HLTH Corp. v. Agricultural Excess & Surplus Ins. Co., No. 07C-09-102 RRC, 2008 WL 3413327 (Del. Super. Ct. July 31, 2008) (Cooch)
Where a group of officers and directors were indicted and entered “not guilty” pleas, the court found that a D&O policy was required to defend. The pertinent clause of the Syntec policy stated:
[T]he Insurer shall advance, at the written request of the Insured, Defense Costs prior to the final disposition of a Claim. Such advanced payments by the Insurer shall be repaid to the Insurer by the Insureds or the Company severally according to their respective interests, in the event and to the extent that the Insured or the Company shall not be entitled under the terms and conditions of this policy to payment of such Loss.
Id. at *3.
Since the company was indemnifying the officers and directors, it fell within the provisions of this section in terms of being entitled to immediate reimbursement of defense fees.
The defendants proposed an allocation scheme – 63% to the MMC tower, 23% to the Synetic tower, and 14% to the Emdeon tower – based upon their contentions that “Plaintiffs ‘acquired an entity [i.e. Synetic f/k/a MMC] that was underinsured’ and ‘may not lawfully shift this uninsured liability to other insurance towers’ because the applicable tower of coverage has been exhausted.” Id. at *7.
The court noted that the Insurers could have included an allocation requirement in their contracts that would require allocation before any defense fees be paid but that none existed. Each of the cases requiring allocation followed New Jersey law that mandated apportionment between covered and noncovered claims.
Even these authorities, in the court’s view, would not require apportionment based on which overt acts occurred within which of the alleged different towers’ coverage periods, especially as the court noted that the Department of Justice was amending its acquisition chart to identify distinct overt acts though lack of judicial economy in the Insureds’ proposed allocation scheme was manifest.
The court concluded:
[The insured] was entitled to the full benefit of the duty to defend which [the insurer] owed him, and to limit the value of that benefit by reducing the amount which was actually expended in defending the counterclaim [which was covered by insurance], because it overlapped the steps taken in prosecuting the complaint [which was uncovered], would deprive plaintiff of that full benefit.
Id. at *13.
Finding a New York decision on point, it adopted its reasoning, citing The Trustees of Princeton University v. National Union Fire Ins. Co. of Pittsburgh, Pa., 2008 WL 2277830 (N.Y. App. Div. 1st Dept. June 5, 2008) for its view that:
“As the policy obligates [the insurer] to advance all defense costs as they are incurred, subject to a right of recoupment of payment for noncovered costs after the underlying litigation is completed, the court had no obligation at this juncture to rule on the allocation of defense expenses.”
Id. at *14.
A survey of national authority evidences that the majority trend permits reimbursement for fees incurred in connection with prosecution of a complaint where they dove-tail with those essential to defend a counterclaim. See Adobe Systems, Inc. v. St. Paul Fire & Marine Ins. Co., No. C 07-00385 JSW, 2007 WL 3256492, at *9 (N.D. Cal. Nov. 5, 2007).
