The Honorable Karen Weldin Stewart, CIR-ML, Insurance Commissioner v. Wilmington Trust SP Services, Inc.
112 A.3d 271
Del. Ch.2015Background
- SPI Entities are Delaware captive insurers placed into liquidation; Receiver sues auditors and management for fiduciary breaches, contract, and negligence; issues include in pari delicto and public policy against applying it in insurance context; Delaware law governs; laches argued but court finds no bar; court dismisses breach of fiduciary duty claims against Wilmington Trust and auditors but allows aiding-and-abetting claims to proceed against some defendants; auditor exception rejected broadly but narrowed for aiding-and-abetting claims; proceeding posture centers on Caremark and board oversight allegations.
- Jackson, the sole owner of SPI Entities, allegedly orchestrated and benefited from fraudulent financial statements; bank confirms and Key Man Policy were forged or manipulated to misstate assets; SPI boards approved audits with little discussion amid irregularities; the Receiver seeks remedies through the Liquidation Action.
- Auditors and Wilmington Trust argue in pari delicto bars claims; Receiver argues adverse-interest/public policy exceptions apply and seeks auditor exception; court ultimately applies Delaware law and agrees with some exceptions and rejects a broad auditor exception.
- The court grants in part and denies in part: fiduciary-duty claims against Wilmington Trust and auditors dismissed; aiding-and-abetting claims survive for Wilmington Trust and Johnson Lambert but not McSoley McCoy; Kantner’s fiduciary-duty claim survives; contract and negligence claims barred by in pari delicto; overall counts 1-10 dismissed; Count 11 dismissed as to Wilmington Trust but not Kantner; Count 12 dismissed as to McSoley McCoy and Kantner.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Choice of law governing the motions | Receiver favors Delaware law; Johnson Lambert suggests others | Various states proposed; no clear consensus | Delaware law governs all motions, including in pari delicto and contract/negligence claims. |
| Laches applicability to the action | Delay not prejudicial; extraordinary circumstances exist | Three-year statute of limitations should apply | Laches does not bar the claims; timely enough under equitable analysis. |
| Whether Wilmington Trust/auditors owed fiduciary duties | Auditors/de facto directors breached duties via oversight failures | No fiduciary relationship; duties limited to contract | Claims for breach of fiduciary duty against Wilmington Trust and auditors dismissed; Kantner’s claim survives. |
| In pari delicto applicability to breach of contract/negligence | Public policy/public interest in insurer liquidation allows relief | Doctrine bars claims as between wrongdoers | In pari delicto bars contract and negligence claims against Wilmington Trust and auditors; but fiduciary-duty aiding claims survive. |
| Auditor exception to in pari delicto | Advocates a broad auditor exception to permit claims | Delaware should not create broad exception | Rejects broad auditor exception; limits relief to aiding-and-abetting claims, which survive for some defendants. |
Key Cases Cited
- In re American International Group, Inc. Consolidated Derivative Litigation (AIG I), 965 A.2d 763 (Del. Ch. 2009) (Delaware choice-of-law on in pari delicto acknowledged; auditor considerations discussed)
- In re American International Group, Inc. Consolidated Derivative Litigation (AIG II), 976 A.2d 872 (Del. Ch. 2009) (Adverse-interest and fiduciary-duty exceptions; aiding-and-abetting analysis clarified)
- Kirschner v. KPMG LLP, 938 N.E.2d 941 (N.Y. 2010) (New York strict in pari delicto; auditor treatment context)
- NCP Litigation Trust v. KPMG LLP, 901 A.2d 871 (N.J. 2006) (Auditor liability in liquidating trusts; limits on imputation)
- Allegheny Health Education and Research Foundation v. PricewaterhouseCoopers, LLP (AHERF), 989 A.2d 313 (Pa. 2010) (Public-policy and auditor relationships in fiduciary contexts)