We have written over the past year about a string of pro-policyholder decisions from Delaware courts. One policyholder, however, recently had its claims dismissed based on application of Delaware law, based on one of 2020’s important D&O cases that limited coverage for appraisal actions initiated by stockholders pursuant to Title 8, Section 262 of the Delaware Code. In Stillwater Mining Co. v. National Union, the Delaware Superior Court explained that Stillwater had seized upon the Court’s 2019 opinion in Solera Holdings v. XL Specialty, which had held that a Section 262 appraisal action constituted a “securities claim” because it alleged a “violation” of state statutory or common law regulating securities. The policyholder alleged in its complaint that Delaware law governed the D&O policy, but when the Delaware Supreme Court reversed Solera, Stillwater “pivoted” to the view that Montana law, rather than Delaware law, governed the policy.

Judge LeGrow’s comprehensive opinion concludes that, even if the policyholder were not bound by its previous representations to the court, controlling Delaware law and analysis of Delaware’s conflicts of law test under the Restatement compelled that Stillwater’s claim was governed by Delaware law. As a result, under Solera, Stillwater’s D&O claim for a stock appraisal action under Section 262 was barred.

We have discussed previously how Solera continues to pose hurdles for policyholders attempting to secure securities-related D&O coverage under Delaware law but that the result will not necessarily be followed in other jurisdictions evaluating similar coverage questions, whether based on different allegations, policy language, or governing law. However, the availability and scope of potential appraisal action coverage will again be assessed in Delaware next month in Jarden LLC v. Ace American Insurance, when the Delaware Supreme Court will hear arguments from another policyholder attempting to overturn a July 2021 decision rejecting D&O coverage for a $177 million appraisal award.

That decision, also by Judge LeGrow, held that the appraisal action was a claim “for a Wrongful Act,” based on statements by the policyholder at oral argument that “for” as used in D&O policies had the more restrictive meaning put forth by the insurers. Giving the term “for” the meaning “the parties jointly ascribe to it,” the court found that the appraisal action was not covered. On appeal, however, the Delaware Supreme Court will need to address key policy differences, including in the insuring agreement’s “wrongful act” requirements, that distinguish the case from Solera. Policyholders and insurers alike will closely watch the Jarden case to assess whether Solera is as restrictive on coverage for Delaware appraisal actions as it seems.

Finally, the Stillwater ruling is a reminder that, even though the recent trend in Delaware continues to favor policyholders on many critical issues, the current pro-policyholder view is not a blanket rule. As with all D&O claims, policyholders must continue to carefully weigh the governing policy language, underlying facts, and law that may impact choice of law in any given coverage dispute and not operate under the assumption that Delaware will be preferable to other possible forums’ law.

This is especially true in light of the seminal Dole decision in which the Delaware Supreme Court placed great weight on state of incorporation in D&O claims, finding that the state of incorporation is “the center of gravity of the typical D&O policy.” But even where a company is incorporated in Delaware, Delaware courts still may weigh the Restatement factors on a case-by-case basis, considering the specific allegations of the litigation at issue, like the court did in Stillwater.