Court Opinion

ID: 4674645
Source: CourtListenerOpinion
Date Created: 2021-04-05 20:02:43.665681+00
Date Added: 2024-06-11T08:03:21.707695
License: Public Domain

IN THE SUPREME COURT OF THE STATE OF DELAWARE

NATIONAL UNION FIRE                        §
INSURANCE COMPANY OF                       §
PITTSBURGH, PA, XL                         §
SPECIALTY INSURANCE                        §
COMPANY, NATIONAL                          §
SPECIALTY INSURANCE                        §   No. 96, 2021
COMPANY, U.S. SPECIALTY                    §
INSURANCE COMPANY, AXIS                    §   Court Below–Superior Court
INSURANCE COMPANY, and ST.                 §   of the State of Delaware
PAUL MERCURY INSURANCE                     §
COMPANY,                                   §   C.A. No. N18C-08-086 (CCLD)
                                           §
       Defendants Below,                   §
       Appellants,                         §
                                           §
       v.                                  §
                                           §
VERIZON COMMUNICATIONS                     §
INC., NYNEX LLC, VERIZON                   §
NEW ENGLAND INC., VERIZON                  §
INFORMATION TECHNOLOGIES                   §
LLC,                                       §
                                           §
      Plaintiffs Below,                    §
      Appellees.                           §

                             Submitted: March 24, 2021
                               Decided: April 5, 2021

Before VALIHURA, VAUGHN, and TRAYNOR, Justices.

                                          ORDER

      After careful consideration of the notice of interlocutory appeal and its

exhibits, it appears to the Court that:
      (1)    This appeal arises from an insurance-coverage dispute. The appellees,

Verizon Communications Inc., NYNEX LLC, Verizon New England Inc., and

Verizon Information Technologies LLC (together, “Verizon”) filed suit in the

Superior Court against National Union Fire Insurance Company of Pittsburgh, PA

(“National Union”), XL Specialty Insurance Company (“XL”), National Specialty

Insurance Company (“National”), U.S. Specialty Insurance Company (“U.S.

Specialty”), AXIS Insurance Company (“AXIS”), and St. Paul Mercury Insurance

Company (“St. Paul”) (together, “the Insurers”) alleging that the Insurers had

wrongfully denied Verizon coverage for defense and settlement costs incurred in an

underlying fraudulent transfer action (“the FairPoint Action”). The FairPoint

Action arose from a 2008 transaction in which, in exchange for debt notes, Verizon

transferred certain assets to a subsidiary, which was then acquired by FairPoint

Communications, Inc. (“FairPoint”).       After FairPoint entered bankruptcy, the

appointed litigation trustee (“the Trustee”) initiated the FairPoint Action.

      (2)    Verizon sought coverage under two insurance policies: (i) a primary

policy issued by National Union for the policy period from March 31, 2008, to

March 31, 2014, as well as excess policies issued by XL and National that follow

form to and incorporate the terms of National Union’s primary policy (together, “the

FairPoint Policies”), and (ii) a primary policy issued by National Union for the

policy period from October 31, 2009, to October 31, 2010, as well as excess policies

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issued by U.S. Specialty, AXIS, and St. Paul that follow form to and incorporate the

terms of National Union’s primary policy (together, “the Verizon Policies”). The

FairPoint Policies and the Verizon Policies provide coverage for “securities claims,”

defined in relevant part as claims “brought derivatively on behalf of an Organization

by a security holder of such Organization.” Verizon moved for partial summary

judgment, and the Insurers moved for judgment on the pleadings: Verizon

maintained that the FairPoint Action fit the definition of a securities claim; the

Insurers argued that it did not.

      (3)     On February 23, 2021, the Superior Court issued an opinion granting

Verizon’s motion for partial summary judgment and denying the Insurers’ motion

for judgment on the pleadings (“the Opinion”).1 The Opinion held that, under its

plain language, the FairPoint Policies covered the FairPoint Action as a securities

claim. The Superior Court also found that Verizon’s defense costs were reasonable

as a matter of law and covered under the FairPoint Policies.

      (4)     On March 5, 2021, the Insurers asked the Superior Court to certify an

interlocutory appeal from the Opinion under Supreme Court Rule 42. The Insurers

maintained that the Opinion decided several “substantial issues”2 because reversal

of the Opinion could terminate the litigation in whole or in part. The Insurers also

1
  Verizon Commc’n Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 2021 WL 710816 (Del.
Super. Ct. Feb. 23, 2021).
2
  Del. Supr. Ct. R. 42(b)(i).
                                            3
argued that the Opinion conflicts with other trial court decisions3 because the

Superior Court improperly: (i) found that the Trustee’s fraudulent-transfer claims

were derivative by focusing its analysis on the theory of liability, not the nature of

the injury; (ii) equated the estate and the debtor in its reasoning; and (iii) found that

the Insurers had waived their challenge to the reasonableness of defense fees. The

Insurers also averred that interlocutory review could terminate the litigation4 and

would serve the interests of justice.5 Verizon opposed the application.

       (5)    The Superior Court denied the application for certification.6 As an

initial matter, the Superior Court noted that a decision involving contract

interpretation is not generally the type of undertaking worthy of interlocutory

review. Nevertheless, because the Opinion granted summary judgment in favor of

Verizon on several dispositive issues, the Superior Court considered the Rule

42(b)(iii) factors. The Superior Court concluded that the Opinion does not conflict

with other trial court decisions. Although the Superior Court agreed that Delaware

courts look to the nature of the wrong—and to whom relief should flow—to

determine whether a claim is derivative in the stockholder context, the claim here

was brought by a bankruptcy trustee on behalf of a debtor’s estate. Accordingly, the

3
  Del. Supr. Ct. R. 42(b)(iii)(B).
4
  Del. Supr. Ct. R. 42(b)(iii)(G).
5
  Del. Supr. Ct. R. 42(b)(iii)(H).
6
  Verizon Commc’n Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 2021 WL 1016445 (Del.
Super. Ct. Mar. 16, 2021).
                                             4
Superior Court concluded that it had properly applied precedent related to claims

brought by bankruptcy trustees to determine that the Trustee’s claim was derivative.

Distinguishing the case law cited by the Insurers, the Superior Court also disagreed

with the Insurers’ claim that the Opinion conflicts with federal bankruptcy decisions.

Finally, the Superior Court disagreed with the Insurers’ argument that the Opinion’s

holding that the Insurers had waived their defense to the reasonableness of fees

conflicted with other trial court decisions.

      (6)    Next, the Superior Court rejected the notion that interlocutory review

could terminate the litigation, noting that no issue raised by the Insurers would

necessarily terminate the litigation in its entirety: (i) Verizon’s motion concerned

only the FairPoint Policies; (ii) the Insurers’ motion concerned only the Verizon

Policies; and (iii) if the appeal were successful with respect to the reasonableness of

defense costs, it would lead to protracted litigation regarding Verizon’s counsel’s

invoices. The Superior Court also jettisoned the Insurers’ position that the

considerations-of-justice factor weighed in favor of certification: (i) there is no

indication that reversal of any single issue would terminate the litigation; (ii) the

amount in controversy, standing alone, does not satisfy the considerations-of-justice

standard; and (iii) the Insurers will not suffer any irreversible hardship if they must

wait until after trial to appeal the Opinion. As a final matter, the court opined that

certification would not promote the most efficient and fair means to resolve the

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litigation. We agree with the Superior Court that interlocutory review is not

warranted in this case.

        (7)     Applications for interlocutory review are addressed to the sound

discretion of the Court.7 In the exercise of its discretion and giving great weight to

the Superior Court’s analysis, this Court has concluded that the application for

interlocutory review does not meet the strict standards for certification under Rule

42(b). Exceptional circumstances that would merit interlocutory review of the

Superior Court’s decision do not exist in this case,8 and the potential benefits of

interlocutory review do not outweigh the inefficiency, disruption, and probable costs

caused by an interlocutory appeal.9

        NOW, THEREFORE, IT IS ORDERED that the interlocutory appeal is

REFUSED.

                                       BY THE COURT:

                                       /s/ James T. Vaughn, Jr.
                                       Justice

7
  Del. Supr. Ct. R. 42(d)(v).
8
  Del. Supr. Ct. R. 42(b)(ii).
9
  Del. Supr. Ct. R. 42(b)(iii).
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