Gallup, Inc. v. Greenwich Insurance Company, N14C-02-136 FWW

Background

Greenwich insured Gallup under a management-liability policy (Jan 1, 2010–Jan 1, 2011) with a $15 million aggregate limit.
A qui tam suit (later joined by the DOJ) alleged Gallup overbilled federal agencies; Gallup settled with the government for $10.58 million without admitting liability.
Greenwich paid roughly $8.7 million toward defense but refused to pay the settlement and remaining defense costs, invoking a Fraud and Improper Profit Exclusion in the policy.
The Exclusion bars insurer payment where loss was “brought about or contributed to in fact by” fraud or improper profit “as determined by a final adjudication in the underlying action or in a separate action or proceeding.”
Gallup sued for declaratory relief and breach of contract; Greenwich counterclaimed seeking (V) a declaration that the Exclusion bars coverage (and (VI) reimbursement of defense costs it paid if Exclusion applies).
Gallup moved for summary judgment on Counts V and VI, arguing the Exclusion does not permit Greenwich to initiate a coverage action, Greenwich waived/failed to timely pursue the Exclusion, and Greenwich received privileged information that should preclude use of that information against Gallup.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether “a separate action or proceeding” in the Exclusion includes an insurer-initiated coverage action	Gallup: exclusions must be narrowly construed; phrase shouldn’t encompass an insurer suing its insured to prove fraud; insureds wouldn’t reasonably expect that	Greenwich: plain meaning controls; a coverage lawsuit is an independent "action or proceeding," and "a" can mean "any" so exclusion covers it	Court: The Exclusion is unambiguous; a coverage action is a “separate action or proceeding,” so insurer may sue to trigger the Exclusion
Whether Greenwich waived or is estopped from asserting the Exclusion by delaying or failing to reserve rights	Gallup: Greenwich had years and didn’t pursue Exclusion earlier; reservation letters didn’t preserve right to seek final adjudication via coverage suit; thus waiver/estoppel	Greenwich: timely and clear reservation-of-rights letters (including the Exclusion) were sent; Exclusion was maintained as an affirmative defense	Court: Greenwich timely and sufficiently reserved its right in multiple letters; no waiver or estoppel
Whether privileged/confidential information Gallup shared bars Greenwich from bringing a coverage action	Gallup: insurer should not be permitted to use privileged strategic info it received from insured to prosecute coverage action; that should preclude the action	Greenwich: Gallup cites no authority and points to no specific privileged item; hypothetical privilege does not bar suit	Court: Mere claim of privileged disclosures is insufficient to preclude a coverage action; Gulf's argument fails
Whether summary judgment for Gallup is appropriate on Counts V & VI	Gallup: As above, Exclusion cannot be triggered by insurer-initiated coverage action; thus Greenwich’s counterclaims fail as a matter of law	Greenwich: Exclusion allows coverage action; raised timely; factual issues remain as to whether fraud was proved (for later adjudication)	Court: Denied Gallup's motion; Exclusion permits insurer-initiated coverage action and Greenwich properly reserved its rights

Key Cases Cited

Merrill v. Crothall-Am., Inc., 606 A.2d 96 (Del. 1992) (summary-judgment standard in Delaware)
Brzoska v. Olson, 668 A.2d 1355 (Del. 1995) (burden-shifting on summary judgment)
Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192 (Del. 1992) (insurance-policy language construed to its plain meaning when unambiguous)
Eon Labs Mfg., Inc. v. Reliance Ins. Co., 756 A.2d 889 (Del. 2000) (applying general contract-interpretation principles to insurance policies)
Moller v. State Farm Mut. Auto. Ins. Co., 566 N.W.2d 382 (Neb. 1997) (definition of ambiguity under Nebraska law)