One of the hotly contested issues in recent years has been whether or not there is D&O insurance coverage for shareholder appraisal actions. In a recent decision that was largely focused on choice of law issues, the Delaware Supreme Court affirmed the trial court’s dismissal of a policyholder’s action to try to obtain coverage for defense costs incurred in an underlying shareholder appraisal action. Though the insurers prevailed in this coverage dispute, the Court’s holding on the choice of law issues could have ominous implications for insurers’ prospects in future coverage disputes, as discussed below. The Delaware Supreme Court’s January 10, 2023, opinion in the Stillwater Mining Company coverage dispute can be found here.

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 shareholders filed appraisal actions in Delaware Chancery Court seeking “fair value” for their shares in connection with the Sibanye acquisition. 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 Insurance Coverage Dispute

At the relevant time, Stillwater maintained a program of D&O insurance, consisting of a layer of primary D&O insurance and multiple 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.” The excess insurers also disclaimed coverage.

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.

Developments in 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 view of the Superior Court’s ruling in Solera, Stillwater contended (“taking advantage of the trial court’s favorable ruling,” as the Supreme Court put it in its subsequent opinion) in its complaint in its dispute with its D&O insurers that Delaware law applied to the coverage dispute, arguing further that “Delaware has a strong interest in the application of its principles of corporate law and governance” to D&O insurance coverage issues.

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.

Further Proceedings in the Stillwater Coverage Dispute

After the Supreme Court’s opinion in the Solera coverage action, Stillwater, as the Supreme Court put it in its subsequent opinion in the Stillwater action, “reversed position and claimed that Montana law applies to the policies.” In order to try to provide justification for the switch, Stillwater filed an amended complaint in which it sought to try to recharacterize its claims as based on the duty to advance defense costs and violation of Montana statutory provisions relating to claims handling. Separately and alternatively, Stillwater also sought to have its Delaware action stayed in order to pursue a separate action the company filed in Montana. The insurers filed a motion to dismiss Stillwater’s amended complaint, arguing that Delaware law controlled and that under the Supreme Court’s decision in Solera, there was no coverage under the D&O insurance policies for the underlying claim.

As discussed here, on December 22, 2021, Delaware Superior Court Judge Abigail LeGrow (the same Judge that had initially ruled in favor of Solera and whose opinion the Delaware Supreme Court subsequently reversed) entered an opinion granting the defendant insurer’s 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. Stillwater filed an appeal.

The Supreme Court’s Opinion in the Stillwater Coverage Dispute

In a January 12, 2023, opinion written by Chief Justice Collins J. Seitz, Jr. for a unanimous three-judge panel, the Delaware Supreme Court affirmed the Superior Court’s ruling.

In opening its analysis, the Supreme Court signaled from the outset that Stillwater’s appeal was in trouble. The Court said “as an initial matter, it is important to keep in mind how Stillwater’s claims and positions have shifted over time.” The Supreme Court noted that the Superior Court had “expressed discomfort with Stillwater’s change of position,” adding that “We have the same concern.”

As had the Superior Court below, the Supreme Court applied the “most significant relationship test” from the Second Restatement of Conflict of Laws to determine that Montana, the jurisdiction whose laws Stillwater now argued controlled the parties dispute, “does not have a stronger relative interest in this case than Delaware.” In reaching this conclusion, the Court rejected Stillwater’s arguments that Montana had a more significant relationship because Stillwater’s headquarters were located in that state, or that Stillwater’s re-characterization of its  claims made Montana law more relevant and applicable than Delaware law. In the end, the Supreme Court concluded that the Stillwater’s place of incorporation – that is, Delaware – was the most significant and determinative relationship.


As I noted at the time when the Superior Court entered its opinion in this coverage dispute, It was always going to be tough for Stillwater to convince the Delaware courts that Montana law really did control the parties’ coverage dispute, after having first taken the position at the outset that Delaware law applied.

When Stillwater initially filed its coverage complaint, taking the position that Delaware law controlled looked like a winning position, given 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 shift to try to argue that Montana law in fact applied. Stillwater’s tactical shift put the company in an uncomfortable position; the Supreme Court, like Judge LeGrow at the trial court level, clearly bridled at the company’s attempt to switch its position.

As I raised in my discussion of the Superior Court’s opinion in this coverage dispute, the Delaware Supreme Court in this case nominally applied the “most significant relationship test” to determine the question of the applicable law; however, while nominally assessing the relationship of the parties and their dispute to the question of coverage under the contracts of insurance, the Court in fact held that Delaware as the place of incorporation is the outcome determinative factor in determining the applicable law. The Court gave little or no weight to the other traditional factors – such as the place of contract, the place of negotiation, 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 one at that.

In my view the Delaware courts’ analysis of these issues improperly conflates unrelated issues. Delaware’s courts in effect say that because Delaware law controls the underlying corporate liability issues, Delaware law should also control the contract law governing the insurance, even though the insurance contract’s negotiation, placement, and enforcement are separate legal functions undertaken by separate persons at separate times and under separate circumstances. There is no compelling reason why just because Delaware governs the liability dispute that Delaware has to govern the separate contract law issues.

To be sure, Delaware’s courts do explain their view of these issues by saying that “Delaware has a strong interest in disputes involving D&O insurance coverage.” For insurers engaged in coverage disputes involving Delaware corporations, this principle has what I have called 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 insurers lose, notwithstanding decades of case decisions under the laws of other jurisdictions interpreting the insurance provisions in dispute.

Observers will undoubtedly point out that, in fact, the insurers not only won in this case involving Stillwater, but that the insurers also won on appeal in the Solera case. That is undeniably true. But as I put it in discussing the Superior Court’s decision in this case, “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 future unhappiness in future coverage litigation in Delaware’s courts.”

There is one aspect of the Supreme Court’s decision that is worth further consideration in connection with these choice of law issues. The Court emphasized that the “most significant relationship test” applies only when the parties have not included a choice of law provision in their insurance contracts. The Court’s opinion does pose the question for D&O insurers of whether the time has come for D&O insurance policies to start including choice of law (or even choice of forum) provisions.

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. It could be argued that Delaware’s court have made this traditional approach obsolete.

It is true that I have previously predicted that choice of law could become a more important issue for insurers, and except as an abstract or theoretical matter for discussion, choice of law provisions have not yet become a standard feature of D&O insurance policies. The outcome of this case may not in and of itself spur further discussion of these issues; after all, the insurers won in this case. Just the same, I suspect that this issue is not going to go away.

For my money, if insurers are going to try to start including choice of law provision in their policies, my preferred wording would be for the policies to provide 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.

Readers interested in a more detailed consideration of the choice of law issues will want to refer to my earlier post on the topic, here.

Special thanks to a loyal reader for providing me with a copy of the Supreme Court’s Stillwater opinion.