HNRK Coverage Corner

This week at the Coverage Corner, we return with an update on a Delaware case about which we’ve written previously.  In Origis USA LLC v. Great Am. Ins. Co., Case No. N23C-07-102, the Delaware Superior Court held that because the primary policy had a “No Action” clause, the insureds’ suit against their D&O insurers for advancement of defense costs was premature as long as the underlying litigation was ongoing.  We wrote about that decision here.

In July, the Delaware Supreme Court remanded the case for further consideration in light of what it said were arguments from the parties that “continued to shift and evolve on appeal.”  In particular, the Supreme Court focused on whether the No Action clause could be read with a separate policy provision, which the insureds argued imposed an obligation on the D&O Insurers to advance costs to defend ongoing litigation. 

The “No Action” clause had the following language: 

With respect to any Liability Coverage Part, no action shall be taken against the Insurer unless, as a condition precedent thereto, there has been full compliance with all the terms of this Policy, and until the Insured’s obligation to pay has been finally determined by an adjudication against the Insured or by a written agreement of the Insured, claimant and the Insurer.

A different policy term, the “Advancement Provision,” mandated that, under certain circumstances, the insurer “shall” advance at least a portion of the insured’s defense costs before “final disposition” of the underlying case.  The Advancement Provision’s relevant language was: “upon written request, the Insurer shall advance Costs of Defense in any Claim prior to its final disposition, provided such Claim is covered by this Policy[,]” and that “[a]ny advancement shall be on the condition that:

(c) The Insurers and the Insurer have agreed upon the allocated portion of the Costs of Defense attributable to covered Claims against the Insureds; provided, however, if there is no agreement on an allocation of Costs of Defense, the Insurer shall advance Costs of Defense which the Insurer believes to be covered under this Policy until a different allocation is negotiated, arbitrated or judicially determined[.]

The Supreme Court found that, given the parties’ evolving arguments, it was not clear the extent to which the Superior Court considered whether the insurers’ position on the No Action clause—that a claim for coverage is premature while the underlying litigation was ongoing—would render the Advancement Provision a nullity.  The Supreme Court suggested that, on remand, the parties address the interplay of these policy terms in more detail.

In a separate holding, the Supreme Court affirmed the Superior Court’s decision that there was no coverage under policies from a later policy year.   The Court held that there had not been a “Claim” for coverage under these policies and, even if there had been, coverage would be barred by the Prior Acts Exclusion.