Opinion
C.A. No. 07C-09-102 RRC.
Submitted: December 29, 2009.
Decided: January 7, 2010.
Upon Defendant National Union Fire Insurance Company of Pittsburgh, PA.'s Request for a Stay. GRANTED.
Upon Plaintiffs HLTH Corporation and Emdeon Practice Services, Inc.'s Motion for Partial Summary Judgment. STAYED.
David J. Baldwin, Esquire, W. Harding Drane, Esquire and Jennifer C. Wasson, Esquire, Potter Anderson Corroon, LLP, Wilmington, Delaware, William G. Passannante, Esquire and Alex D. Hardiman, Esquire, Anderson Kill Olick, P.C., New York, New York, Attorneys pro hac vice for Plaintiffs HLTH Corporation and Emdeon Practice Services, Inc.
John D. Balaguer, Esquire, Wilmington, Delaware, and Lawrence J. Bistany, Esquire, White and Williams, LLP, Philadelphia, Pennsylvania, Attorney pro hac vice for Defendant National Union Fire Insurance Company of Pittsburgh, PA.
J.R. Julian, Esquire, Law Offices of J.R. Julian, Wilmington, Delaware, Barry T. Bassis, Tressler, Soderstrom, Maloney Priess, LLP, New York, New York, Attorney pro hac vice for Defendant Fireman's Fund Insurance Company.
Robert J. Katzenstein, Esquire and Etta R. Wolfe, Esquire, Smith, Katzenstein Furlow, LLP, Wilmington, Delaware, Joan M. Gilbride, Esquire and Robert A. Benjamin, Esquire, Kaufman Borgeest Ryan, LLP, Valhalla, New York, Attorneys pro hac vice for Defendant RSUI Indemnity Company.
Neal J. Levitsky, Esquire and Seth A. Niederman, Esquire, Fox Rothschild, LLP, Wilmington, Delaware, Michael Goodstein, Esquire and Matthew J. Burkhart, Esquire, Bailey Cavalieri, LLC, Columbus, Ohio, Attorneys pro hac vice for Defendant Old Republic Insurance Company.
Robert J. Katzenstein, Esquire, Smith, Katzenstein Furlow, LLP, Wilmington, Delaware, William E. Smith, Esquire, Wiley Rein, LLP, Washington, D.C., Attorney pro hac vice for Defendant Axis Reinsurance Company.
ORDER
This 7th day of January, 2010, upon consideration of plaintiffs HLTH Corporation ("HLTH") and Emdeon Practice Services, Inc.'s (collectively "Plaintiffs") motion for partial summary judgment to enforce a duty to advance defense costs, and of defendant, National Union Fire Insurance Company of Pittsburgh, PA.'s request for a stay of Plaintiffs' motion for partial summary judgment, it appears to the Court that:
Although the other defendant insurers have joined in National Union's request for a stay, these other insurers advance no additional arguments in favor of granting a stay and rely on National Union's request for a stay.
The facts in paragraph 1 of this order are taken verbatim from HLTH Corp. v. Axis Reinsurance Co., 2009 WL 3326628 (Del. Super.).
1. On August 31, 2009, this Court issued an opinion denying defendant insurers' Motion for Summary Judgment. That motion argued that a "Prior Acts" Exclusion contained within a Directors and Officers ("DO") insurance policy should bar advancement of defense costs for directors and officers charged with criminal offenses in South Carolina. The opinion, which the parties refer to as the "Prior Acts Order" (because on August 31, 2009 the Court issued a related opinion referred to as the "Prior Notice Order"), held that the Prior Acts Exclusion of the insurance policy did not bar advancement of defense costs because defendant insurers "failed to meet [their] burden of establishing that the Prior Acts Exclusion acts as a "clear and unambiguous" bar to [Plaintiffs'] claims for coverage because, bearing the burden, [defendant insurers have] failed to satisfactorily reconcile the conflicting terms of the Prior Acts Exclusion and Endorsement 13."
Dkt 267
Dkt 268
HLTH Corp. v. Clarendon Nat'l Ins. Co., 2009 WL 2849777, at *23 (Del. Super.).
2. After the Court's Prior Acts Order was issued, National Union filed a request for an interlocutory appeal, which this Court granted on September 30, 2009. This interlocutory appeal was subsequently accepted by the Supreme Court on October 13, 2009 and is still pending review.
Plaintiffs also filed an interlocutory appeal of the Prior Notice Order, which this Court granted on September 30, 2009. Plaintiffs' interlocutory appeal was also accepted by the Supreme Court on October 13, 2009 and is still pending review.
No. 565, 2009, Dkt. 13 (Oral argument in the consolidated interlocutory appeals is apparently scheduled before the Supreme Court on February 24, 2010).
3. Plaintiffs then filed the instant motion for partial summary judgment on October 19, 2009 asking this Court to order National Union to advance defense costs to Plaintiffs under the insurance "tower" known as the Emdeon Tower. Plaintiffs assert that the Emdeon Tower was triggered by the "uninsured loss" of approximately twenty million dollars (an amount that Plaintiffs allege is in excess of the applicable retention amount) that Plaintiffs have paid, without reimbursement by any insurance company, on behalf of the directors and officers charged with criminal offenses in South Carolina.
Plaintiffs have three "towers" of insurance known as the Old MMC Tower, the Synthetic Tower, and the Emdeon Tower. For a more extensive set of facts see HLTH Corp. v. Clarendon Nat'l Ins. Co., 2009 WL 2849777 (Del. Super.).
4. In response to Plaintiffs' motion, National Union filed a cross motion for a stay because, National Union alleges, the Court ought not order advancement of defense costs before the Supreme Court has ruled on its interlocutory appeal of the Prior Acts Order. National Union asserts that a stay is appropriate because, if the Supreme Court were to reverse this Court's holding in the Prior Acts Order, National Union would be forced to recover defense costs paid to Plaintiffs when those costs were never owed.
5. In response, Plaintiffs assert that there is a public policy in favor of advancing defense costs under a DO insurance policy such as the one at issue. Plaintiffs argue that advancement of defense costs is warranted at the present time because Plaintiffs have already demonstrated (1) that the insurance policy would cover the claims against the directors and officers and (2) that the claim is not barred by any applicable exclusion. Plaintiffs argue that if the Court grants National Union's request for a stay, the Court would essentially override the public policy in favor of advancing of defense costs because an insurer could simply appeal any ruling by the Court that ordered advancement of defense costs and thereby delay advancement.
6. A decision on whether to grant a stay rests within the sound discretion of the trial court. To determine whether to grant a stay, this Court is required: "(1) to make a preliminary assessment of likelihood of [the petitioner's] success on the merits of the appeal; (2) to assess whether the petitioner will suffer irreparable injury if the stay is not granted; (3) to assess whether any other interested party will suffer substantial harm if the stay is granted; and (4) to determine whether the public interest will be harmed if the stay is granted."
Kirpat, Inc. v. Delaware Alcoholic Beverage Control Comm'n, 741 A.2d 356, 357 (Del. 1998).
Id. at 357.
7. Here, the unique set of facts militates in favor of granting a stay. As one Delaware case has held:
a more reasonable approach to this issue is to balance all of the equities involved in the case together. Such an approach means that the necessary degree of probability of success on the merits of the appeal will vary from case to case and "will vary according to the court's assessment of the other factors." If the other three factors strongly favor interim relief, then a court may exercise its discretion to reach an equitable resolution by granting a stay if the petitioner has presented a serious legal question that raises a "fair ground for litigation and thus for more deliberative investigation.
Id. at 358.
In the present case, this Court agrees that there is a "serious legal question that raises a `fair ground for litigation and thus for more deliberative investigation.'" This Court, certifying National Union's request for an interlocutory appeal, agreed with National Union that a "substantial issue" was involved because "[the Prior Acts exclusion] determines the rights of multiple defendant insurers to deny coverage for the advancement of ongoing, substantial defense costs under the Directors and Officers (`DO') insurance policies, and the right of the directors and officers to coverage under those same policies."
Id.
HLTH Corp. v. Axis Reinsurance Co., 2009 WL 3326628 (Del. Super.) (citations omitted) (holding that National Union was permitted to seek an appeal of the Prior Acts Order).
8. This Court must also consider "whether the petitioner will suffer irreparable injury if the trial court denies the stay[.]" This factor also weighs in favor of granting the stay.
Kirpat, 741 A.2d at 357.
Presently, the Prior Acts Order is under review by the Delaware Supreme Court. There is a possibility that the Supreme Court might reverse this Court's holding in the Prior Acts Order and determine that National Union does not owe Plaintiffs any duty to advance defense costs. If this Court were now to order that National Union must advance those defense costs and the Prior Acts Order was subsequently reversed, National Union would be left in the position of potentially undergoing further litigation to recover the defense costs that were not required to have been paid. Therefore, National Union could suffer harm and possible "irreparable injury" in advancing defense costs at the present time because the Delaware Supreme Court has yet to determine whether National Union has a duty to advance defense costs.
No party to this case explicitly argues the application of the third Kirpat factor "whether any other party will suffer substantial harm if the say is granted[,]" and the Court agrees that no "third party" appears potentially harmed by granting the stay.
9. Finally, Plaintiffs argue that granting National Union's request for a stay will harm the public interest. Plaintiffs correctly note that the legal precedent set forth in Sun-Times Media Group, Inc. v. Royal SunAlliance Ins. Co. of Canada, establishes that any claim that could potentially result in indemnity triggers the duty to advance defense costs. Early determination of the duty to advance defense costs is particularly important in a directors and officers insurance case because it provides the directors and officers with immediate access to insurance funds, "which is necessary to maintain a successful defense."
2007 WL 1811265, at * 11 (Del. Super.).
Travis S. Hunter, Comment, Ambiguity in the Air: Why Judicial Interpretation of Insurance Policy Terms Should Force Insurance Companies to Pay For Global Warming Litigation, 113 Penn. St. L. Rev. 267, 273 (2008) (citing Brady v. i2 Tech. Inc., 2005 WL 3691286, at *3 (Del. Ch.)) (stating that advancement of defense costs is triggered at the beginning of a case).
At least one Delaware Court has reinforced this public policy in favor of advancement of defense costs because "[a]dvancement provides corporate officials with immediate interim relief from the personal out-of-pocket financial burden of paying the significant on-going expenses inevitably involved with investigations and legal proceedings." This public policy argument is Plaintiffs' strongest argument in support of denying a stay.
Homestore, Inc. v. Tafeen, 888 A.2d 204, 211 (Del. 2005).
Despite Delaware's public policy in favor of resolving disputes about advancement of defense costs early, this public policy alone does not require, under the facts of this particular case, that National Union advance any defense costs prior to the Supreme Court's decision on the Prior Acts Order. The public policy outlined in Sun-Times is still applicable because it is important, generally, to resolve issues of defense costs early. However, the Supreme Court did agree to accept National Union's interlocutory appeal. Until the Supreme Court issues a decision on the Prior Acts Order, National Union's duty to advance defense costs is still unresolved.
Although Plaintiffs argue that an insurer could always delay advancement of defense costs by appealing any order to the Delaware Supreme Court, the decision of that Court to accept an interlocutory appeal is discretionary. There is no guarantee that the trial court will grant an application for an interlocutory appeal (which is not binding on the Supreme Court) or that the Delaware Supreme Court will accept an interlocutory appeal related to advancement of defense costs simply because it chose to accept the two interlocutory appeals in this case.
Supr. Ct. R. 42(d)(v).
Despite Plaintiffs' public policy arguments, Plaintiffs have not demonstrated why it is essential that they have access to the defense costs at the present time or that they will suffer irreparable injury from not having access to these funds immediately. Although Plaintiffs are correct that public policy does otherwise weigh in favor of deciding disputes over advancement of defense costs early, allowing the Supreme Court to resolve any question about the Prior Acts Order allows both parties to receive a final determination on whether National Union must advance defense costs under the Emdeon Tower.
10. Finally, the Court notes that Plaintiffs and Defendants have all represented in both applications for interlocutory appeal that resolution of each interlocutory appeal may facilitate the possible resolution of this case. This representation also weighs in favor of granting the stay because a decision by the Supreme Court "will significantly affect the subsequent phases of litigation, the scope of discovery, the length and complexity of a potential trial, and it will conserve judicial resources by providing a framework for potential settlement discussions." The Court also notes that oral argument on the consolidated interlocutory appeal is presently scheduled for February 24, 2010, so presumably the interlocutory appeals will be resolved relatively promptly.
HLTH Corp. v. Axis Reinsurance Co., 2009 WL 3326625 (Del. Super.) (citations omitted) (holding that Plaintiffs were permitted to seek an appeal of the Prior Notice Order).
No. 565, 2009, Dkt. 48.
11. For the reasons stated above, National Union's request for a stay is GRANTED. This Court, therefore, need not address, at this time, Plaintiffs' motion for partial summary judgment.