Reed Smith Client Alerts

In connection with a director-and-officer insurance coverage dispute in Pfizer, Inc. v. U.S. Specialty Insurance Co., 2020 WL 5088075 (Del. Super. Ct. Aug. 28, 2020), the Superior Court of Delaware recently reaffirmed the Delaware legal principle, known as a the Stargatt Rule, that settlement of an insurance policy between an insured and an insurer for less than the policy limit amounts to satisfaction of such policy and that any “excess policies” still attach irrespective of whether the insured collected the full amount of the primary policies.

U.S. Specialty Insurance Company (U.S. Specialty) issued a director-and-officer insurance policy (the D&O Policy) insuring against certain allegations of wrongful acts of Pfizer, Inc.’s (Pfizer) directors and officers. The D&O Policy was considered an “excess policy,” one part of a thirteen-insurer tower, and the D&O Policy followed the form of the primary insurance policy. The D&O Policy specified that insurance coverage “shall attach only after all Underlying Insurance has been exhausted by actual payment of claims or losses thereunder” (the Exhaustion Clause).

The parties disagreed on whether the D&O Policy attached because another insurer lower than U.S. Specialty in the insurance tower settled with Pfizer for less than its policy limit. U.S. Specialty argued coverage did not attach. U.S. Specialty, relying on the Exhaustion Clause, argued the D&O Policy was not triggered because the lower-level excess insurer did not pay out its full policy limit in the settlement. The court disagreed and rejected U.S. Specialty’s argument that the court should adopt the position followed by other jurisdictions, such as California, that bars attachment to a higher-level policy if that policy contains an exhaustion clause.