No Bad Faith in “Very Sophisticated” Choice of Law Analysis
The Delaware Chancery Court found insureds had engaged in “fraud” and “fraudulent activity” in the context of shareholder actions against an insured company, Dole, and its officer. The insureds then sought coverage under their D&O policies. The insurers issued a reservation of rights based on potential exclusions and requested additional information. The insureds refused to provide some of the information citing privilege and then settled the underlying litigation, without funding from the insurers. The insurers sought declaratory judgment on coverage and the insureds filed a counterclaim for bad faith emanating from the insurers’ reliance on the fraud exclusion, breach of cooperation and consent to settle provisions. The court rejected these arguments finding the insurers had “well-reasoned arguments” for raising those defenses and, while the merits of the defenses would be adjudicated in the coverage litigation, as a matter of law, the insurers did not raise those arguments in bad faith. It also rejected the insureds’ “bad faith choice of law” argument finding it involved a very sophisticated analysis.