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Superior Court Finds that Insurers Are Not Yet Obligated to Reimburse AT&T for Funds Used for Shareholder Settlement and Grants Insurers' Motions to Dismiss Claims For Reimbursement of Settlement

AT&T Wireless Services, Inc. v. Federal Ins. Co., 03C-12-232 WCC, 2006 WL 267135 (Del. Super. Ct. Jan. 31, 2006). In 2002 AT & T Wireless Services, Inc. ("AWS") merged with TeleCorp PSC, Inc. Following the merger the TeleCorp shareholders filed a derivative action alleging that the TeleCorp directors had breached their fiduciary duties. The Court of Chancery approved a settlement of $47.5 million. AWS filed an action in Superior Court seeking reimbursement from TeleCorp's insurance carries and its own primary insurer, Faraday Capital Limited ("Faraday"), and its excess insurer, National Union Fire Insurance Company ("National Union"). AWS voluntarily dismissed Faraday. Subsequently, pursuant to Rule 12(b)(6), the insurers moved to dismiss, and the court granted their motions to dismiss the claims relating to reimbursement for the settlement. However, the court denied TeleCorp's primary insurer's motion to dismiss the claim for defense costs. Because Faraday had been voluntarily dismissed, the court first considered whether National Union, AWS's excess carrier for directors and officer liability, was obligated to reimburse AWS. The National Union policy covered conduct performed as an officer or director of AWS. However, it contained an exclusion for contact performed for a separate business organization. Accordingly, the court found that the exclusion prevented coverage for AWS directors who were serving on the TeleCorp board. The court also considered whether TeleCorp's insurers were obligated to provide coverage. Federal Insurance Company ("Federal Insurance") acted as TeleCorp's primary insurer for directors and officers. The court determined that Federal Insurance was only obligated to pay if the Court of Chancery action established an obligation personal to an officer or director of TeleCorp. The court found it impossible to determine if the wrongful conduct was committed by the takeover company and the directors the takeover company controlled, or by unaffiliated directors who would be covered by the Federal Insurance policy. Without a finding as to the obligations of the individual officers and directors, it would be impossible for an insuring company to know the extent of its obligations. The court noted that AWS had preserved its cross claims and contribution claims, and it could now pursue those claims. Because the court found that Federal Insurance had no obligation to contribute to the settlement amount, it found that the excess insurers had no obligation. AWS also asserted a claim against Federal Insurance for the defense costs of defending the Court of Chancery action. Because Federal Insurance had an obligation to pay regardless of the outcome of the litigation, the court denied Federal Insurance's motion to dismiss. However, the court dismissed the claims against the excess insurers because they had no obligation to pay for defense costs until Federal Insurance's obligations were exhausted. Authored by: Jason C. Jowers 302-888-6860 jjowers@morrisjames.com Share

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