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Superior Court Reinforces Established Delaware Insurance Coverage Law that Settlement of a Claim for Less than Policy Limits Attaches to Excess Policies

Pfizer, Inc. v. U.S. Specialty Insurance Company, C.A. No. N18C-01-310 PRW CCLD (Del. Super. Aug. 28, 2020)
On cross-motions for summary judgment in a director and officer insurance coverage dispute, the Superior Court of Delaware, Complex Commercial Litigation Division, reaffirmed the Delaware principle, also known as a the Stargatt Rule, that a settlement of a policy between an insured and an insurer for less than the policy limit amounts to satisfaction of such policy. Thus, excess policies attach irrespective of whether the insured collected the full amount of the primary policies. 

The policy at issue contained an exhaustion clause providing that the policy shall not attach until policies lower in tower had been exhausted. Judge Paul R. Wallace rejected the insurer’s invitation to adopt the position followed other jurisdictions, such as California, that bars attachment to a higher level policy if that policy contains an exhaustion clause. The Court pointed out that established Delaware precedent has identified the position followed in states like California and specifically rejected it as inconsistent with Delaware law. In Delaware, so long as the loss was in excess of policy limits, a settlement for less than the policy limits still triggered the excess policy insurer’s obligations. Judge Wallace went on to note a “strong suggestion” under Delaware law that it would follow the Stargatt Rule even if the applicable policy contained an explicitly contrary clause. He reasoned that, under Delaware law, there is no business justification for an excess insurer to be concerned if the payment in satisfaction of the underlying policy was for the policy’s full dollar value so long as the protections afforded by all underlying insurance policies are extinguished and the excess insurer’s liability begins only at its own attachment point.       

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