Coverage Analysis
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DELAWARE

  ACCIDENTS OR OCCURRENCES

  Delaware has adopted a "subjective" analysis of "expected or intended." However, in Farmer in the Dell Enterprises v. Farmers Mut. Ins. Co., 514 A.2d 1097 (Del. 1986), the Delaware Supreme Court declined to adopt a rule of "complete subjectivity," holding instead that it is sufficient to show that the insured acted with some intent to injure, so long as the "reasonably foreseeable" to the insured at the time that the injury that actually followed would occur.  In New Castle County v. Hartford Acc. & Ind. Co., 725 F.Supp. 800 (D. Del. 1989), affirmed in part, reversed in part, 933 F.2d 1162 (3d Cir. 1991), Judge Latchum amplified on this analysis in the context of a pollution claim, holding that whether pollution was intended or even "substantially foreseeable must be analyzed in the context of what was known at the time concerning the relative toxicity of waste materials, soil and groundwater characteristics and the likelihood of pollution resulting from the insured's deliberate actions.

  A settlement based upon civil penalties and fraud is not covered under an “occurrence” policy.  Hercules, Inc. v. AIG Aviation, Inc., New Castle No. 98C-05-124 (Del. Super. January 7, 2000).  

  An intent to injure may be inferred in cases of sexual assaults against minors, where the insured's conduct is deemed inherently injurious as a matter of law. Motley v. New Castle Mut. Ins. Co., 1992 WL 52206 (Del. Super. 1992).

  Applying Farmer in the Dell, Judge Steele ruled in E.I. duPont v. Admiral Ins. Co., 1996 Del. Super. LEXIS 48 (Del. Super. February 22, 1996) that duPont has the burden of proving by a preponderance of the evidence that it was not reasonably foreseeable to its employees at the time that pollution would result from their intentional dumping of chemical wastes.  The court declined to adopt the insurer's proposed "substantial probability" standard or duPont's suggested "substantial certainty" test.
 

  ALLOCATION AND SCOPE ISSUES

  Applying Missouri law, the Delaware Supreme Court ruled in 1994 that a trial court had erred in declaring that pollution claims involving multiple policies should be allocated on a "time on the risk" basis.  Instead, the court ruled in Monsanto Co. v. C.E. Heath Compensation and Liability Ins. Co., 652 A.2d 30 (Del. 1994) that the "all sums" language permitted an insured to recover an insurer's indemnity limits in full under any triggered policy.  However, the court issued a clarifying opinion on January 10, 1995, denying that it had reached this result on the basis of a "joint and several" theory.

  The Delaware Supreme Court initially agreed to accept an interlocutory appeal of Judge Steele's ruling that claims arising out of pollution occurring over a period of years must be pro-rated among all applicable period on a "time on the risk" basis but ultimately elected to dismiss the appeal when it became clear that this would not be dispositive of the entire case.  E.I. DuPont v. Allstate Ins. Co., No. 435 (Del. January 1997).

  Judge Silverman has since declared in Hercules Inc. v. Aetna Casualty & Surety Co., No. 92C-10-105 (Del. Super. Ct. January 14, 1998) that it would be inappropriate to apply a theory of "joint and several liability" to the carriers for a claim involving gradual damage.  Instead, the trial court ruled that the parties should only be liable in proportion to the time period that their policies covered the risk, including a share to Hercules for the period that it was self-insured.  Judgment entered on this basis in August 1999.
 

  BAD FAITH

  Unfair or deceptive consumer practices are proscribed by Del. Code Ann. Title 6 Section 2511 (1975 & Supp. 1992). Unfair claims handling by insurers is regulated under Del. Code Ann. tit. 18 § 2304(16) (1974).

  A plaintiff seeking to recover for bad faith must show that the insurer lacked a reasonable basis for not paying benefits, along with the insurer’s knowledge or reckless disregard of the fact that it lacked a reasonable basis for denying the claim. Claussen v. Nat’l Grange Mut. Ins. Co., 730 A.2d 133 (Del. Super. Ct. 1997).

  The Delaware Supreme Court has ruled that an insurer may be forced to produce otherwise privileged reports from its lawyers if it placed the documents at issue in a bad faith case.  The court declared that “a party cannot force an insurer to waive the protections of the attorney/client privilege merely by bringing a bad faith claim.  Where, however, an insurer makes factual assertions in defense of a claim which incorporate, expressly or implicitly, the advice and judgment of counsel, it cannot deny an opposing party “an opportunity to uncover the foundation for those assertions in order to contradict them.”  Tackett v. State Farm Fire and Casualty Insurance Company, 653 A.2d 254, 259 (Del. 1995).
 

  BREACH OF POLICY CONDITIONS

  The insurer must show prejudice.  Nationwide Mut. Ins. Co. v. Starr, 575 A.2d 1083, 1088 (Del. 1990).  Prejudice must be determined based upon loss of substance and not merely loss of opportunity for the insurer to follow its established procedures.  Falcon Steel Co, Inc. v. Maryland Cas. Co., 366 A.2d 512, 514 (Del. 1976).  
 

  BROAD FORM COVERAGES

  A developer’s claim that the County violated his constitutional rights by re-zoning or refusing to issue building permits for his property have been found to allege a claim for “personal injury” as involving “the wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor.  In New Castle County v. National Union Fire Ins. Co. of  Pittsburgh, PA, 174 F.3d 338 (3d. Cir. 1999), the Third Circuit ruled that coverage was not limited to acts committed by or on behalf of an owner, landlord, or lessor, as the U.S. District Court for the District of Delaware had ruled and instead must be deemed ambiguous and interpreted in favor of coverage.  The court declared that the exclusion was unclear with respect to whether “its” modified the room, dwelling or premises” that a person occupies or the “person” that occupied said premises.  The case was therefore remanded back to the District Court for determination of whether the underlying claims were in the nature of an action for invasion of the right of private occupancy or whether, as National Union contended, this “invasion” coverage was only intended to extend to claim in the landlord-tenant context or that alleged tangible interference with a plaintiff’s possessory interest.   On remand, the District Court found that the terms were unambiguous but the Third Circuit held that the court had impermissibly relied on the doctrine of ejusdem generis and should instead have used a common sense meaning.  In New Castle County v. National Union Fire Insurance Company of Pittsburgh, 243 F.3d 744 (3rd Cir. 2001), the court ruled that “invasion of the right of private occupancy” was not limited to claims similar to those for “wrongful entry or eviction.”  In particular, the majority focused on the fact that although this language has been disputed in hundreds of cases for the past years, insurers have declined to add language that would clearly limit the scope of “invasion” coverage to actions involving possessory rights to real property.  Writing in dissent, Justice Scirica concluded that the covered offenses must be read as a whole and that, understood in context, the District Court had appropriately ruled that National Union did not owe coverage for allegations that the County had violated the plaintiff’s rights to due process and equal protection when it re-zoned the property.

  Earlier, a state trial court had ruled that groundwater contamination did not involve an invasion of the plaintiff's possessory rights or an "invasion of the right of private occupancy" in National Union Fire Ins. Co. of Pittsburgh, PA v. Rhone-Poulenc, Inc., New Castle No. 87-C-SE-11 (Del. Super. May 19, 1993).
 

  BURDEN OF PROOF

  Insured has the burden of demonstrating that its claim is within the scope of coverage.  New Castle County v. Hartford Acc. & Ind. Co., 933 F.2d 1162 (3d Cir. 1991).  Although the burden of proof for exclusions is on insurers, insureds must prove the exception to an exclusion as that has the effect of reinstating coverage. E.I. DuPont v. Allstate Ins. Co., 693 A.2d 1059 (Del. 1997)("sudden and accidental" exception to pollution exclusion).  Prior to DuPont, federal courts had suggested that insurers had the entire burden with respect to the exclusion. New Castle County v. Hartford Acc. & Ind. Co., 778 F.Supp. 812 (D. Del. 1991) and Remington Arms Co. v. Liberty Mutual Ins. Co., 810 F.Supp. 1406 (D. Del. 1992).
 

  CHOICE OF LAWS

  Delaware follows the Restatement §188 approach ("most significant relationship").  Oliver B. Cannon v. Dorr-Oliver, Inc., 394 A.2d 1160, 1166 (Del. 1978) and Terra Nova Ins. Co., Ltd. v. Nanticoke Pines, Ltd., 743 F.Supp. 293 (D. Del. 1990).  In Chesapeake Utilities Corp. v. American Home Assur. Co., 704 F.Supp. 551 (D. Del. 1988), the federal district court ruled that the law of the state where pollution occurs governs policy issues.  However, Judge Poppiti has since ruled in several state cases that the location of the pollution does not outweigh the facts that "the place of contracting, negotiation and performance of the contracts" creates "the predominant, substantial contacts and most significant relationship" to the insured risks. Monsanto Co. v. Aetna Cas. & Surety Co., New Castle No. 88C-JA-118 (Del. Super. October 29, 1991).
 

  "DAMAGES"

  The Supreme Court of Delaware ruled in E.I. du Pont v. Allstate Ins. Co., 686 A.2d 152 (Del. 1996) that liability policies are not intended to provide coverage for clean up costs incurred on the insured's property unless they are in response to damage to third party property.  The court ruled that the mere fact that such remedial measures may prevent future damage to third party property or groundwater is not itself a basis for  coverage.  Despite the absence of "mitigation" clauses in these policies, the court held that its 1992 ruling in Rhone-Poulenc was generally applicable to liability policies.

  Superfund "response costs" were held to be covered in Chesapeake Utilities Corp. v. American Home Assur. Co., 704 F.Supp. 551 (D. Del. 1988); E.I. duPont v. Admiral Ins. Co., 1996 Del. Super. LEXIS 35 (Del. Super. January 30, 1996) and National Union Fire Ins. Co. v. Rhone-Poulenc Basic Chemicals Co., New Castle No. 87C-SE-11 (Del. Super. January 16, 1992).  In Rhone-Poulenc, Judge Poppiti ruled, however, that costs incurred solely to mitigate the possibility of future injuries was not covered.  This latter finding was affirmed by the Delaware Supreme Court in November 1992.  The court ruled that the mitigation provision in Rhone Poulenc's policies had been properly interpreted by the trial court as "precluding coverage for the cost of measures taken or to be taken to prevent the further release of contaminants from the Tybouts Corner municipal landfill."  Further, in E.I. du Pont v. Allstate Ins. Co., 686 A.2d 152 (Del. 1996) that its analysis in Rhone-Poulenc even extended to policies that lacked such mitigation provisions.  The court ruled that preventive measures taken because of property damage on its own property were not covered.
 

  DISCOVERY ISSUES

   --Claims Manuals
 

   --Drafting History
 

   --Other Policyholder Claims

  Discovery barred in E.I. du Pont de Nemours & Co. v. Allstate Ins. Co., New Castle No. 89C-AU-99 (Del. Super. October 4, 1994); Sequa Corp., et al. v. Aetna Cas. & Surety Co., et al., Del. No. 89C-AP-1-1-CV (Del. Super. March 16, 1994); Monsanto Co. v. Aetna Casualty and Surety Co., No. 88C-JA-118 (Del. Super. May 30, 1990)("such discovery is of marginal relevance" because "there are simply too many variables to render the information relevant and meaningful").

   --Reinsurance Information

  Courts have denied discovery of reinsurance information on the grounds that it is irrelevant to the issues in a coverage dispute. Monsanto Co. v. Aetna Casualty & Surety Co., No. 88C-JA-118 (Del. Super. May 30, 1990):

[A]bsent an overriding consideration, insurers should be unimpeded in their effort to obtain internal financial security and should not be fearful that the reinsurance process will be used against them in coverage litigation.
 

   --Reserves

  As the court stated in National Union Fire Ins. Co. v. Stauffer Chem. Co., 558 A.2d 1091, 1097-98 (Del. Super. 1989), "the fact that reserves were established does not necessarily mean that the insurer believes that such claims would be covered by the policies.  Similarly, in Hoechst Celanese Corp. v. National Union Fire Ins. Co., 623 A.2d 1099 (Del. Super. 1991), the Superior Court declared that (reserves do not represent an admission or evaluation of liability and are irrelevant to issues between insurer and insured.

  DUTY TO DEFEND

  An insurer's duty to defend is limited to suits which asserts claims for which the insurer has assumed liability under its policy.  Continental Cas. Co. v. Alexis I. duPont School District, 317 A.2d 101, 103 (Del. 1974).  Delaware follows a "comparison" test for determining whether a duty to defend exists. Terra Nova Ins. Co., Ltd. v. Nanticoke Pines, Ltd., 743 F.Supp. 293 (D. Del. 1990).  In National Union Fire Ins. Co. v. Rhone-Poulenc Basic Chemicals Co., New Castle No. 87C-SE-11 (Del. Super. January 16, 1992), the trial court reaffirmed the use of a strict "four corners" test, refusing to consider extrinsic evidence on which insurers sought to defense their claimed defense obligations. Pre-suit "defense" costs were held covered in Lone Star Industries, Inc. v. Liberty Mutual Ins. Corp., No. 89C-SE-187-1-CV (Del. Super. August 28, 1990).

  The insurer must defend until it is apparent that there is no potential for coverage or until such times as its policy limits are exhausted.  An insurer may not prematurely terminate its defense obligation by tendering its limits to the insured or paying them into court. Continental Ins. Co. v. Burr, 706 A.2d 499 (Del. 1998)(payment through interpleader procedure didn't cut off duty to defend).  

  PRP letter held not to be a "suit" in Harleysville Mutual Ins. Co. v. Sussex County, C.A. No. 92-1444 (D. Del. August 27, 1993), aff'd, 46 F.3d 1116 (3d Cir. 1994).  While leaving the door open to adopting a more expansive view of "suit" in a future case, the Third Circuit found that the notices in question were insufficiently coercive to be a "suit."

  The trial court ruled in Hercules that public relations costs and fines are covered as arising out of the underling "property damage."  However, it found issues of fact as to whether certain salaries of the insured's employees should be covered and "refused to find that public relations expenses were covered, however, as there was no evidence that these expenditures enhanced the insured's litigation exposure nor did they deal directly with property damage.
 

  ESTOPPEL AND WAIVER

  The scope of coverage may not be extended by waiver.  Martin v.  Colonial Ins.  Co. of California, 644 F.Supp.  349, 352 (D.  Del.  1986).  

  An insurer's failure to raise a coverage defense or to supplement an earlier denial letter will not create an estoppel unless it prejudices the insured. Martin v. Colonial Ins. Co., 644 F.Supp. 349 (D. Del. 1986).
 

  EXCESS INSURERS
  Policy that was written excess of "collectible" insurance was required to drop down over insolvent primary policy in Playtex FP v. Continental Cas. Co., 622 A.2d 1074 (Del. Super. 1992).
 

  KNOWN LOSS

  Held only to bar coverage if the insured knew that the losses were "substantially probable to occur" before the policies were issued. National Union Fire Ins. Co. v. Rhone-Poulenc Basic Chemicals Co., New Castle No. 87C-SE-11 (Del. Super. January 16, 1992).  Insurers whose policies incepted after the insured received demand letters advising of contamination were dismissed in New Castle County v. Hartford Acc. & Ind. Co., 685 F.Supp. 1321 (D. Del. 1988).  However, the insured's knowledge that toxic shock syndrome claims were likely did not bar coverage for individual losses had not yet occurred in Playtex, Inc. v. Columbia Casualty Co., New Castle No. 88C-MR-233 (Del. Super. September 20, 1993). 
 

  NUMBER OF OCCURRENCES

  No cases.
 

  POLICY INTERPRETATION

  Policy language is treated as ambiguous if it allows "two or more reasonable interpretations."  New Castle County v. Hartford Accident & Ind., 933 F.2d 1162 (3d Cir. 1991) and Hallowell v. State Farm, 443 A.2d 925, 926 (Del. 1982).
 

  POLLUTION EXCLUSION

  On May 30, 1997, the Delaware Supreme Court upheld the pollution exclusion, declaring that it unambiguously limits coverage to discharges of pollutants that are both initially abrupt and unintended.  In E.I. DuPont v. Allstate Ins. Co., 693 A.2d 1059 (Del. 1997), the court ruled that (1) the insured has the burden of proving the exception to the exclusion; (2) sudden means abrupt; (3) drafting history is not a basis for introducing ambiguity into words whose meaning is otherwise plain; (4) the focus of the exclusion is on the initial release; and (5) regulatory estoppel does not apply in Delaware.  As to this latter, issue, the court ruled that there had been no misrepresentations made to Delaware insurance regulators comparable to those alleged in Morton and that the fact that the State of Delaware might be forced to incur clean up costs in situations where such exclusions precluded the availability of liability insurance is not a basis for "rewriting or otherwise avoiding the clear terms of a contract."  

  The Supreme Court's ruling was consistent with earlier trial court decisions, such as Monsanto and North American Phillips Corp. v. Aetna Casualty & Surety Co., No. 88C-JA-155 (Del. Super. March 10, 1995).

  A trial court has since ruled in Hercules Inc. v. Aetna Casualty & Surety Co., No. 92C-10-105 (Del. Super. Ct. January 14, 1998) that polluter is not precluded from obtaining coverage for damages attributable to specific "sudden and accidental" discharges merely because of a substantial portion of the contamination resulted from excluded gradual or intentional releases. 

  Earlier, in New Castle County v. Hartford Acc. & Ind. Co., 673 F.Supp. 1359 (D. Del. 1987), affirmed in part, reversed in part, 933 F.2d 1162 (3d Cir. 1991), the Third Circuit ruled that "sudden" was ambiguous but that "accidental" barred coverage if the cause of pollution (as distinguished from any resulting injury) was intentional.  On remand, the federal district court ruled that the county's deliberate dumping at its landfill was "accidental" since it had not known at the time that surface dumping could leach into groundwater. New Castle County v. Hartford Acc. & Ind. Co., 778 F.Supp. 812 (D. Del. 1991).  However, the Third Circuit reversed, holding that the court's "known contaminant" theory was just "plain wrong" and that the exclusion clearly applied whether or not the County had known that what it was dumping would cause leachate.  New Castle County v. Hartford, 970 F.2d 1267 (3d Cir. 1992).  See also Remington Arms Co. v. Liberty Mutual Ins. Co., 810 F.Supp. 1406 (D. Del. 1992).

  Discovery master refused to permit discovery into drafting history of pollution exclusion and other policy terms, holding in Sequa Corp. v. Aetna Casualty & Surety Co., New Castle No. 89C-AP-1-1 (Del. Super. February 13, 1996) holding that such evidence was irrelevant to meaning of terms.

  "Absolute" pollution exclusion upheld in Sequa Corp. v. Aetna Cas. & Surety Co., New Castle No. 89C-AP-1 (Del. Super. May 21, 1992)(applying New York law).
 

  PUNITIVE DAMAGES

  Insurable.  Valley Forge Ins. Co. v. Jefferson, 628 F.Supp. 502 (D. Del. 1986).  A state trial court also ruled in Wilson v. Chem-Solve, Inc., No. 85 C-MY-1 (Del. Super. October 14, 1988) that public policy does not bar coverage for civil penalties assessed against insured for violation of state environmental statutes.  But see, Whalen v. On-Deck, 514 A.2d 1072 (Del. 1986).
 

  STANDARDS FOR POLICY INTERPRETATION

  "Reasonable expectations" doctrine adopted in Steigler v. INA, 384 A.2d 398, 400 (Del. 1987).  

  Even if the insurer's position is "reasonable", Delaware courts will find ambiguity if an alternative "reasonable" view exists that favors coverage. New Castle County v. Hartford Acc. & Ind. Co., 725 F.Supp. 800 (D. Del. 1989), affirmed in part, reversed in part, 933 F.2d 1162 (3d Cir. 1991).

 The Third Circuit has ruled that the doctrine of contra proferentum be applied even to a sophisticated insured where the policy at issue was drafted entirely by the insurer.  New Castle County, 933 F.2d at 1189.  
 

  THEORIES OF ALTERNATIVE LIABILITY

  No cases.
 

  TRIGGER OF COVERAGE

  "Continuous trigger" adopted for pollution claims in New Castle County v. Hartford Acc. & Ind. Co., 725 F.Supp. 800 (D. Del. 1989), affirmed in part, reversed in part, 933 F.2d 1162 (3d Cir. 1991) and National Union Fire Ins. Co. v. Rhone-Poulenc Basic Chemicals Co., New Castle No. 87C-SE-11 (Del. Super. January 16, 1992).  In the New Castle County case, the federal district court refused to permit proration of CNA's liability, holding that if a given policy is triggered, it must respond in full. 

  The Delaware Supreme Court predicted that New York courts would follow an "injury in fact" approach for products claims in Hoechst Celanese Corp. v. Certain Underwriters at Lloyd's, 673 A.2d 163 (Del. 1996).  The court ruled that the trial court had erred in ruling that coverage was not triggered for homeowners' suits against a plumbing fixture manufacturer until the Celcon fixtures failed or the homeowner replaced them.  Applying New York law, the court ruled that injury in fact could begin before leaks appeared, through a process of cracking, deterioration or corrosion commencing at installation.  Further, the court ruled that the date that a homeowner decided to deal with a leaking fixture necessarily post-dated the commencement of property damage.  While seemingly adopting an Eljer trigger, the court remanded the case to the trial court to resolve fact questions as to when injury occurred.

  In Hercules Inc. v. Aetna Casualty & Surety Co., No. 92C-10-105 (Del. Super. Ct. January 14, 1998) the court ruled that Hercules was not entitled to coverage under policies issued prior to the date that it acquired any of these properties or prior to the date that it acquired the corporate subsidiaries giving rise to these losses.  The court also granted summary judgment to carriers coming on the risk after the date that Hercules had sold the Florida site giving rise to the claim.

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