The court noted that established Delaware precedent has expressly rejected the position followed in states like California as inconsistent with Delaware law. In Delaware, so long as the loss was in excess of policy limits, a settlement for less than the policy limit still triggers the excess policy insurer’s obligations. The court further noted there is a “strong suggestion” under Delaware law to embrace the Stargatt Rule even where the applicable policy has an explicitly contrary clause. The court reasoned that excess insurers have no “business reason” under Delaware law to be concerned if the settlement in satisfaction of the underlying policy was for the policy’s full dollar value, so long as the protections afforded by all underlying insurance policies are extinguished and the excess insurer’s liability begins only at its own attachment point.

Importantly, the court’s decision noted that the parties could have worked around the Stargatt Rule by specifying in the policy that the insurer’s coverage layer would be triggered only if the lower-level excess insurers paid out their full policy limits to Pfizer. However, in the case at hand, the parties chose not to do so. The insurance policy only required that the lower-level policies be “exhausted by actual payment of claims.”

Key takeaways

• Delaware courts consistently follow the Stargatt Rule, which provides that if a policyholder agrees to settle with an insurer for less than the policy limit, that agreement exhausts the policy for legal purposes and any excess policies still attach.
• An insurer may work around the Stargatt Rule by specifying in the policy that its coverage layer is triggered only if the lower-level excess insurers pay out their full policy limits.

Client Alert 2020-582