Frank Reynolds, who has been covering Delaware corporate decisions for various national publications for over 40 years, wrote this article.
The full Delaware Supreme Court recently ruled that the federal Employee Retirement Income Act of 1974 does not automatically bar the managers of an investment fund from accessing ERISA assets to defend themselves from state law breach of duty claims in Invictus Global Management, LLC, et al. v. Invictus Special Situations Master I, L.P., Del. Supr., No. 283, 2025 (April 13, 2026).
Justice Karen Valihura’s April 13 opinion on behalf of the en banc Delaware high court agreed with the appellant fiduciaries that (1) the requested advancement for state-law claims, which is subject to recoupment, would not necessarily relieve ERISA fiduciary duty or responsibility and (2) that advancement is not contingent on a showing of ability to repay under either the fund’s governing documents or ERISA. Therefore, advancement would not always impermissibly relieve the fund fiduciaries’ duty under ERISA, the high court ruled.
Importantly for D&O insurance and indemnification specialists, the justices pointed to a U.S. Ninth Circuit Court of Appeals opinion in Johnson v. Couturier 572 F.3d 1067, 1080 (9th Cir. 2009), as to when “advancement may be enjoined under section 410 if (i) there is a likelihood that a fiduciary duty was breached or (ii) the ERISA fiduciary is unable to demonstrate an ability to repay.”
Any deliberate wrongful acts or gross negligence?
The justices noted that the Ninth Circuit’s decision in Johnson relied on a determination that the indemnification provisions were likely void under section 1110 if they “clearly ‘purport to relieve’ Defendants from their fiduciary responsibilities under ERISA.” In that ruling, the Ninth Circuit noted that the indemnification provisions “provide[d] complete indemnity so long as the challenged acts or omissions d[id] not involve deliberate wrongful acts or gross negligence.
The prudent man standard
The Ninth Circuit determined that the indemnification agreements effectively limit Defendants’ liability under ERISA, “ so long as they do not engage in deliberate violations of the ERISA ‘prudent man’ standard of care.”
Background
Plaintiff Invictus Special Situations Master I, L.P. was a privately held fund formed to make and hold investments from ERISA. Defendants-appellants are Invictus Global Management, LLC and Invictus Special Situations I GP, LLC and various individuals associated with them collectively accused of misusing their positions.
In October 2023, the Fund’s controlling limited partners removed Invictus GP and IGM as the Fund’s general partner and management company, respectively, and filed this action for wrongful acts or gross negligence. The Fund sought injunctive and declaratory relief, claiming defendants breached the Partnership Agreement and Management Agreement by withholding information — and approximately $10 million in Fund assets after the Fund removed Invictus GP and IGM as its general partner and management company.
The Chancery decision
The Court of Chancery determined that, based on federal case law and United States Department of Labor guidance, section 1110 renders void any contractual provision that purports to allow an ERISA-regulated plan to indemnify and advance funds to an ERISA fiduciary using plan assets. The fiduciaries argued that canceled out the right to advancement that Delaware law provided them.
Reversed on appeal
On appeal, the Fund argued that both indemnification and advancement have the exculpatory effect of “abrogating the plan’s right to recovery from the fiduciary for breaches of fiduciary obligations.”
The fiduciaries contended that, “While the rights to indemnification and advancement are correlative, they are still discrete and independent rights, with the latter having a much narrower scope,” but “the ultimate right to keep payments characterized as an ‘advancement’ depends upon whether the former corporate official is entitled to indemnification.”
The high court ruled that, “Any breach of fiduciary duties under ERISA, including breaches of the prudent person standard and per se violations, would constitute non-indemnifiable Disabling Conduct. Thus, the Fund retains the right to recover from Defendants for any ERISA fiduciary duty breaches.”
“The parties have not cited any decision of any court that has applied the relevant provisions of ERISA to bar advancement for expenses incurred in defending claims arising under state law,” the Supreme Court noted.