222 A.3d 566
Del.2019Background
- In 2006 Verizon spun off its directories business into Idearc, which launched highly leveraged and later filed bankruptcy; Verizon purchased Runoff Directors & Officers policies (primary by Illinois National and follow-form excesss) covering certain claims exceeding a retention.
- The policies’ Endorsement No. 7 provided 100% coverage for Losses "in connection with any Securities Claim," where "Securities Claim" was defined to include a claim alleging a violation of "any federal, state, local or foreign regulation, rule or statute regulating securities (including, but not limited to, the purchase or sale...)."
- A bankruptcy litigation trustee (U.S. Bank) sued Verizon and others for $14 billion alleging breaches of fiduciary duty, unlawful dividends under Delaware law, fraudulent transfer claims, unjust enrichment and alter-ego liability; Verizon incurred >$48M in defense costs and sought coverage.
- Insurers denied coverage asserting the U.S. Bank complaint was not a Securities Claim; the Delaware Superior Court found the definition ambiguous, relied on extrinsic evidence, construed it broadly, and granted summary judgment to Verizon.
- The Delaware Supreme Court reversed: it held the Securities Claim definition unambiguous, read the qualifier "regulating securities" to limit coverage to statutes, rules, or regulations specifically directed at securities regulation, and concluded the trustee’s claims did not fall within that definition.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "Securities Claim" is ambiguous | Verizon: "any" + "including but not limited to" shows broad intent; extrinsic evidence supports coverage | Insurers: plain meaning limits "regulating securities" to laws specifically directed at securities; definition unambiguous | Definition is unambiguous; court adopts Insurers’ plain-meaning construction |
| Whether fiduciary-duty and related common-law claims are "regulation, rule or statute regulating securities" | Verizon: "rule" includes common-law rules; claims arose from a securities transaction so they fit | Insurers: common-law fiduciary duties and promoter liability are not securities-regulating rules/statutes | Held not covered — fiduciary claims are general common law, not securities regulations |
| Whether DGCL unlawful-dividend statutes or fraudulent-transfer statutes qualify as securities regulations | Verizon: these laws applied in the securities-related spin-off so they should be within coverage | Insurers: statutes regulate dividends or transfers, not securities; involvement of stock is incidental | Held not covered — statutes regulate dividends/transfers generally, not securities specifically |
| Whether extrinsic evidence should be considered | Verizon: extrinsic record and course of dealing support broader reading | Insurers: no ambiguity, so extrinsic evidence irrelevant | Held extrinsic evidence not considered because contract language is unambiguous |
Key Cases Cited
- Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987) ("regulates" requires law specifically directed at the regulated field)
- ConAgra Foods, Inc. v. Lexington Ins. Co., 21 A.3d 62 (Del. 2011) (de novo review of insurance-contract interpretation)
- XL Specialty Ins. Co. v. Loral Space & Commc’n, Inc., 82 A.D.3d 108 (N.Y. App. Div. 2011) (common-law fiduciary duties are not rules "regulating securities")
- Kollman v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., [citation="542 F. App'x 649"] (9th Cir. 2013) (policy did not cover breach-of-contract/fiduciary claims absent violation of a securities rule/statute)
- Rhone-Poulenc Basic Chem. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192 (Del. 1992) (contract ambiguity standard)