Delaware Business Litigation Report

Delaware Supreme Court Reverses Superior Court and Finds that Defendant Became an "Insured" for Purposes of 18 Del. C. § 4211(2)(a) by Operation of Law after Named Insured Merged Into Defendant

Delaware Ins. Guar. Ass'n v. Christiana Care Health Services, Inc., No. 244, 2005, 2006 WL 196382 (Del. Jan. 24, 2006). The Delaware Insurance Guaranty Association ("DIGA") sought reimbursement from Christiana Care Health Services ("CCHS") pursuant to one of the Delaware Insurance Guaranty Association Act's provisions for claims paid on behalf of an insolvent insurer. In this case the insolvent insurer had insured a corporation that merged into CCHS. The Superior Court granted CCHS's motion for summary judgment, finding that CCHS was not an "insured" under the insurance policy. Reversing the lower court, the Delaware Supreme Court found that a court must consider the purpose and intent of 18 Del. C. § 4211 when determining if a company is an "insured." A court may not rely on terms in an insurance policy that are inconsistent with the purpose and intent of Section 4211. The Supreme Court found that CCHS became an insured after the named insured merged into the defendant, and CCHS is obligated to reimburse DIGA pursuant to Section 4211. In 1995, Riverside Health Care Corp. ("Riverside") and Osteopathic Hospital Assoc, a subsidiary of Riverside, merged into The Medical Center of Delaware, Inc., which later became CCHS. Prior to the merger, an employee of Osteopathic Hospital Assoc. sustained a work related injury. Initially, Riverside's workman's compensation insurer paid the employee's benefits. However, the insurer later became insolvent, and DIGA assumed the insolvent insurer's rights and responsibilities. On appeal, DIGA argued that pursuant to Section 4211(a)(2) it could recover the money paid out on behalf of any insured whose net worth on December 31 of the year preceding the year the insurer became insolvent exceeds $25 million and whose liability to other persons are satisfied in whole or in part. Furthermore, DIGA argued that the merger caused CCHS to become an "insured." Relying in part on the General Assembly's intent to protect to the public against insolvent insurers while spreading the risk-of-loss to entities able to absorb the cost, the Supreme Court liberally construed Section 4211 to include CCHS as an insured. Furthermore, the Court determined that a merger does not allow a predecessor corporation to avoid its pre-merger obligations and liabilities. Accordingly, because CCHS was an insured whose net worth exceeded $25 million in the year preceding the insolvency, CCHS was obligated to reimburse DIGA. Authored by: Jason C. Jowers 302-888-6860 jjowers@morrisjames.com Share