Client Alert

Part I of this update discusses whether courts applying Delaware choice of law would apply Delaware law to directors and officers (“D&O”) insurance coverage disputes involving Delaware corporate insureds.

But that raises an important question—why does it matter whether Delaware law applies?

It matters because, as the Delaware Supreme Court has observed, Delaware law recognizes that “minimizing the downside risks of serving as a director or officer through D&O insurance will enhance the ability of Delaware corporations to attract talented people to fill those roles.” RSUI Indem. Co. v. Murdock, 248 A.3d 887, 900 (Del. 2021).

A prominent example is coverage of fraudulent transfer claims by D&O insurance policies.  Under the law of many states, fraudulent transfer claims are uninsurable as a matter of law.  Huntington Nat’l Bank v. AIG Specialty Ins. Co., No. 2:20-cv-256, 2022 WL 17741060, **6-8 (S.D. Ohio Dec. 16, 2022) (collecting authorities). 

But as the court in Verizon Communications, Inc. v. National Union Fire Insurance Co. of National Union Fire Insurance Co. of Pittsburgh, No. N18C-08-086, 2022 WL 14437414 (Sup. Ct. Del. Oct. 18, 2022), recently confirmed, however, under Delaware law, fraudulent transfer claims are not uninsurable as a matter of law, 2022 WL 14437414, at *11.

The Delaware Supreme Court has not specifically addressed this issue. But it has recognized that parties’ freedom to contract overrides any Delaware public policy against insuring losses caused even by actual fraud. Murdock, 248 A.3d at 902-05.

Verizon is also in line with an earlier Delaware Superior Court decision that reached the same result. Sycamore Partners Mgmt., L.P. v. Endurance Am. Ins. Co., No. N18C-09-211, 2021 WL 761639, **11-12 (Sup. Ct. Del. Feb. 26, 2021).

In light of Verizon, it is critical to promptly consult with coverage counsel regarding potential insurance coverage for fraudulent transfer claims.

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This content is not intended to be and should not be relied upon as legal advice. In some jurisdictions, this may be considered “Attorney Advertising.”