to include Pierce and Thompson as
Insured Persons for the technical purpose of “[c]ertification of [OATK f/k/a
Alliant’s] SEC Form No. 10K and 10Q filings . . . and provided in connection with
the merger agreement [or its plan] or similarly titled contract executed by and
between [Alliant and Orbital Sciences].”228 “Certification” means “the process of
giving someone or something an official document stating that a specific standard
225
See Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Est. Fund, 68 A.3d
665, 684 (Del. 2013) (citations omitted).
226
See Exhibits AA at 198:2-11 & BB at 198:17-200:25, Depositions Regarding Fees (D.I. 666).
227
See Legion, 2020 WL 5757341, at *11 n.87 (noting Delaware’s broad defense costs
construction); see also Med. Depot, 2016 WL 5539879, at *7 (Court construes coverage language
“broadly to protect the objectively reasonable expectations of the insured.” (internal quotation
marks omitted)).
228
Alliant Policies Endorsement #45 (emphasis added).
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has been satisfied.”229 Because OATK did not exist pre-merger, 10K and 10Q forms,
which are annual reporting and financial performance documents, could not be filed
for it. So, Pierce and Thompson’s capacities must be directed to certifying Alliant’s
“filings . . . provided in connection with the merger” and its SEC-required forms.
The Knurr class alleged that Pierce and Thompson “caused the Joint Proxy”
for the merger “to be filed with the SEC”, which “by its own terms, was a joint proxy
statement of Alliant and Orbital Sciences.”230 It “constituted a joint proxy statement
under Section 14(a) of the Securities Exchange Act of 1934.”231 Too, the “Joint
Proxy” incorporated “statements” about “Alliant’s financial performance” from
Alliant’s separately-prepared 10K and 10Q forms.232 And this information is
precisely what the Knurr class alleged Pierce and Thompson made misleading or
untrue.233 This being so, the language in the endorsement can’t be read to
gerrymander Pierce and Thompson out of coverage simply because they were
Orbital Sciences’s managers at the time. Indeed, they could have been added in this
capacity because the counterparties knew the proxy materials they were “certifying”
229
Certification, BLACK’S LAW DICTIONARY (11th ed. 2019).
230
Knurr Compl. ¶ 267 (emphasis added) (internal quotation marks and brackets omitted).
231
Id.232
Id. ¶¶ 270, 274-76.
233
Id. ¶¶ 287-301.
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to their stockholders contained representations about Alliant for transactional and
regulatory purposes.234 Accordingly, the Alliant Insurers haven’t demonstrated that
Pierce and Thompson were not liable as “Insured Persons” as a matter of law.
Summary judgment thereon is, therefore, denied.
D. THE VARIOUS ALLOCATION AND EXHAUSTION ISSUES CANNOT BE
RESOLVED AT THIS STAGE.
Finally, the OATK and Excess Alliant Insurers have asked the Court to
conclusively determine issues of allocation and exhaustion. In essence, they contend
that it is mathematically impossible to reach their attachment points due to payments
from layers underneath and the greatest Loss recoverable here.235 And so, their
requests continue, an allocation should be settled now because it could eventuate
their dismissals from the case. The Court declines these invitations.
To the OATK Insurers: The record indicates—or at least raises a genuine
issue as to whether—the Knurr settlement and attendant defense fees have climbed
all rungs of the excess latter.236 Until these totals are established, allocation and
234
See Exelon, 176 A.3d at 1263 (observing that all contract interpretation should mind the
parties’ mutual intent at the time of contracting); Med. Depot, 2016 WL 5539879, at *11 (“In
Delaware, an insurance policy is to be read in accord with the reasonable expectations of the
insured.” (citing Johnson, 320 A.2d at 347)).
235
See, e.g., Or. Arg. Tr. at 81-82 (OATK Insurers’ argument), 127-34 (Excess Alliant Insurers’
arguments).
236
See Exhibit 31 §§ 1.12, 1.20 (D.I. 668) (indicating 10(b) Claim settlement for $62.4 million);
Exhibit 51 (D.I. 668) (indicating a total of $26.7 million in defense costs).
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exhaustion worries are premature.
To all: “Under circumstances such as these, excess coverage is triggered when
the underlying policy limit is reached by the total costs incurred by the insured,
regardless of whether the total payments to the insured by the underlying insurers
reach those limits.”237 Indeed, Delaware courts have embraced “the Stargatt Rule
that excess policies attach irrespective of whether the insured collected the full
amount of the primary policies, so long as the excess insurer [is] only called upon to
pay such portion of the loss as [is] in excess of the limits of those policies.”238 That
Rule applies with unabated force in “construing a settlement in satisfaction of a
policy as an exhaustion of that policy[.]”239 And it still applies “in the face of an
explicitly contrary” term or position absent a risk of “additional exposure or
prejudice on the excess carrier above [its] attachment point.”240 That risk not being
present or asserted here, the Insurers lack a commercially reasonable basis for
requesting summary judgment on exhaustion before liability is determined.
Elementary is the observation that “the excess insurer’s liability begins only at its
237
Pfizer Inc. v. U.S. Specialty Ins. Co., 2020 WL 5088075, at *3 (Del. Super. Ct. Aug. 28, 2020)
(emphasis added) (internal quotation marks and citations omitted).
238
Id. (emphasis added); see Stargatt v. Fid. & Cas. Co. of N.Y., 67 F.R.D. 689, 691 (D. Del.
1975).
239
Pfizer, 2020 WL 5088075, at *3 (citations omitted).
240
Id. at *4 (citations omitted).
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own attachment point.”241 And there is no serious threat that the excess layers will
be jeopardized by extra-contractual attachment when this litigation concludes.
By consequence, “a requirement to allocate insurance liability before a
triggering claim has been finally decided [would cause] more, rather than less,
uncertainty about ultimate proportionate liability for insurance coverage between
two or more insurance companies.”242 Where, as here, not every Loss or Defense
Cost has been situated as a matter of law, the Court refuses to imperil proper
reimbursement by fixing an allocation scheme that might frustrate party-preferred
liability arrangements.243 To be sure, picayune battles over arithmetic that could
well be tabulated early are suboptimal. But summary judgment can’t be granted
“where it seems prudent to make a more thorough inquiry into the facts.”244 As the
Court has previously recognized, an intricate case like this one commands a
241
Id. (citing Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 445 (Del. 2005)).
242
HLTH Corp. v. Agric. Excess & Surplus Ins. Co., 2008 WL 3413327, at *12 (Del. Super. Ct.
July 31, 2008).
243
See Arch Ins. Co. v. Murdock, 2020 WL 1865752, at *8-9 (Del. Super. Ct. Jan. 17, 2020); see
also Legion, 2020 WL 5757341, at *10 (“The Court’s determination that the Defense Costs
incurred . . . constitute a ‘Loss’ does not mean that issues regarding allocation also have been
determined.” (citation omitted)); Gallup, 2015 WL 1201518, at *7, *13-14 (accepting defendant’s
argument that allocation is a “factually intense inquiry” and denying plaintiff’s dispositive motion
as a matter of law on that basis).
244
IDT Corp., 2019 WL 413692, at *5 (citing Ebersole, 180 A.2d at 470-72).
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comparably thorough inquiry.245 Accordingly, as a matter of prudence and judicial
caution, summary judgment on allocation and exhaustion is denied.
IV. CONCLUSION
For the foregoing reasons:
1. Northrop’s Rule 12(c) Motion is GRANTED;
2. Northrop’s Rule 56 Motion is GRANTED;
3. The OATK Insurers’ Rule 56 Motion is DENIED;
4. The Orbital Sciences Insurers’ Rule 56 Motion is GRANTED in
part (i.e., with respect to the 10(b) Claim’s coverage) and
DENIED in part (i.e., in all other respects); and
5. The Alliant Insurers’ Rule 56 Motions are GRANTED in part
(i.e., with respect to the 10(b) Claim’s coverage) and DENIED
in part (i.e., in all other respects).
IT IS SO ORDERED.
________________________________
Paul R. Wallace, Judge
245
See Transcript of Hearing on Discovery Dispute at 32 (D.I. 448) (“[The Court:] Allocation
really ends up being an issue after legal analysis. And it does in particularly a complex
circumstance like this depend on who[] it may be in the end . . . is on the hook from the various
towers. . . .”).
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