In Arch Insurance v. Murdock, (Del. Ch. Mar. 1, 2018), a D&O insurance coverage dispute, the state Superior Court’s complex commercial litigation division reasoned broadly to hold that, absent a contrary choice of law clause, Delaware law applies to Delaware corporations’ D&O insurance policies, and that Delaware public policy does not prohibit insuring losses from insureds’ breaching the fiduciary duty of loyalty through fraudulent conduct.

Background

The genesis for this coverage dispute was the Court of Chancery stockholder litigation against directors and officers of Dole Food Co. (See In re Dole Food Stockholder Litigation (Del. Ch. Aug. 27, 2015).) In Dole, the Court of Chancery reviewed a going-private transaction in which Dole’s 40 percent stockholder, David Murdock, who also was a director, acquired the remaining shares of Dole he did not already own. Stockholders brought suit against defendants including Murdock and David Carter, Dole’s president and CEO. In a post-trial opinion, the Court of Chancery held that Murdock and Carter breached the fiduciary duty of loyalty by inter alia manipulating Dole’s trading price downward prior to the transaction, conduct that the court described as fraudulent. After the opinion but before entry of a final order, the parties settled the dispute for the full amount for which the Court of Chancery found Murdock and Carter liable. The court approved the settlement. The defendants also settled a related federal securities lawsuit.