A Delaware trial court docket not too long ago utilized the newly minted “significant linkage” customary to conclude that a number of lawsuits regarding 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 anticipate courts to look at the problems beneath the Delaware customary.
Background
The dispute in Nationwide Amusements centered round whether or not separate litigations—circumstances initiated in 2016 concerning the management of CBS and one other in 2019 regarding the merger of CBS and Viacom (which is now Paramount World)—have been associated claims.
In 2016, shareholders of Viacom alleged that Shari Redstone manipulated an allegedly incapacitated Sumner Redstone to make choices that harmed the corporate’s worth. That lawsuit, amongst others, was finally settled or dismissed.
In 2019, litigation arose regarding the merger of CBS and Viacom, each of which have 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 obtained 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 court docket granted.
The Courtroom’s Evaluation: Interrelated Claims and “Significant Linkage”
The central problem earlier than the court docket was whether or not the 2016 and 2019 lawsuits have 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 court docket was guided by the “significant linkage” customary articulated by the Delaware Supreme Courtroom in Alexion Prescription drugs, Inc. Insurance coverage Appeals, mentioned on this prior put up. Software of that customary required consideration of a number of elements.
The first issue, commonality of conduct, seems to be as to whether the claims contain the identical alleged wrongful acts. Whereas the 2016 and 2019 actions all concerned Shari Redstone and her alleged overexerting affect, the court docket discovered the conduct at problem within the more-recent 2019 litigation to be distinct. The 2016 circumstances involved Shari Redstone’s affect over Sumner Redstone’s decision-making. In distinction, the 2019 litigation involved alleged conduct that occurred through the CBS/Viacom merger.
The second issue seemed to the events concerned. Right here, there was substantial overlap within the events in all of the actions, however Sumner Redstone, a important defendant within the 2016 motion, was not a defendant within the 2019 motion.
The third issue seemed to the related time intervals. Whereas the 2019 motion challenged the merger in 2019, the 2016 actions targeted on choices made in or round 2016. Though the 2019 grievance referenced conduct courting again to 2016, the court docket discovered this issue barely favored discovering the claims as not meaningfully linked.
The fourth issue seemed to the related details. Right here once more, regardless of some overlap, the court docket discovered the factual proof in every case was principally distinct. The first 2016 case targeted 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 closing 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 choices whereas the 2019 motion sought financial damages to compensate for the insufficient consideration obtained by the Viacom shareholders.
Primarily based on the burden of those elements, the court docket 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 determination gives vital classes on the “associated claims” problem:
- The Burden on Insurers to Undermine Relatedness: The court docket acknowledged Delaware Supreme Courtroom precedent that “significant linkage” ought 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 indicate claims are associated. That hill turns into much more troublesome to climb contemplating relatedness is already a fact-intensive inquiry the place proof oftentimes can go both manner.
- 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 may even see themselves on totally different sides of the associated claims argument for varied causes, together with the variety of claims, relevant retentions and protection limits. In both case, this determination gives 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” dedication stays a fact-intensive inquiry.
- The Impression 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 have been associated after they sought indemnification from Viacom earlier than submitting this go well with. Nevertheless, beneath Delaware Supreme Courtroom precedent, the court docket can depend on policyholder statements concerning the separate actions when insurance coverage protection was not at problem solely if there’s any remaining doubt about relatedness. Since little question remained after weighing the various factors, the court docket concluded it couldn’t think about the extrinsic proof.
Conclusion
Associated claims points beneath D&O insurance policies proceed to be the topic of insurance coverage protection disputes in Delaware courts. By understanding the court docket’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.
