Delaware Business Litigation Report

Delaware Court of Chancery Holds That Scope of Director and Officer Indemnification Under D&O Policy Is Within Exclusive Jurisdiction Of The Delaware Superior Court

Ernesto Rodriguez et al. v. Great American Insurance Company, C.A. No. 2020-0387-JRS (Del. Ch. Oct. 20, 2021)
The Court of Chancery’s subject matter jurisdiction is limited, and arises in three circumstances: (1) the complaint asserts an equitable claim; (2) the complaint seeks an equitable remedy and there is no adequate remedy at law; or (3) jurisdiction is vested in the Court of Chancery by statute. In this recent decision, the Court of Chancery held that its limited subject matter jurisdiction did not extend to determine the scope of a Delaware corporation’s directors and officers (D&O) insurance policy.

Plaintiffs obtained a default judgment against a corporation and its directors in an earlier case alleging breach of fiduciary duty. Plaintiffs were unsuccessful in enforcing the judgment. Plaintiffs then filed a new complaint seeking to recover their judgment against a D&O policy issued by the Defendant-Insurer

In considering the Defendant’s motion to dismiss, the Court raised, sua sponte, whether it had subject matter jurisdiction over the claim. The Defendant argued that the Court of Chancery had subject matter jurisdiction under Sections 145(k) and (g) of the DGCL, the former granting plenary authority to the Court over disputes related to director and officer indemnification, and the latter permitting corporations to purchase D&O policies on behalf of officers and directors. Relying on an earlier case where a similar argument was made (i.e., Massachusetts Mutual Life Insurance Co. v. Certain Underwriters at Lloyd’s of London) (Del. Ch. 2010)), the Court found that Section 145(g) does not grant the Court of Chancery the authority to resolve D&O coverage disputes. Instead, D&O coverage disputes are a breach of contract actions within the exclusive jurisdiction of the Delaware Superior Court. The Court also rejected Plaintiff’s argument for retaining jurisdiction over the claim under the clean-up doctrine; although the prior action had equitable claims, there were no such equitable claims here. 

Accordingly, the Court dismissed this action for lack of subject matter jurisdiction.

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