2020 Q4 Decisions Update

In re Solera Insurance Coverage Appeals, No. 413, 2019 (Del. Oct. 23, 2020)


Solera Holdings, Inc. (Solera), a software company, carried excess D&O insurance policies, with coverage up to US$55 million, from three different insurers. The Delaware Superior Court previously found that the D&O insurance policies covered costs stemming from an appraisal action against Solera following Solera’s acquisition by an affiliate of Vista Equity in 2016 for US$55.85 a share. After a full hearing, the trial court determined that fair value was US$53.95, less than what Solera’s shareholders received in the acquisition. But Solera was ordered to pay US$38 million in pre-judgment interest, and incurred US$13 million in fees in connection with those proceedings. Solera sought to recover those amounts under its D&O policies. The D&O policy language at issue related to losses resulting from “any Securities Claim,” a term specifically defined in the policy as “any actual or alleged violation” of a securities law.

The court’s analysis centered on whether an appraisal action could reasonably be described as stemming from a “violation” of a law or rule regulating securities and whether allegations of wrongdoing were required for a matter to be a “Securities Claim” under the D&O Policy. The trial court held that a “violation” did not require an allegation of wrongdoing, and thus a demand for appraisal – which “is an allegation that the company contravened” the right of shareholders to receive fair value – was a “Securities Claim” under the policy.

Reversing that decision, the Delaware Supreme Court held that the plain meaning of “violation” indicates an element of wrongdoing and that the wrongdoing is largely irrelevant to an appraisal action. The statutory appraisal action, the court held, was designed to remedy a specific problem of individual shareholders withholding consent and blocking mergers by providing a method for such shareholders to obtain a neutral, “independent” assessment of fair value. The court acknowledged that there are cases in which courts look at indicators of unfairness in the sales process in ascertaining fair value, which could suggest that wrongdoing was an important consideration, but held that this inquiry only went to the weight of the corporation’s evidence of fair value, but was not otherwise relevant to an appraisal action.

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