HNRK Coverage Corner

Insurance law is generally a matter of state law.  Determining the applicable state law can be outcome determinative in a coverage dispute, as different states have different rules concerning the interpretation and enforcement of policy provisions, what claims the insured can bring, and other issues.  As previously noted on this blog, insurance policies frequently have no choice of law provisions, so the applicable law must be determined under a conflicts of law analysis.  Under New York law, where an insurance policy covers risks across multiple states (a common scenario for a large business), the insured’s principal place of business is frequently considered a proxy for the “principal location of the insured risk.”  In the context of D&O coverage, the Delaware courts take a different approach—applying Delaware law to D&O policies if the insured is incorporated in Delaware, even if the insured’s business operations are in another state.

In Stillwater Mining Company v. National Union Fire Ins. Co. of Pittsburgh, Pa., C.A. No. N20C-04-190, the Delaware Supreme Court applied this choice of law rule to a D&O coverage dispute involving a Montana-based mining company incorporated in Delaware.  The choice of law was a dispositive issue because the insured’s theory of recovery—coverage by estoppel—was recognized by Montana but not Delaware law.  The Court explained: 

In [RSUI Indem. Co. v.] Murdock, [248 A.3d 887 (Del. 2021),] we . . . found that Delaware has strong interests at stake for D&O policies issued to Delaware corporations.  We held “the state of incorporation is the center of gravity of the typical D&O policy” and the California contacts, where the insured was headquartered, were insufficient to tip the balance away from Delaware.  Specifically, we found that 8 Del. C. § 145 intended to permit “Delaware corporations to provide broad indemnification and advancement rights to their directors and officers and to purchase D&O policies to protect them even where indemnification is unavailable,” and that applying “Delaware law to the D&O policies that actually cover those costs advances the relevant policies of the form.”

In [Certain Underwriters at Lloyds v.] Chemtura [Corp. (Del. 2017), 160 A.3d 457], we reversed the trial court’s decision when it applied, on a claim-by-claim basis, different states’ law depending on where environmental claims arose.  We found a claim-by-claim review frustrated the intent of “comprehensive insurance programs to have a single interpretive approach utilizing a single body of law.  We reiterated in Murdock that when the policies were “part of a comprehensive insurance program addressing risks across corporate operations in multiple jurisdictions, the selection of a single interpretive approach, i.e., one state, as opposed to many, whose law would apply with regard to where a claim arose, would best serve the parties’ expectations.

The Court proceeded to reject each of the insured’s arguments for distinguishing Murdock:

• The insured “stress[ed] the company’s connections to Montana,” but the Court concluded that “those connections are essentially the same as those that came up short in Murdock.”

• The policies had Montana amendatory endorsements, one of which stated that the policy “conform[s] to the minimum requirements of Montana law.”  Yet “Delaware courts have declined to give those provisions dispositive weight in a conflict of laws analysis.”

Finally, the Court rejected the insured’s argument that Delaware did not have a strong interest in this case because the insured’s argument was not about policy interpretation, but rather conduct in the claims-handling process, allegedly giving rise to a claim of coverage by estoppel.