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Superior Court CCLD Determines D&O Insurance Policy Does not Cover Defense Costs in Statutory Appraisal Proceeding

MPM Holdings, Inc. v. Federal Ins. Co., C.A. No. N20C-07-014 MMJ CCLD (Del. Super. Ct. Mar. 17, 2022)
In recent years, the Delaware Supreme Court has pointed out that directors and officers liability insurance might not cover defense costs in statutory appraisal proceedings.  In In re Solera Insurance Coverage Appeals, 240 A.3d 1121 (Del. 2020), the Supreme Court held that an appraisal action is not a securities claim because it does not involve a violation of the law.  Subsequently, the Supreme Court affirmed a Superior Court decision that an appraisal action is not based on a wrongful act, but rather is a creature of statute and neutral in nature.  Jarden, LLC v. ACE American Ins. Co., 2021 WL 3280495 (Del. Super. Ct.), aff'd sub nom. Jarden LLC v. ACE American Ins. Co., 2022 WL 618962 (Del.).

In this case, the plaintiff-insured sought insurance coverage for an appraisal proceeding on the basis of policy language referencing a “wrongful act.”  The Superior Court relied on the ruling in Jarden to find that an appraisal proceeding is not based on a wrongful act, and thus, did not trigger coverage under the terms of the policy.  The Superior Court reasoned that while an appraisal petitioner may argue that the deal process was deficient to persuade the Court of Chancery to give little or no weight to the deal price in an appraisal proceeding, such an argument does not convert an appraisal proceeding into an action based on a wrongful act.

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