In an appeals case involving liability insurance for directors and officers, the Delaware Supreme Court ruled in favor of Dole Food Co. on March 3.

RSUI Indemnity Co., a part of RSUI Group Inc. in Atlanta with local offices in Sherman Oaks, is an excess liability insurance provider to the Westlake Village food manufacturer.
 The insurer did not want to pay out $10 million to cover losses by the company in two shareholder lawsuits against it and former chief executive David Murdock regarding taking Dole private in 2013.

In its appeal of lower court decisions against it, RSUI argued that the Delaware Supreme Court erred in four ways in finding in favor of Dole.

First was stating that Delaware law applied to the case; the second was that if Delaware law did apply, it did not mean the insurer had to cover losses related to fraudulent behavior; the third was that the court was wrong in its conclusion that an exclusion provision in the Dole Foods policy did not defeat coverage of settlements in the two shareholder lawsuits against the company.

“Fourth and finally, RSUI contends that the Superior Court improperly applied the ‘larger settlement rule,’ contrary to the policy’s provision governing the allocation of losses to the extent they were covered,” according to court papers.

On the first issue of whether Delaware or California law applied to interpreting the insurance policy, the court rejected RSUI’s claims. It said that Dole’s officers and directors were acting on behalf of the company whose legal residence is Delaware.

“Seen from this vantage point, the insureds’ legal ties to Delaware are more significant – and therefore should be afforded greater weight – than their physical location in California,” the court said in its 46-page ruling.

On the second issue, the court said Delaware has a public policy that allows for “the insurability of losses incurred as the result of a breach of the duty of loyalty, including one marred by fraud.”

The third issue was rejected by the court based on the arguments of Dole that no “final and non-appealable” decision had been made in the shareholder lawsuit that had gone to trial because a settlement was reached after the trial ended, and that the second lawsuit was settled prior to trial.

The exclusion provision to cover the costs of fraudulent behavior would apply only if a final and non-appealable decision were reached in a case, the court said.

The fourth issue hinged on whether Dole and Murdock’s actions had increased the amount of the settlement that RSUI had to help cover.

“Here, RSUI has not argued that the acts of DFC (Dole Food Co.) or the actions of Murdock and Carter in their uninsured capacities increased the amount of the (first shareholder lawsuit) settlement. Indeed, since DFC was found to be liable as an aider and abettor ‘to the same extent as’ Murdock, it would appear as though DFC’s actions could not have increased the (shareholder lawsuit) settlement,” the court found.

According to a release from Pasich LLP, the Los Angeles law firm that represented Dole, the court’s decision confirms the value of director and officer liability insurance.

“Its decision should better guarantee that insurance payments will be more readily available,” the firm said in a statement. “This decision will help not only directors and officers, but also those allegedly injured by their actions.”