Readers of this blog will be interested to know that in a recent D&O insurance coverage dispute, the Delaware Superior Court actually handed the D&O insurers a win — a rare development indeed in Delaware’s courts. However, the D&O insurers won by successfully arguing that Delaware law governed the insurance dispute; the ultimate outcome may have been due in part to the fact that the losing policyholder was in the uncomfortable position of trying to argue that another jurisdiction’s law controlled after all after having first argued that Delaware law applied. There are a lot of twists and turns to this case, but, as discussed below, the outcome of this case arguably is far from reassuring to D&O insurers, even though the insurers prevailed in this case.


The Underlying Appraisal Action

Stillwater Mining Company is a mining company organized under Delaware law and based in Montana. In 2017, Stillwater was acquired by and merged into Sibanye Gold Limited. On May 17, 2017, certain Stillwater stockholders filed appraisal actions in Delaware Chancery Court seeking “fair value” for their shares in connection with the Sibanye merger. While the Chancery Court concluded that the petitioners had failed to demonstrate a flawed or biased sales process, the Court entered a judgment on behalf of petitioners that included the originally agreed-upon value for petitioners’ shares plus prejudgment interest. The Delaware Supreme Court affirmed the Chancery Court’s judgment in the appraisal action. Stillwater claims to have spent more than $20 million in defending the appraisal action and subsequent appeal.


The Stillwater Coverage Dispute

At the relevant time, Stillwater maintained a program of D&O insurance, consisting of a layer of primary D&O insurance and six layers of excess D&O insurance. Stillwater sought coverage from its D&O insurers for its attorneys’ fees and costs incurred in the appraisal action, as well as for the interest award the company incurred. The primary insurer responded to the claim by taking the position that the appraisal action was not covered under its policy, contending that the appraisal action “is not a Claim alleging violation of any law.”


In April 2020, the primary insurer filed an action in Delaware Superior Court seeking a judicial declaration that the appraisal action was not covered. In response, Stillwater filed its own action arguing that Delaware law applied to the parties’ coverage dispute and seeking a judicial declaration of coverage and also alleging breach of contract. The court subsequently consolidated the two actions and realigned the parties so that Stillwater was the plaintiff.


The Solera Action

Importantly, the parties filed their actions in the Delaware Superior Court after the Superior Court had issued its opinion in the Solera case. As discussed here, in July 2019, Delaware Superior Court Judge Abigail LeGrow had held in Solera that an appraisal claim alleged a violation of law and therefore fell within the insurance policy’s definition of “Securities Claim.” In her subsequent opinion in the Stillwater coverage action, Judge LeGrow described Stillwater’s filing of its coverage action by saying that Stillwater was “seizing on a decision of this court,” with reference to the Solara action.


When the parties filed their respective complaints in this action, the Solera action was on appeal to the Delaware Supreme Court. In light of the pending appeal, the court in the Stillwater action stayed proceedings pending the Solera appeal.


As discussed here, in October 2020, the Delaware Supreme Court issued an opinion reversing the trial court opinion in the Solera coverage action and holding that an appraisal action under Delaware law is not a claim “for a violation of law” and therefore is not a “Securities Claim” within the meaning of the policy in that action.


Subsequent Proceedings in the Stillwater Coverage Action

As Judge LeGrow put in in her subsequent opinion in the Stillwater coverage action, after the Supreme Court issued its opinion in the Solera case, which obviously undermined Stillwater’s coverage arguments, Stillwater, “rather than admit defeat …pivoted and unabashedly took the new position that Montana law, rather than Delaware law, in fact governed the policy.”


Stillwater filed a motion to dismiss its Delaware Superior Court complaint without prejudice so that it could pursue Montana specific claims in a Montana court, or in the alternative to be allowed to file amended complaint in the Delaware proceeding asserting Montana law claims.


In April 2021, the court denied Stillwater’s motion to dismiss but granted the company leave to file an amended complaint. The insurers in the Stillwater coverage action filed a motion to dismiss Stillwater’s amended complaint, arguing, among other things, that Delaware law, not Montana law, governs the coverage dispute, and that the Delaware Supreme Court’s decision in Solera barred Stillwater’s coverage claim. The insurers also argued that Stillwater had no viable claims under Montana law.


The December 22, 2021 Opinion

On December 22, 2021, Delaware Superior Court Judge LeGrow (the same judge that had ruled in favor of Solera at the trial court level but who was reversed at the Supreme Court level) entered an opinion granting the defendant insurers’ motion to dismiss Stillwater’s amended complaint with prejudice. In granting the motion, Judge LeGrow concluded that Delaware law, rather than Montana law, governed the parties’ dispute.


Judge LeGrow began her analysis by noting that Stillwater “arguably … is bound by its previous representations to this Court” that Delaware law governed the company’s coverage claims, and therefore that the company is precluded from arguing that Montana law applies. But, she said, even if the company is not precluded, “Delaware precedent and the applicable factors under the Restatement’s conflict of laws test compel the conclusion that Delaware law governs the policies at issue.” Stillwater’s coverage claims are “barred by Delaware law,” notwithstanding Stillwater’s “serial procedural efforts to avoid this decision.” Judge LeGrow said that “the time has come for the plaintiff’s coverage claims to be dismissed with prejudice.”


In reaching the conclusion that Delaware and not Montana law governed the coverage dispute, Judge LeGrow nominally referred to and applied the “most significant relationship” test from the Restatement (Second) of Conflict of Laws. As part of her application of this test, Judge LeGrow expressly referred to and relied upon the Delaware Supreme Court’s application of the “most significant relationship” test as part of determining that Delaware law governed the high-profile Dole Foods coverage dispute.


As Judge LeGrow said, “this Court cannot ignore precedent that indicates that Delaware has a strong interest in disputes involving D&O coverage.” She noted that the Supreme Court in the Dole Foods coverage case had held that the Restatement factors “suggest that the state of incorporation is the ‘center of gravity of the typical D&O policy.’” Because Delaware law governs the underlying liability issues, Delaware “has a strong interest in the scope and applicability of coverage,” and Delaware law therefore governs the policy.” Judge LeGrow noted parenthetically that the most significant contacts test analysis is “not mathematical” and at least under the view of Delaware law “the state with the ‘most significant relationship’ to the parties “may not necessarily be the state with the most contacts.”


In the same vein, she added her view that “nothing else in the record weighs in favor of applying Montana law.” And finally, she said, “nothing in the record supports deviating from the generally rule, settled in [Dole Foods], that the state of incorporation generally will provide the governing law for a D&O policy.”



It was always going to be tough for Stillwater to convince the Delaware court that Montana law really did control the parties’ coverage dispute, after having first taken the position that in fact Delaware law applied.


At the time Stillwater initially filed its coverage complaint, taking the position that Delaware law controlled looked like a winning position, in light of the trial court decision in Solera. But after the Delaware Supreme Court’s reversal of the Solera trial court’s decision, Delaware law did not look as advantageous, and so Stillwater had to try to “pivot” (as Judge LeGrow put it) to try to argue that Montana law in fact applied. Stillwater’s tactical shift  put the company in an uncomfortable position; Judge LeGrow clearly bridled against the company’s effort to shift its position and in fact appeared to hold it against the company.


All of that said, the outcome of Judge LeGrow’s choice of law analysis was not really a reaction to Stillwater’s shift of position; rather, as she herself acknowledged, the outcome of the choice of law issue was pretty much dictated by the Delaware Supreme Court’s analysis in the Dole Foods coverage case; as she put it, “this Court cannot ignore precedent that indicates that Delaware has a strong interest in disputes involving D&O insurance coverage.”


So even without the problems created by its change of position on the choice of law issue, Stillwater – a Delaware corporation – was going to be unlikely to succeed in convincing the court that Montana law applied after all.


As I noted above, Judge LeGrow nominally applied the “most significant relationship” test described in the Restatement. I feel like the little boy in the old story about the Emperor’s New Clothes by declaring that she did absolutely nothing of the sort. All she was really doing was following the Delaware Supreme Court’s lead in holding that in Delaware the place of incorporation is the sole and outcome determinative factor in determining choice of law for the interpretation of a D&O policy. In doing so, she completely disregarded all of the other factors that historically and traditionally control the outcome of a most significant relationship test analysis – such as the place of contract; the place of negotiating; the place of performance; the location of the subject matter; and so on. Under this traditional analysis, the place of incorporation is, and properly should be, only one factor, and a relatively minor and unimportant one at that.


The analytical flaw of the Delaware courts’ analysis of these issues is that fundamental assumption that because Delaware law controls the underlying corporate liability issues, it should also control the contract law issues governing the insurance, even though the insurance contract’s negotiation, placement and application are separate legal functions undertaken by separate persons at separate times under separate circumstances. There is absolutely no logical or prudential reason why just because Delaware law governs the liability dispute that Delaware has to govern the separate contract law issues. I know for certain that at the time this policy was placed, no one – NO ONE – assumed that Delaware law would govern its interpretation. Indeed, the only reason Stillwater initially argued that Delaware law applied was because it thought it could obtain a tactical advantage by doing so.


The reason the Delaware courts give for blowing past ALL of the other substantial relationships a D&O insurance contract has to another jurisdiction and insisting that Delaware law must apply is that “Delaware has a strong interest in disputes involving D&O insurance coverage.” For the D&O insurers, this statement of principle has an ominous ring to it; all too often in recent times, the application of Delaware law to D&O insurance coverage disputes has meant that the insurers lose, notwithstanding decades of case law under the laws of other jurisdictions interpreting the insurance provisions in dispute. (For a good discussion of the D&O insurers’ view of Delaware’s approach to these choice of law issues, please refer to the insurer-side guest post I recently published on this site.)


For all of these reasons, I think that, although the D&O insurers won a rare victory in this Delaware insurance coverage dispute, there arguably is not a lot for the insurers in general to celebrate here. The outcome of the choice of law analysis here foreshadows the application of Delaware law to any D&O insurance coverage dispute in Delaware courts involving a company incorporated under Delaware law. For D&O insurers, this aspect of this case foretells a great deal of unhappiness in future coverage litigation in Delaware’s courts.


Judge LeGrow’s analysis here may inevitably raise some alternative possibilities for the insurers. Specifically, at a couple of different places in her opinion, Judge LeGrow emphasized that the “most significant relationship” test only applies where the parties “have not included an effective choice-of-law provision in their insurance contracts.” Judge LeGrow’s opinion here, like the Delaware Supreme Court’s prior opinion in the Dole Foods case, almost inevitably leads (at least from the D&O insurers’ perspective) to the question of whether the time has come for D&O insurance policies to start including choice of law (and even choice of forum) provisions.


A choice of law provision would reduce the likelihood of a Delaware court reaching out to grab insurance coverage disputes and resolving them based on the strange and peculiar alchemy that the Delaware courts have been working in these kinds of disputes. A choice of law provision would also help avert the tactical maneuvering Stillwater tried to adopt here in order to try to take advantage of perceived advantages under the law of various jurisdictions.


Traditionally, both insurers and policyholders have avoided the inclusion of choice of law provisions in D&O insurance policies, preferring to preserve the room to maneuver later in the context of an actual dispute in order to try to argue that the law perceived to be the most advantageous applies. Delaware’s courts may have made this traditional approach obsolete.


I suspect strongly that the choice of law issue is going to become an increasingly important part of the D&O insurance dialogue in the months ahead. From my perspective, if there is going to be a choice of law provision, the preferred approach would be a provision stating that the law to be applied to any disputes under the policy is the law of the state identified in the first line of the Declarations page – that is, the law of the policyholder’s home jurisdiction.


For those readers interested in thinking more about choice of law issues in this context, I recommend taking the time to read the law article to which I linked in a recent post about these choice of law issues.


Special thanks to a loyal reader for sending me a copy of the opinion in the Stillwater coverage action.