In AT & T Corp. v. Clarendon American Insurance Co., et al., ( Del. Supr., July 2, 2007), read opinion here, the Delaware Supreme Court reversed a decision by the Superior Court on coverage claims that were denied by the trial court and the D & O carriers based on a definition of the term "loss". Because the court based its decision on California law, and this blog is focuses on Delaware law, I will only quote from the Supreme Court’s introductory summary of the case, and commend the reading of the whole case to the extent it provides insight into the court’s analysis in the event that a similar issue would be addressed in the future based on Delaware law. Here is the summary of the case from the court’s opinion:
AT&T Corp. (“AT&T”) appeals from a judgment of the Superior Court dismissing this action brought by AT&T against several insurance carriers (the “D&O insurers”).
Those carriers issued Director and Officer (“D&O”) policies insuring At Home Corporation (“At Home”) and At Home’s directors and officers. AT&T, as At Home’s largest shareholder, designated ten of its employees to serve as At Home directors.2 At Home later declared bankruptcy, and thereafter, AT&T and the At Home Directors were sued jointly and severally for billions of dollars in damages. Being insolvent, At Home could not indemnify the At Home Directors for any liability and litigation costs resulting from those lawsuits (the “Underlying Litigation”). Accordingly, the At Home Directors requested the D&O insurers to advance their defense costs. The D&O insurers refused, taking the position that the At Home Directors had not incurred a covered “Loss” under the D&O policies. The At Home Directors then turned to AT&T for assistance in paying defense costs, settlements and judgments in the Underlying Litigation. AT&T agreed to do so, in exchange for which the At Home Directors assigned to AT&T their breach of contract claims against the D&O insurers.AT&T then sued the D&O insurers in the Superior Court, both as assignee of its At Home director-employees, and as subrogee to those directors’ coverage claims against the D&O insurers for defense costs and indemnification relating to the Underlying Actions.3 The D&O insurers moved to dismiss AT&T’s amended complaint on the grounds (inter alia) that: (1) the At Home Directors had suffered no “Loss” needed to trigger the D&O coverage, and (2) AT&T could not prevail on its equitable subrogation claim, because when it indemnified the At Home Directors, AT&T acted as a “volunteer.” Applying California law, the Superior Court upheld both of the D&O insurers’ contentions and dismissed the complaint….[W]e reverse.