A recurring D&O insurance coverage issue is the availability under a D&O insurance policy of coverage for a Delaware appraisal action. As discussed here, in October 2020, the Delaware Supreme Court held in the Solera action that an appraisal action was not a “Securities Claim” within the meaning of the policy at issue and therefore was not a covered claim under the policy. As discussed below, a Delaware Superior Court judge has more recently held in an insurance coverage dispute that because an appraisal action is not “for” a “Wrongful Act,” there was no coverage under the policy at issue. A copy of the Delaware Superior Court’s July 30, 2021 decision in the case can be found here.
Jarden Corporation was a holding company for numerous consumer brands. On December 15, 2015, Jarden entered into an agreement to merge with Newell Rubbermaid. A stockholder meeting at which the merger was approved was held on April 15, 2016. Between April 7, 2016 and April 14, 2016, stockholder representatives delivered written appraisal demands.
After the merger closed, several Jarden shareholders who had voted against the merger filed appraisal petitions in the Delaware Chancery Court, under Delaware Corporations Code Section 262. The court ultimately agreed with the petitioners that the sales process was “less-than-perfect,” including that there had been no pre-signing or post-signing market check. Because of these process flaws, the Chancery Court assigned little weight to the negotiated deal price. However, the Chancery Court also concluded that the fair value of the company at the time of the merger was a price below the price paid the merger. The Court nevertheless concluded that the petitioners were entitled to both pre- and post-judgment interest and entered an appraisal award to petitioner of approximately $177 million, consisting of the fair value of the petitioners’ shares plus interest. Jarden paid the award.
Jarden maintained a program of run-off insurance that provided coverage for the policy period April 12, 2015 to April 12, 2022. The program consisted of a layer of primary insurance and five layers of excess insurance. Jarden sought coverage under the insurance program for the interest awarded in the appraisal action as well as the attorneys’ fees it incurred in the proceeding. The insurers denied coverage for the amounts and Jarden initiated a coverage action against the insurers in Delaware Superior Court. The defendants filed a motion to dismiss, arguing that the appraisal action was not a Claim for a Wrongful Act, and that the even if there were a claim for a Wrongful Act it did not take place prior to the runoff date.
The Relevant Policy Language
The primary policy defines the term “Securities Claim” to mean “any Claim, other than a civil, criminal, administrative or regulatory investigation of a Company, which, in whole or in part, is: brought by one or more securities holders of the Company, in their capacities as such, including derivative actions brought by one or more shareholders to enforce a right of the Company.”
A “Claim” includes “a written demand for monetary damages or non-monetary or injunctive relief, and a civil … proceeding for monetary damages or non-monetary or injunctive relief, commenced by … service of a complaint or similar pleading ….”
The policy defines “Wrongful Act” to mean “any error, misstatement, misleading statement, act, omission, neglect, or breach of duty … actually or allegedly committed or attempted by the Company.”
The July 30, 2021 Opinion
On July 30, 2021, Delaware Superior Court Judge Abigail LeGrow granted the defendant insurers’ motions to dismiss, holding that the appraisal action was not a claim “for” a Wrongful Act and therefore was not covered under the policy, and that even if there were a claim for a Wrongful Act, the Wrongful Act did not take place until after the Run-Off Date, and was therefore not covered.
In contending that the appraisal action was not a Claim “for” a Wrongful Act, the insurers had argued that to be “for” a Wrongful Act, it must “seek redress in response to, or as a requital of” that act. According to Judge LeGrow’s opinion, Jarden’s counsel conceded at oral argument that the word “for” as used in the policy has the meaning that the insurers advocated. This concession, Judge LeGrow said, “is fatal to Jarden’s coverage claim.”
Even if, as Jarden argued, a “Wrongful Act” means any act that Jarden committed, “an appraisal action does not seek redress in response to, or as a reprisal of, an act.” Accordingly, Judge LeGrow said, “given the term ‘for’ the meaning the parties jointly ascribe to it, there is not coverage under the D&O Policies.”
In reaching this conclusion, Judge LeGrow referenced the Delaware Supreme Court’s decision in the Solera case commenting on the nature of an appraisal action. An appraisal claim, she said, “is purely a creature of statute.” An appraisal proceeding is “neutral in nature” and is designed only to decide fair value; it does not involve any inquiry into claims of wrongdoing.” Though evidence of a flawed sales process is admissible in an appraisal proceeding, that evidence goes only to the question of the weight to be given to the negotiated price – a petitioner need not plead or establish a flawed process.
Finally, Judge LeGrow concluded that the even if the appraisal proceeding was “for” a Wrongful Act, the act did not take place before the Run-Off Date. The act that “confers appraisal litigation rights is the execution of the merger, and since the merger did not close before the Run-Off Date, the Appraisal Action did not fall within the D&O Policies’ coverage.” Judge LeGrow rejected Jarden’s argument that the petitioners had lodged appraisal demands before the Run-Off date, because without the merger’s execution no appraisal rights exist. Judge LeGrow said “if the Appraisal Action was for any act, the only act from which it arose or for which it sought redress was the merger’s execution.”
Judge LeGrow can be forgiven is she felt a bit of déjà vu in connection with the questions she was asked to address in this case. She was the judge who entered the Superior Court opinion in the Solera case – the one that the Delaware Supreme Court overturned in its October 2020 decision. Given her prior involvement with these issues in Solera, she may have approached the dispute here with more than a little wariness.
Many readers may be wondering why the Delaware Supreme Court’s decision in Solera did not itself control this dispute. The answer is that the Supreme Court’s decision in Solera was very much a reflection of the policy language at issue in that case. The definition of the term “Securities Claim” in the policy at issue in that case contained a reference to a “violation” of a securities law; the policy at issue in this case had no such reference. Indeed, the parties to this dispute conceded that the appraisal action was a “Securities Claim” within the meaning of the primary policy at issue here.
Many readers may also be surprised by Judge LeGrow’s ruling on the Wrongful Act issue. The definition of the term “Wrongful Act” in the policy at issue is extraordinarily broad; as Jarden argued here, it defines a Wrongful Act, among other things, as an “act.” This would seem to encompass just about everything and anything. However, Judge LeGrow’s ruling was not that there was no “Wrongful Act” within the meaning of the policy; rather, here ruling was that the claim was not “for” a Wrongful Act. So it is the meaning of the term “for” that was determinative here, not the meaning of the term “Wrongful Act.”
This may seem like the worst kind of lawyerly straining at the meaning of every jot and tittle, but the question of what a claim is “for” is not an idle or empty matter. In attempting to supply meaning for the word “for,” the insurers argued that in order for a claim to be “for” a Wrongful Act, it must “seek redress in response to, or as requital of” that act. In ruling for the insurers in this case, the meaning the insurers urged is the meaning that Judge LeGrow gave the word “for.” However, she did not give the word that meaning because she analyzed the issue and concluded that that was what it meant; rather, she gave it that meaning because Jarden’s counsel had conceded that meaning at oral argument. She did not herself conclude what the word meant; she merely gave the word the meaning “the parties jointly ascribe to it.”
In footnote 30 of the opinion, Judge LeGrow lays out the significance of the fact that she was merely accepted the parties agreed meaning of the term, rather than herself determining the meaning. She emphasized that because the parties agreed on the meaning of the term, she was no called upon to interpret it. She added that “making an interpretive ruling that may have precedential value is better left to a court that has the benefit of the parties’ adversarial presentation on the issue.”
In other words, in Judge LeGrow’s own view, her ruling on the meaning of the term “for” has no precedential vale, and indeed would even have no persuasive value in any dispute where a party disputed the meaning of the term “for.”
That is, though this decision is interesting, it may have little meaning or value for anyone other than the immediate parties to the proceeding. Nevertheless, Judge LeGrow’s opinion is interesting for the discussion of the issues presented; for her commentary on the nature of the appraisal proceeding; and for one other reason – her ruling represents the rare case where a Delaware court has ruled in favor of insurers and against policyholders. Of course, Jarden may seek to appeal Judge LeGrow’s ruling (though the concession of meaning on the term “for” may constrain Jarden’s room for argument at the appellate court).
Special thanks to a loyal reader for providing me with a copy of Judge LeGrow’s opinion.