As I have frequently noted on this site, Delaware’s courts have a well-earned reputation for being policyholder friendly. Accordingly, policyholders aiming to sue their insurers frequently seek to file their coverage lawsuits in Delaware. However, a recent ruling in a coverage dispute, in which the Delaware Superior Court concluded it lacked personal jurisdiction over two of the defendant insurers, underscores the fact that there are limits on the circumstances on which insurers can hauled into Delaware’s courts. The Delaware Superior Court’s February 19, 2025, opinion in the case can be found here. A February 27, 2025 LinkedIn post by Paul Curley of the Kaufman, Borgheest & Ryan law firm about the court’s ruling can be found here.

Background

Varsity Brands Holding Co. LLC and two related entities sponsor competitive cheerleading competitions. One of the three entities is a Delaware LLC. The other two entities are not based in or organized under the laws of Delaware.

In August 2022, the Varsity entities were sued in South Carolina by several former adolescent cheer athletes asserting claims of sexual abuse that allegedly occurred when the athletes were minors. Several other lawsuits in other jurisdictions followed. The underlying litigation ultimately entered mediation, which resulted in certain conditional settlements. Varsity sought insurance coverage from various of its CGL and EPL carriers for the settlements. The insurers took the position that the claims are excluded from coverage under their policies. The Varsity entities sued the insurers in Delaware Superior Court alleging, among other things, breach of contract and bad faith.

The various insurers filed motions to dismiss. Two of the insurers separately filed motions to dismiss on the grounds that the Delaware court lacked personal jurisdiction. The various other insurers moved to dismiss on other grounds, not discussed in this blog post.

The February 19, 2025, Order

In a detailed February 19, 2025, order, Delaware Superior Court Judge Meghan Adams granted the two insurers’ motion to dismiss the suit against them on personal jurisdiction grounds. Judge Adams held that, while the two insurers are subject to the provisions of Delaware’s long-arm statute, an exercise of personal jurisdiction over them would violate their due process rights.

With respect to the long-arm statute, Judge Adams held that “plain language” of the long-arm statute authorizes personal jurisdiction over non-resident insurers who provide insurance to a Delaware entity, so long as their due process rights were not violated.

However, the Due Process clause of the 14^th Amendment limits the personal jurisdiction of state courts. Under these principals, a nonresident must have “sufficient minimum contacts with the forum state so as not to offend traditional notions of fair play and substantial justice.” Recent U.S. Supreme Court jurisprudence, cited by the Delaware court, holds that the minimum contacts must be made with the forum state itself, not a forum state’s resident. For the state to exercise jurisdiction over a defendant, the relevant lawsuit must arise out of or relate to the defendant’s contacts with the forum state.

Judge Adams noted that while the insurers are authorized to sell or write insurance in Delaware, that alone is not sufficient. This action, the court said, is not “sufficiently related” to the insurers’ connections to Delaware.

The policies at issue were negotiated and executed outside of Delaware. The harm alleged in the underlying lawsuits did not occur in Delaware and the policyholder’s underlying liability did not result from a Delaware case.

“In other words,” the court said, “no affiliation exists between the insurance policies and Delaware.” Thus, while Delaware’s long-arm statute might otherwise authorize the exercise of personal jurisdiction over the defendants, “the exercise of personal jurisdiction would offend due process.” The court granted the two insurers’ dismissal motion.

Discussion

The court’s personal jurisdiction analysis could have significant implications for insurers concerned about being hauled into coverage litigation in Delaware’s courts. Given Delaware’s reputation as a policyholder-friendly forum, policyholders involved in a coverage dispute with their insurers may seek to sue their insurers in Delaware’s courts. But as Judge Adams held in this case, there are limits on when non-resident insurers can be hauled into Delaware court.

I should emphasize that whether or not a case goes forward in a Delaware court could be outcome determinative. One of the many ways Delaware courts favor policyholders is through the application of Delaware choice of law principles, which have a heavy predisposition that Delaware law should govern the insurance dispute, with Delaware law heavily favoring policyholders. Other forums, applying more traditional choice of law principles, might well conclude that a different jurisdiction’s law should govern (for example, the law of the place of contract, rather than the law of the jurisdiction where the policyholder is incorporated), with significant implications for the ultimate outcome of the dispute.

To be sure, there were a number of key factors that led the court to conclude that due process concerns constrained the exercise of personal jurisdiction over the defendant insurers here. The key factors were that the contract was entered outside of Delaware, the harm occurred outside Delaware, and the underlying litigation was pending outside of Delaware. Moreover, only one of the three policyholder entities was a Delaware entity.

Whether or not non-resident insurers in another context could argue that they cannot be subject to personal jurisdiction in a Delaware court is going to be subject to the consideration of similar factors. There are going to be some circumstances where due process considerations will allow the court  to exercise personal jurisdiction over non-resident insurers, and other circumstances where due process will not allow the exercise of personal jurisdiction. It is going to depend on the circumstances.

But even though in the end the analysis will depend on the circumstances, it may be of keen interest to non-resident insurers that there could be circumstances where they can contend they are not subject to the personal jurisdiction of Delaware’s courts.

Of course, all of these considerations are beside the point if the policy contains a forum selection provision. It is worth noting that forum selection provisions are standard in just about every kind of commercial contract, but (at least in the U.S.) remain relatively rare in insurance contracts. Why that is so is a topic for discussion on another day.

PLUS D&O Symposium: On Tuesday, March 4, 2025, and Wednesday March 5, 2025, I will be in New York for the annual PLUS D&O Symposium. If you are a D&O Diary reader and you are going to be at the D&O Symposium, I hope you will say hello if you see me there, particularly if we have not met before. I always enjoy a chance to talk to The D&O Diary’s readers.