XL Specialty Insurance v. WMI Liquidating Trust
2014 Del. LEXIS 230
| Del. | 2014Background
- Trust is a Delaware statutory trust and the legal successor to Washington Mutual, Inc. (WMI) in bankruptcy proceedings.
- WMI filed for Chapter 11 bankruptcy in September 2008; the Trust holds WMI’s estate assets, including insurance claims rights.
- XL Specialty and other insurers issued management liability (D&O) policies for 2008-09, forming a tower with one primary (ABC) policy and multiple excess policies.
- D&O directors and officers allegedly authorized a $500 million downstream capital contribution to Washington Mutual Bank, which preceded WMI’s bankruptcy.
- Creditors Committee issued a Demand Letter in 2011 asserting potential claims against the D&Os for losses arising from the downstream transaction; Trust later pursued the Asserted Claim but did not sue the D&Os at that time.
- In 2012, a Bankruptcy Court stipulation reserved $23.4 million for defense expenses and subrogation-related claims, with conditions for release tied to coverage determinations; Trust then filed suit in Superior Court seeking coverage denial remedies and declaratory relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Trust’s declaratory judgment claim is ripe for adjudication | Trust contends the dispute is ripe due to potential $500M Asserted Claim and defense cost reserves | Insurers argue the dispute is not ripe for judicial determination | Not ripe; case must be dismissed without prejudice |
Key Cases Cited
- Hoechst Celanese Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 623 A.2d 1133 (Del. Super. 1992) (cannot draw lines to guarantee anticipated excess coverage; require resolution of all excess insurers)
- Walmart Stores, Inc. v. AIG Life Ins. Co., 872 A.2d 611 (Del. Ch. 2005) (declined declaratory judgment on indemnity before a judgment; consider final resolution)
- North American Philips Corp. v. Aetna Cas. & Sur. Co., 565 A.2d 956 (Del. Super. 1989) (ripe coverage dispute where liabilities were accruing)
- Stroud v. Milliken Enters., Inc., 552 A.2d 476 (Del. 1989) (requires practical judgment in determining ripe declaratory actions)
- Monsanto Co. v. Aetna Cas. & Sur. Co., 565 A.2d 268 (Del. Super. 1989) (caution against constructing hypothetical factual situations for declaratory relief)