A Delaware trial courtroom not too long ago utilized the newly minted “significant linkage” normal to conclude that a number of lawsuits in regards to the merger of CBS and Viacom should not “associated” within the context of administrators and officers (D&O) legal responsibility insurance coverage. The choice in Nationwide Amusements, Inc. v. Endurance American Specialty Insurance coverage Co., Case No. N22C-06-018-SKR CCLD (Del. Tremendous. Ct. Feb. 17, 2025), illustrates the fact-intensive nature of the “relatedness” inquiry and the way litigants can count on courts to look at the problems underneath the Delaware normal.
Background
The dispute in Nationwide Amusements centered round whether or not separate litigations—instances initiated in 2016 relating to the management of CBS and one other in 2019 in regards to the merger of CBS and Viacom (which is now Paramount World)—had been associated claims.
In 2016, shareholders of Viacom alleged that Shari Redstone manipulated an allegedly incapacitated Sumner Redstone to make selections that harmed the corporate’s worth. That lawsuit, amongst others, was finally settled or dismissed.
In 2019, litigation arose in regards to the merger of CBS and Viacom, each of which had been managed by Nationwide Amusements. This time, shareholders alleged that actions by the administrators and officers of Viacom, Shari Redstone and Nationwide Amusements violated their fiduciary duties and led to an unfair deal for Viacom shareholders. The shareholders allegedly acquired insufficient consideration from the merger. That litigation additionally finally settled.
Nationwide Amusements maintained 4 D&O insurance policies for the 2017 to 2018 coverage interval. These insurance policies renewed for 2018 to 2019. Endurance issued the first coverage, with Ironshore, Starr and Nationwide Union every issuing extra follow-form insurance policies.
A protection dispute emerged over whether or not the 2019 litigation was “associated” to the 2016 litigations. Following discovery, the insured moved for abstract judgment, which the courtroom granted.
The Court docket’s Evaluation: Interrelated Claims and “Significant Linkage”
The central subject earlier than the courtroom was whether or not the 2016 and 2019 lawsuits had been interrelated claims. The D&O insurance policies addressed associated claims as follows: “All Claims arising out of the identical Wrongful Act and all Interrelated Wrongful Acts of the Insureds shall be deemed to be one Declare, and such Declare shall be deemed to be first made on the date the earliest of such Claims is first made.” In assessing whether or not the claims as offered right here met the insurance policies’ relatedness definition, the courtroom was guided by the “significant linkage” normal articulated by the Delaware Supreme Court docket in Alexion Prescription drugs, Inc. Insurance coverage Appeals, mentioned on this prior submit. Software of that normal required consideration of a number of elements.
The first issue, commonality of conduct, appears to be like as to if the claims contain the identical alleged wrongful acts. Whereas the 2016 and 2019 actions all concerned Shari Redstone and her alleged overexerting affect, the courtroom discovered the conduct at subject within the more-recent 2019 litigation to be distinct. The 2016 instances involved Shari Redstone’s affect over Sumner Redstone’s decision-making. In distinction, the 2019 litigation involved alleged conduct that occurred in the course of the CBS/Viacom merger.
The second issue appeared to the events concerned. Right here, there was substantial overlap within the events in all of the actions, however Sumner Redstone, a crucial defendant within the 2016 motion, was not a defendant within the 2019 motion.
The third issue appeared to the related time durations. Whereas the 2019 motion challenged the merger in 2019, the 2016 actions centered on selections made in or round 2016. Regardless that the 2019 grievance referenced conduct relationship again to 2016, the courtroom discovered this issue barely favored discovering the claims as not meaningfully linked.
The fourth issue appeared to the related info. Right here once more, regardless of some overlap, the courtroom discovered the factual proof in every case was principally distinct. The first 2016 case centered on Sumner Redstone’s capability and Shari Redstone’s allegedly improper affect on the businesses’ boards, whereas the 2019 motion relied on merger-related proof, together with valuation of CBS and Viacom and the merger negotiations.
The fifth and remaining issue, the claimed damages, additionally distinguished the 2 units of claims. The 2016 actions primarily requested declaratory and injunctive aid to rectify the company governance selections whereas the 2019 motion sought financial damages to compensate for the insufficient consideration acquired by the Viacom shareholders.
Based mostly on the burden of those elements, the courtroom dominated that the claims weren’t meaningfully linked, and thus weren’t “associated claims” for functions of D&O insurance coverage protection.
Key Takeaways
The Nationwide Amusements resolution supplies vital classes on the “associated claims” subject:
- The Burden on Insurers to Undermine Relatedness: The courtroom acknowledged Delaware Supreme Court docket precedent that “significant linkage” needs to be utilized in a protection context “broadly, the place attainable, to search out protection” and that any ambiguity favors protection. In circumstances the place the policyholder contends that claims should not associated, that places an insurer within the robust place of carrying the burden to point out claims are associated. That hill turns into much more tough to climb contemplating relatedness is already a fact-intensive inquiry the place proof oftentimes can go both method.
- Relatedness Is Neither Professional-Insurer Nor Professional-Policyholder: On this case, the corporate argued towards and the insurers in favor of relatedness. However that isn’t at all times the case. Policyholders might even see themselves on completely different sides of the associated claims argument for numerous causes, together with the variety of claims, relevant retentions and protection limits. In both case, this resolution supplies a roadmap for future Delaware relatedness disputes.
- Understanding the Scope of “Associated Claims”: The choice reinforces that D&O insurance policies is not going to robotically deal with separate claims as associated just because they contain the identical people or entities. A cautious evaluation of the underlying wrongful acts and authorized theories alleged within the purported associated claims is essential. Because it stands, the “associated claims” willpower stays a fact-intensive inquiry.
- The Affect of Extrinsic Proof: The insurer defendants on this case tried to introduce allegedly “inconsistent” extrinsic proof that Nationwide Amusements and Shari Redstone represented that the 2016 and 2019 actions had been associated after they sought indemnification from Viacom earlier than submitting this swimsuit. Nevertheless, underneath Delaware Supreme Court docket precedent, the courtroom can depend on policyholder statements in regards to the separate actions when insurance coverage protection was not at subject solely if there may be any remaining doubt about relatedness. Since little doubt remained after weighing the various factors, the courtroom concluded it couldn’t contemplate the extrinsic proof.
Conclusion
Associated claims points underneath D&O insurance policies proceed to be the topic of insurance coverage protection disputes in Delaware courts. By understanding the courtroom’s reasoning and the elements it thought-about on this case, policyholders can higher navigate future disputes with insurers and take steps to guard their pursuits in protection litigation.
