We previously discussed the Superior Court of Delaware’s finding in Jarden, LLC v. Ace American Insurance Co. et. al that an appraisal proceeding was not covered under a directors and officers policy because it does not seek redress for a wrongful act.” Now, the Delaware Supreme Court has adopted the lower court’s opinion and order in full, agreeing with the insurers in finding that an appraisal action was not covered under the policy agreements. Case No. 273, 2021 (Del. Mar. 3, 2022)
In December 2015, Jarden, LLC entered into a merger agreement with Newell Rubbermaid, Inc. Prior to the merger closing, several dissenting Jarden stockholders delivered written appraisal demands to Jarden. At the closing date, the merger price was valued at $59.21 per share.
Following closure of the merger, the stockholders that voted against the merger and submitted appraisal demands filed appraisal petitions in the Delaware Court of Chancery, which were ultimately consolidated in In re Appraisal of Jarden Corporation, C.A. No 12456-VCS. The crux of the stockholders’ argument was that the sales process leading up to the merger was flawed and unfair to the stockholders. The court agreed with the stockholders, and after a four-day trial, concluded that Jarden’s fair value at the time of the merger was $48.31 per share, which was nearly $11.00 below the merger price. The court also held that the petitioners were entitled to pre-judgment and post-judgment interest. All in all, Jarden was ordered to a pay a judgment of $177,406,216.48, which consisted of the fair value of the petitioners’ shares plus interest that had accrued while the court was deciding the case.
Jarden asked its primary provider, Ace American Insurance Company, along with five of its excess insurers, to cover the defense and interest costs of the appraisal proceedings. However, the insurers refused, stating that the appraisal action was not covered under Jarden’s insurance policy because the action did not stem from an alleged “wrongful act.”
The insurers moved to dismiss, and the Superior Court granted the motion. The court agreed with the insurers and found that the appraisal action was not covered under the policy agreements. The court held that the appraisal action was not a claim for a wrongful act, and that even if it was, it did not arise out of act committed before the run-off date.
In their appeal to the Delaware Supreme Court, Jarden argued that the Superior Court ultimately rewrote the policy to provide less coverage, by giving a narrow definition for the “wrongful act” language and taking it to mean that coverage is only afforded for acts of wrongdoing that required redress. Ace argued, among other things, that previous Delaware Supreme Court rulings held that an appraisal proceeding does not involve any inquiry into claims of wrongdoing.
Ultimately, the Supreme Court denied Jarden’s appeal, forcing the company to cover its own defense costs and pay the $38 million in accrued interest to the dissenting shareholders. The Order simply stated that the Supreme Court was affirming the ruling of the Superior Court “on the basis and for the reasons assigned by the Superior Court in its Memorandum Opinion dated July 30, 2021.”
