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Superior Court Orders Insurers to Pay Defense Costs to Sun-Times Media Group, Denies Insurers' Motion to Dismiss or Stay

Sun-Times Media Group, Inc. v. Royal & SunAlliance Ins. Co., C.A. No. 06C-11-108 RRC, 2007 WL 1811265 (Del. Super. Ct. June 20, 2007).

Sun-Times Media Group, Inc. v. Royal & SunAlliance Ins. Co., C.A. No. 06C-11-108 RRC, 2007 WL 1811266 (Del. Super. Ct. June 20, 2007).

This insurance coverage action is an offshoot of the highly publicized, allegedly fraudulent scheme devised by Lord Conrad Black and other inside directors of Plaintiff Sun-Times Media Group (formerly “Hollinger International”) to deceive the corporation and misappropriate hundreds of millions of dollars.

The plaintiffs claim to have incurred over $20 million in defense costs—and allege that they will incur nearly $20 million more—to defend themselves and their agents in multiple lawsuits resulting from this conduct, including a securities class action filed in Illinois (“Illinois Class Action”). Specifically, Plaintiff Sun-Times Media brought this action, seeking a declaration of coverage under its excess D&O insurance policies issued by the defendants. The plaintiffs argued that the defendants were obligated to pay those defense costs and had wrongfully refused to do so.

To this end, early in the litigation, Plaintiff Sun-Times Media moved for partial summary judgment, seeking a declaratory judgment that certain insurer defendants had a duty under applicable policies to pay past and future defense costs incurred in the Illinois Class Action. The defendants countered by moving to dismiss or stay the plaintiffs’ entire complaint, citing McWane and forum non conveniens. The court ruled on both motions, issuing separate opinions.

In Sun-Times Media Group, Inc. v. Royal & SunAlliance Ins. Co., C.A. No. 06C-11-108 RRC, 2007 WL 1811265 (Del. Super. Ct. June 20, 2007), the court granted the plaintiffs’ motion for partial summary judgment, holding that certain insurer defendants had a duty to pay defense costs in the Illinois Class Action. In so holding, the court stated that the personal conduct exclusions in the policy did not override the insurers’ present duty to advance defense costs unless the insurers could show unequivocally that all of the allegations in the Illinois Class Action complaint fell within the exclusions. Further, the court noted that there was not sufficient evidence at this stage to conclude that the actions of one inside director who plead guilty were definitely imputed to Sun-Times Media. And in any event, the court noted, the plain language of the policy guaranteeing an advancement of defense costs was not precluded by any of exclusions because the insurers could recover the advancement if it was later determined that Sun-Times was not entitled to it. 

In Sun-Times Media Group, Inc. v. Royal & SunAlliance Ins. Co., C.A. No. 06C-11-108 RRC, 2007 WL 1811266 (Del. Super. Ct. June 20, 2007), the court denied the defendants’ motion to dismiss or stay the entire action in favor of first-filed applications by Hollinger International and Lord Conrad Black in Canada. The Canadian court dismissed both applications for coverage as premature and noted that both Hollinger and Black could re-apply at a later time depending on the outcome of the underlying actions. The Superior Court observed that it could take years for a final resolution and therefore determined that the Canadian court could not deliver “prompt justice,” a requirement under McWane. Further, in considering the motion to dismiss or stay under the doctrine of forum non conveniens, the court examined the Cryo-Maid factors and found them to weigh against dismissal. The court appeared to give particular weight to two factors: (1) that discovery in Canada would be more limited than in Delaware and (2) that Delaware has a significant interest in making available to litigants a neutral forum to resolve commercial disputes against Delaware entities, even where the dispute involves foreign law and conduct centered in the foreign jurisdiction.

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