The vast majority of publicly traded corporations are included in Delaware however have their principal administrative center in one other state. This could elevate thorny problems with what state’s legal guidelines ought to apply to an insurance coverage protection dispute beneath the corporate’s administrators and officers legal responsibility coverage. In Stillwater Mining Firm v. Nationwide Union Hearth Insurance coverage Firm of Pittsburgh, PA et al., C.A. No. N20C-04-190 (Del. Jan. 12, 2023), the Delaware Supreme Court docket weighed in on selection of regulation rules beneath Delaware regulation in addition to protection beneath D&O insurance policies for shareholder appraisal actions.
Background
Stillwater was publicly traded till 2017 when Sibanye Gold Restricted, a South African mining firm, acquired Stillwater in a merger and took it personal. Following the merger, Stillwater stockholders filed an appraisal motion within the Court docket of Chancery, looking for the honest worth of their inventory. Within the appraisal motion, the shareholders claimed that Stillwater’s board and CEO carried out a flawed and biased sale course of and breached their fiduciary obligation to acquire honest worth for Stillwater inventory.
Stillwater notified its D&O insurers of the appraisal motion and sought protection for the prices it incurred in defending the motion. The insurers denied protection. Stillwater then filed go well with towards the insurers alleging breach of contract and breach of the obligation to defend and advance protection prices. The Superior Court docket granted the insurers’ motions to dismiss after it discovered that Delaware regulation utilized to the protection dispute and that Solera II[1] precluded protection beneath a D&O coverage for losses incurred in an appraisal motion. On January 12, 2023, the Delaware Supreme Court docket affirmed.
The Court docket’s Key Holdings
The Delaware Supreme Court docket’s resolution in Stillwater is vital for 3 causes:
First, the Delaware Supreme Court docket re-affirmed that the place the coverage doesn’t specify a selection of regulation, and two probably relevant jurisdictions battle on the related authorized rules, Delaware courts will apply the regulation of the state that “has probably the most vital relationship to the contract and the events to the contract utilizing the issues within the Restatement (Second) of Battle of Legal guidelines.” The Second Restatement issues for deciding which state has the “most vital relationship” are: (1) the place of contracting; (2) the place of negotiation of the contract; (3) the place of efficiency; (4) the situation of the subject material of the contract; and (5) the domicile, residence, nationality, place of incorporation, and administrative center of the events.
Second, the Delaware Supreme Court docket reiterated its view in Murdock[2] that Delaware has the “most vital relationship” to a protection dispute involving D&O insurance policies bought by a Delaware company and an appraisal motion introduced in Delaware. The Court docket rejected Stillwater’s arguments that Montana regulation, not Delaware regulation, ought to apply. Stillwater had argued that its principal administrative center is in Montana and the insurance policies include Montana amendatory endorsements, considered one of which supplied for conformity with Montana regulation. The Court docket defined: “Right here, the D&O insurance policies will be carried out anyplace on the earth, together with Delaware, and the underlying appraisal motion was introduced by shareholders of a Delaware company within the Delaware Court docket of Chancery. Montana doesn’t have a stronger relative curiosity on this case than Delaware.”
Lastly, the Delaware Supreme Court docket re-affirmed its holding in Solera II. In Solera II, the Court docket held that an appraisal motion beneath 8 Del. C. § 262 shouldn’t be a declare “for a violation of regulation” and due to this fact shouldn’t be a “securities declare” beneath a D&O coverage. The Court docket defined: “[T]his conclusion is compelled by the plain that means of the phrase ‘violation,’ which entails some component of wrongdoing, even when finished with an harmless way of thinking. It is usually compelled by part 262’s historic background, its textual content, and by an extended, unbroken line of circumstances that maintain that an appraisal beneath part 262 is a treatment that doesn’t contain a dedication of wrongdoing. Fairly, it’s a treatment restricted to the dedication of the honest worth of the dissenters’ shares as of the efficient date of the merger or consolidation.” As a result of Solera II precludes protection for losses incurred in an appraisal motion beneath a D&O coverage, the Delaware Supreme Court docket affirmed dismissal.
[1] In re Solera Ins. Protection Appeals, 240 A.3d 1121 (Del. 2020)
[2] RSUI Indem. Co. v. Murdock, 248, A.3d 887 (Del. 2021)
