HNRK Coverage Corner

On May 9, 2024, Judge Rennie of the Delaware Superior Court issued a decision in Origis USA LLC v. Great Am. Ins. Co., Case No. N23C-07-102, holding that an insured’s coverage action against its D&O insurers was premature in light of the policy’s “No Action” clause.

The insured’s primary policy (to which three excess insurers followed form) states:

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.

Although the insured and its insurers had an actionable dispute over coverage, the condition set forth in the No Action” clause was not met, as “the Insured’s obligation to pay” was not yet “finally determined by an adjudication against the Insured”—the underlying litigation is still ongoing. The court acknowledged the “hardship that delayed relief might impose” but ultimately determined that any such concerns could not overcome Delaware’s strong public policy in favor of freedom of contract, noting that “in Delaware, parties have a right to enter into good and bad contracts, the law enforces both, and the “Court’s reluctance to relieve a party of its voluntary arrangements is especially strong when a sophisticated party, like the ones here, asks for such relief.”

The Court points out that “[t]he No Action clause does not permanently deprive Plaintiffs of any right.  Instead, Plaintiff’s ability to seek a remedy is simply deferred until there is certainly as to the Plaintiffs’ losses.” That is true so far as it goes. But timing is important. An insured unable to seek interim relief to enforce the duty advance defense costs would be at a distinct disadvantage. Similarly, settlement negotiations could be impacted by the inability to resolve coverage disputes before the resolution of the underlying proceeding. Insureds would be well-advised to check for, and to consider renegotiating, such provisions in their policies.