AT&T Corp. v. Clarendon America Insurance Co., C.A. No. 04C-11-167 (JRJ) (DE 4/13/2006)

• Decision Date: 13 April 2006
• Docket Number: C.A. No. 04C-11-167 (JRJ)
• Court: Supreme Court of Delaware
• Parties: AT&T CORP., Plaintiff, v. CLARENDON AMERICA INSURANCE CO., et al. Defendants.

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AT&T CORP., Plaintiff, v. CLARENDON AMERICA INSURANCE CO., et al. Defendants.

C.A. No. 04C-11-167 (JRJ)

Superior Court of Delaware for New Castle County.

Submitted: September 20, 2005.

Decided: April 13, 2006.

Upon Defendant Continental Casualty Co.'s Motion for Partial Summary Judgment for a Declaration That There is No Coverage for the Williamson Fiduciary and Leykin Actions Under the Excess Run-Off and 2001 Continental Policies (D.I. 65/E-File 109) — GRANTED.

Upon Defendant Zurich American Ins. Co.'s Motion for Summary Judgment and Joinder in Defendant Federal Ins. Co.'s Motion for Partial Summary Judgment as to the 2001-2007 AT&T Run-Off Policies (D.I. 66/E-File 110) — GRANTED.

Upon Defendant National Union Fire Ins. Co.'s Motion for Partial Summary Judgment and/or Judgment on the Pleadings (D.I. 69/E-File 113) — GRANTED.

Upon Defendant Federal Ins. Co.'s Motion for Partial Summary Judgment as to the 2001-2007 AT&T Run-Off Policies (D.I. 72/E-File 117) — GRANTED.

Upon Defendant Gulf Ins. Co.'s Joinder in Continental Casualty Co.'s Motion for Partial Summary Judgment for a Declaration That There is No Coverage for the Williamson Fiduciary and Leykin Actions Under the Excess Run-Off and 2001 Continental Policies (D.I. 73/E-File 118) — GRANTED.

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Upon Defendant Gulf Ins. Co.'s Joinder in Federal Ins. Co.'s Motion for Partial Summary Judgment for a Declaration That There is No Coverage for the Underlying Litigation Under the AT&T Run-Off Policy Tower (D.I. 75/E-File 120) — GRANTED.

Upon Defendant Twin City Fire Ins. Co.'s Joinder in Motions for Partial Summary Judgment Filed in Connection With the Williamson Fiduciary and Leykin Actions (D.I. 81/Lexis 130) — GRANTED.

Upon Defendant Faraday Capital Limited's ("Lloyd's") Joinder in Federal Ins. Co.'s Motion for Partial Summary Judgment (D.I. 82/E-File 135) — GRANTED.

John E. James, Esquire and Sarah DiLuzio, Esquire of Potter Anderson & Corroon, Wilmington, Delaware, and Jeffery M. Johnson, Esquire (Argued), Deborah Goldstock Ringel, Esquire, Ryan S. Luft, Esquire, Jason D. Wallach, Esquire, B. Haven Walling, Jr., Esquire and Karen L. Bush, Esquire (Pro Hac Vice) of Dickstein, Shapiro Morin & Oshinsky, N.W., Washington, D.C. and Alexander D. Widell, Esquire (Pro Hac Vice) of Dickstein, Shapiro, Morin & Oshinsky, New York, New York, Attorneys for the Plaintiff AT&T Corp.

John D. Balaguer, Esquire and William L. Doerler, Esquire of White and Williams, Wilmington, Delaware, and Geoffrey W. Heineman, Esquire, and Matthew Bryant, Esquire (Pro Hac Vice) of Ohrenstein & Brown, New York, New York, Attorneys for the Defendant Travelers Indem. Co., as successor in interest by merger to Gulf Ins. Co.

David A. Denham, Esquire of Bifferato Gentilotti Biden & Balick, Wilmington, Delaware, and Martin J. Flannery, Jr., Esquire and David A. Richman, Esquire (Pro Hac Vice) of Pattison & Flannery, New York, New York, Attorneys for the Defendants Faraday Capital Limited, Individually and as Representative of those Underwriters at Lloyd's.

Anthony G. Flynn, Esquire, Timothy Jay Houseal, Esquire, and Martin S. Lessner, Esquire of Young, Conaway, Stargatt & Taylor, Wilmington, Delaware, and David Newmann, Esquire (Argued) and Michelle A. Kisloff, Esquire (Pro Hac Vice) of Hogan & Hartson, N.W., Washington, D.C., Attorneys for the Defendant Federal Ins. Co.

Carmella P. Keener, Esquire of Rosenthal, Monhait & Goddess, Wilmington, Delaware, and Leslie Ahari, Esquire (Argued) and Marc E. Rindner, Esquire (Pro Hac Vice) of Ross, Dixon & Bell, N.W., Washington, D.C., Attorneys for the Defendants Columbia Casualty Co. and Continental Casualty Co.

Kevin F. Brady, Esquire, Connolly, Bove, Lodge & Hutz, Wilmington, Delaware, and William E. Smith, Esquire (Argued), Cara Tseng Duffield, Esquire, and Daniel J. Standish, Esquire (Pro Hac Vice) of Wiley Rein & Fielding,

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Washington, D.C., Attorneys for the Defendant Genesis Ins. Co.

Francis J. Murphy, Esquire of Murphy, Spadaro & Landon, Wilmington, Delaware, and Alexis J. Rogoski, Esquire and Daniela Levarda, Esquire (Pro Hac Vice) of Boundas, Skarzynski, Walsh & Black, New York, New York, Attorneys for the Defendant XL Specialty Ins. Co.

John C. Phillips, Jr., Esquire and Brian Farnan, Esquire of Phillips, Goldman & Spence, Wilmington, Delaware, and Douglas M. Mangel, Esquire (Pro Hac Vice) of Drinker Biddle & Reath, Washington, D.C., Attorneys for the Defendants Clarendon America Ins. Co. and Twin City Fire Ins. Co.

Edward M. McNally, Esquire and Mary B. Matterer, Esquire of Morris James Hitchens & Williams, Wilmington, Delaware, and Jeffrey G. Weil, Esquire, Rick L. Swedloff, Esquire (Pro Hac Vice) of Dechert, LLP, Philadelphia, Pennsylvania, Attorneys for the Defendant North American Speciality Ins. Co.

Edward M. McNally, Esquire and Mary B. Matterer, Esquire of Morris James Hitchens & Williams, Wilmington, Delaware, and Michael Manire, Esquire, Deeana M. Galla, Esquire, J. Lloyd Herman, Esquire, William P. Larsen, III, Esquire (Argued) (Pro Hac Vice) of D'Amato & Lynch, New York, New York, Attorneys for the Defendant National Union Fire Ins. Co.

C. Scott Reese, Esquire and Noriss E. Cosgrove, Esquire of Cooch and Taylor, Wilmington, Delaware, and Randall Block, Esquire (Argued) (Pro Hac Vice) of Sedgwick, Detert, Moran & Arnold, LLP, San Francisco, California, Attorneys for the Defendant Zurich American Ins. Co.

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OPINION

JAN R. JURDEN, Judge

I. INTRODUCTION

A. Procedural Posture

This is a vast insurance coverage case involving Directors and Officers and Company ("D&O") Liability policies purchased bytwo corporations, the Plaintiff AT&T Corp. ("AT&T") and At Home Corp. ("At Home"). Procedurally, the litigation is shifting from Phase 1 into Phase 2.¹ This Opinion addresses the first of three sets of dispositive motions, and AT&T's opposition thereto, filed pursuant to Phase 1 of Case Management Order No. 1.² It contains the Court's determination of counterclaims raised by the Defendant Insurers,³ who issued policies to AT&T and its directors and officers. Thus, beyond presenting relevant underlying facts and California case law, this Opinion addresses potential coverage under the AT&T Programs but not the At Home Towers.⁴

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e

B. Phase I Motions for Partial Summary Judgment

The Insured, AT&T, seeks coverage in connection with several underlying shareholder suits brought against it, and certain directors and officers of AT&T and At Home Corp. To that end, it seeks indemnity and payment of defense fees, costs, settlements or judgments resulting from these suits under various D&O Liability insurance policies purchased from the Defendant Primary and Excess Insurers (referred to collectively as "the Defendants" or "the Insurers").⁵

As part of the Phase I briefing, the Defendants timely filed the multiple dispositive motions and joinders presently before the Court, in which they assert that AT&T's claims fall outside the scope of coverage afforded under the D&O policies. Subsequently, on August 15, 2005, AT&T filed its answering briefs and its First Amended Complaint. The Defendants responded on September 2, 2005.⁶ On September 20, 2005, the Court heard oral argument on the Defendants' individual motions. For the reasons that follow, the Defendants' Motions are GRANTED..

C. Background — AT&T's Complaint and the D&O Policies

Given the complex circumstances that bring this matter before the Court, a recitation of the pertinent events, party relationships and D&O policies is in order before discussing the substance

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of the Defendants' Motions. Through this action, AT&T seeks damages and declaratory judgment as to its rights and the Defendants' obligations under a number of D&O policies for liability it incurred or may incur, as a result of various shareholder lawsuits.⁷

At various points in time, both the now bankrupt At Home Corp. and its primary shareholder, AT&T, purchased D&O insurance "Programs" or "Towers" from the Defendants. All of the D&O policies at issue are "Claims made" policies and each Program or Tower consists of a primary policy and multiple excess policies. Once the underlying primary policy limits are exhausted by a covered loss, this type of policy structure operates to provide further coverage under each of the excess policies seriatim. Under such a structure, an excess insurer's coverage obligations are not triggered until the preceding or underlying excess policy is exhausted.⁸ Likewise, and except as otherwise provided by their terms, excess policies generally follow the form of and provide coverage in conformance with the terms, conditions and exclusions of an underlying insurance policy.⁹ In this case, the excess policies incorporate the terms, conditions and limitations of the Primary Policies and other underlying excess insurance policies.¹⁰

In this case, the Defendants Lloyd's, National Union and Genesis¹¹ issued the underlying

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Primary Policies, while the other Defendant Insurers together with National Union provided excess coverage.¹² The following four Policy Programs¹³ purchased by AT&T are at issue in the present action:¹⁴

1. The "1997 AT&T Program" was issued for the July 1, 1997 to July 1, 2001 policy period. It is composed of a Lloyd's Primary Policy and seven excess policies.¹⁵

2. The "2001 AT&T Program" was issued for the July 9, 2001 to July 9, 2002 policy period. It is composed of a Lloyd's Primary Policy and seven excess policies.¹⁶

3. The "2002 AT&T Program" was issued for the July 31, 2002 to July 31, 2003 policy period. It is composed of a National Union primary policy and twelve excess policies.¹⁷

4. The "2001 AT&T Run-Off Program" was issued for the July 9, 2001 to July 9, 2007 policy period. It is composed of a Lloyd's Primary Policy and eight excess policies.¹⁸

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D. The Underlying Shareholder Litigation: The At Home Litigation

The lawsuit sub judice stems from AT&T's acquisition of At Home Corp. stock in March, 2000.¹⁹...