Hunton Insurance Recovery Blog

A Delaware Superior Court judge recently upheld a policyholder’s preferred forum in Delaware, denying five insurers’ motion to dismiss or stay the Delaware coverage action filed after the insurers had filed suit preemptively in Texas. The court in CVR Refining, LP v. XL Specialty Insurance Co., No. N21C-01-260 EMD CCLD, 2021 WL 3523925 (Del. Super. Ct. Aug. 11, 2021), held that, although the insurers (XL Specialty, Twin City Fire, Allianz Global Risks US, Argonaut, and Allied World) filed suit three days before the insureds, both suits were filed “contemporaneously” under Delaware law and that the insurers had failed to demonstrate any “overwhelming hardship” necessary to dismiss the case. The court also found that, since the insurers were all licensed to do business in Delaware, they could not show overwhelming hardship. Thus, the policyholder’s preference to litigate its insurance claims in Delaware must stand.

Background

CVR Energy is a Delaware entity with its principal place of business in Texas. CVR Energy purchased D&O liability coverage from XL. The other insurers provided excess insurance that followed the form of the XL policy.

CVR Energy, four of its related entities, and two executives were named in one of two similar putative class action lawsuits alleging that the defendants manipulated the price of stock to CVR Energy’s benefit.

The insureds gave notice of the underlying class action lawsuits to the D&O insurers. On March 25, 2019, XL took the position that there may be coverage under the policy for CVR Energy and its related corporate affiliates, but that there was no coverage for the individual executives named in the lawsuits. CVR Energy proceeded to defend itself in the litigation, and the parties scheduled mediation in one underlying action for February 17, 2021. However, on January 8, 2021—more than 21 months after issuing its initial coverage position— XL sent a letter to CVR Energy noting that coverage may not be available for the lawsuit to be mediated. CVR Energy responded one week later, explaining why there was coverage and requested that XL confirm that it will be providing coverage in the upcoming mediation by February 3, 2021.

XL did not respond to CVR Energy’s letter and instead filed suit in Texas on January 27, 2021. The insureds filed suit in Delaware three days letter. The insurers moved to dismiss or stay the Delaware action, arguing that the Delaware action should be dismissed in favor of the “first filed” Texas action, which they contended involved the same parties and coverage dispute. In response, CVR Energy argued that both actions were contemporaneously filed and that, as such, traditional forum non conveniens analysis—barring the plaintiff from its chosen forum only where the defendant shows “overwhelming hardship”—should apply in lieu of the more rigid first-filed rule.

Discussion

The court agreed with the insureds. It acknowledged that Delaware courts may defer to a case filed first-in-time in another forum if that earlier action involves substantially the same parties and issues. However, if two cases are filed contemporaneously, then the traditional forum non conveniens framework applies and a defendant must show overwhelming hardship to have a case dismissed. Additionally, the court explained that, “merely using a timeline” to determine if a prior action was filed first was inappropriate. Instead, to avoid a “race to the courthouse,” Delaware courts may treat cases filed within “the same general timeframe” as contemporaneous. Furthermore, declaratory judgment actions filed in anticipation of the “natural plaintiff” bringing its own suit are not afforded any deference to a first-filed suit.

Applying those standards to CVR Energy’s Delaware suit, the court found that “the Insurers engaged in a ‘race to the courthouse’” because they did not deny coverage until 2021 and filed the Texas action without additional notice or warning to the insureds. The court also concluded that the insureds were the “natural plaintiff” in the insurance coverage dispute. Therefore, the court would not “defer to the [i]nsurers’ choice of forum” and found that the suits were contemporaneously filed.

Accordingly, the forum non conveniens framework applied, which required the insurers to demonstrate “overwhelming hardship” based on factors such as relative ease of access to proof, availability of compulsory process for witnesses, whether the controversy is dependent on Delaware law, and other practical problems that would make trial easy, expeditious, and inexpensive. The court did not need to perform that analysis, however, because the insurers ignored the balancing test completely in favor of the “first-filed” rule and did not attempt to meet their burden to dismiss the case.

Because the insurers did not address the relevant forum non conveniens factors in their opening brief, the issue was deemed waived and the insurers could not meet their burden of proof. Even if they did not waive the issue, the court reasoned, they could not prove an overwhelming hardship by litigating in Delaware because all insureds are licensed to do business in Delaware and XL is a Delaware corporation.

This case continues a trend of Delaware rulings in favor of policyholders on a number of key issues common to insurance coverage disputes, ranging from advancement of defense costs to allocation. The CVR Energy ruling is further support for the position advocated by the Delaware Supreme Court earlier this year in Dole that companies incorporated in Delaware and their insured officers and directors deserve the benefits of Delaware law as applied by Delaware courts. Finally, the ruling demonstrates that, even if an insurer races to the courthouse to force litigation of a coverage dispute in a more favorable forum, being first may not always be enough, especially in Delaware.