Viacom Inc. v. U.S. Specialty Insurance Co. ( 2023 )

SUPERIOR COURT
OF THE
STATE OF DELAWARE
ABIGAIL M. LEGROW LEONARD L. WILLIAMS JUSTICE CENTER
JUDGE 500 N. KING STREET, SUITE 10400
WILMINGTON, DELAWARE 19801
TELEPHONE (302) 255-0669
Submitted: January 25, 2023
Decided: February 16, 2023
To: All Counsel of Record
Re: Viacom Inc., n/k/a Paramount Global v. U.S. Specialty Insurance Co., et al.
(N22C-06-016 AML CCLD)
National Amusements, Inc., et al. v. Endurance American Specialty
Insurance Co., et al. (N22C-06-018 AML CCLD)
Shari E. Redstone v. ACE American Insurance Co., et al. (N22C-06-020
AML CCLD)
Dear Counsel,
This short letter opinion addresses the following motions: (1) Certain
Defendants’ Motion to Dismiss or Stay in Viacom v. U.S. Specialty, et al., N22C-
06-016 AML CCLD (the “Viacom Coverage Case”); (2) the Unique 2016 Insurers’
Motion to Dismiss in the Viacom Coverage Case; and (3) Certain Defendants’
Motion to Dismiss or Stay in Redstone v. ACE American Insurance Co., et al.,
N22C-06-020 AML CCLD (the “Redstone Coverage Case”).1 The law in this area
1
Plaintiffs’ Motion to Dismiss Relation-Back Counterclaims and to Strike Relation-Back
Affirmative Defenses in National Amusements, Inc., et al. v. Endurance American Specialty
February 16, 2023
Page 2
is settled, and an extensive analysis of that precedent in the context of the pending
motions would not meaningfully add to the law’s development. In other words, the
motions are straightforward and can be resolved with a concise explanation of the
Court’s reasoning.
Factual and Procedural Background
Only a brief factual background is warranted. There are three related
insurance coverage disputes pending before the Court regarding coverage for two
actions pending in the Court of Chancery (collectively, the “Chancery Cases”). The
Chancery Cases arise from the 2019 merger between Viacom Inc. and CBS
Corporation and assert Viacom’s and CBS’s directors, officers, and controlling
shareholders breached their fiduciary duties in connection with the merger.
Litigation in the Chancery Cases has involved exhaustive pretrial discovery and
motion practice, and trial in the first action is scheduled to proceed this summer.
The damages sought in the Chancery Cases far exceed the various towers of
insurance implicated and at issue in the coverage cases pending before this Court.
In the three related coverage disputes, Viacom, National Amusements, Inc.,
and Shari Redstone seek insurance coverage for damages they ultimately may be
ordered to pay as a result of a settlement or judgment in the Chancery Cases. The
Insurance Co., et al., N22C-06-018 AML CCLD remains under advisement. A separate decision
will be issued with respect to that motion.
February 16, 2023
Page 3
Viacom Coverage Case and the Redstone Coverage Case seek coverage under
Viacom’s tower of directors and officers (“D&O”) liability insurance policies.2
Although Viacom’s insurers have paid the defense costs incurred by some of their
insureds in the Chancery Cases,3 they have denied any coverage obligation for a
judgment or settlement. Among the reasons the insurers articulate for denying
coverage is: (i) a dispute as to which policy period is implicated by the Chancery
Cases; and (ii) whether the so-called “Bump Up Exclusion” in Viacom’s policies
bars coverage for any damages that might be awarded in the Chancery Cases. There
are other potential disputes between the parties with respect to coverage, including
“conduct exclusions” that could be implicated if a judgment is entered, and
allocation of coverage in the event there are both covered and uncovered losses.
Although the parties mediated the coverage disputes, the insurers steadfastly
maintain there is no coverage and therefore have refused to offer any money toward
possible settlement of the underlying Chancery Cases.
In June 2022, the plaintiffs filed their complaints asserting declaratory
judgment and anticipatory breach of contract claims relating to the insurers’ refusal
to acknowledge a coverage obligation. The complaints in the Viacom Coverage
2
In the third coverage action, National Amusements, Inc. v. Endurance American Specialty
Insurance Co., et al., N22C-06-018 AML CCLD, the plaintiffs seek coverage under National
Amusements, Inc.’s D&O insurance policies. That action is not the subject of this opinion.
3
Viacom’s insurers have denied coverage for Ms. Redstone’s defense costs and also have denied
any coverage obligation for any settlement or adverse judgment entered against her in the Chancery
Cases. See Compl. ¶ 3 in Redstone v. Ace American Insur. Co., et al., N22C-06-020 AML CCLD.
February 16, 2023
Page 4
Case named as defendants the insurers for both Viacom’s 2019 insurance tower and
its 2016 insurance tower because some of the 2019 insurers have taken the position
that the 2016 tower, rather than the 2019 tower, is implicated by the claims in the
Chancery Cases. Some of the defendant insurers answered the complaints, while
others (collectively, the “Moving Defendants”) moved to dismiss on the basis that
the plaintiffs’ claims are not ripe and will not be ripe unless and until the Chancery
Cases resolve through settlement or by entry of a judgment against the insureds. The
Moving Defendants additionally argue the claims are not ripe because the plaintiffs
failed to comply with an alternative dispute resolution clause in the insurance
policies. Finally, the insurers who issued policies in the 2016 tower, but did not
issue policies in the 2019 tower (the “Unique 2016 Insurers”) argue the complaint
fails to state a claim against them because the plaintiffs only are seeking coverage
under the 2019 tower.
Analysis
The Moving Defendants’ primary argument is that this coverage dispute is not
ripe. The Court considers a motion to dismiss for ripeness under Superior Court
Civil Rule 12(b)(1).4 Although the plaintiffs have alleged breach of contract claims,
the focus of the parties’ coverage dispute is contained in—and likely can be resolved
4
Energy Transfer Equity, L.P. v. Twin City Fire Insur. Co., 2020 WL 5758027, at *5 (Del. Super.
Sept. 28, 2020).
February 16, 2023
Page 5
through—the declaratory judgment claims. In order for this Court to exercise its
jurisdiction to award declaratory relief, there must be an “actual controversy”
between the parties.5 Delaware courts consider four factors in determining whether
an “actual controversy” exists; the only factor the Moving Defendants challenge is
whether the controversy is “ripe for judicial declaration.”6
Delaware courts adopt a “common sense” approach to assessing ripeness.
That approach balances the interests of the party seeking immediate relief against
the interests of a court in refraining from addressing questions until they are in a
concrete or final form.7 Generally speaking, a dispute is ripe if “litigation sooner or
later appears to be unavoidable and where the material facts are static.” 8 Several
factors, known as the Schick factors, are relevant to this “common sense” ripeness
analysis: (1) a practical evaluation of the plaintiff’s legitimate interests in a prompt
resolution of the question presented; (2) the hardship threatened by further delay in
resolving the question; (3) the possibility that future factual development might
affect the resolution; (4) the need to conserve scarce judicial resources; and (5)
respect for identifiable policies of law concerning the matter in dispute.9
5
10 Del. C. § 6501; Gannett Co., Inc. v. Bd. of Managers of the Delaware Criminal Justice Info.
Sys., 840 A.2d 1232, 1237 (Del. 2003).
6
See Stroud v. Milliken Enters., Inc., 552 A.2d 476, 479 (Del. 1989). The Unique 2016 Insurers
challenge two other factors, which are discussed briefly below.
7
XL Specialty Ins. Co. v. WMI Liquidating Trust, 93 A.3d 1208, 1217 (Del. 2014).
8
Id. at 1217 (quoting Julian v. Julian, 2009 WL 2937121, at *3 (Del. Ch. Sept. 9, 2009)).
9
Schick Inc. v. Amalgamated Clothing and Textile Workers Union, 533 A.2d 1235, 1239 (Del. Ch.
1987).
February 16, 2023
Page 6
Applied to the facts of this case, those factors weigh in favor of finding that
the plaintiffs’ declaratory judgment claims are ripe. The plaintiffs are named as
defendants in the two pending Chancery Cases, and their ability to assess the risks
associated with resolving the claims versus proceeding to trial hinges in no small
part on an understanding of the insurance coverage available. Delaying a decision
as to coverage could result in a substantial expenditure of party and judicial resources
to try a case the plaintiffs otherwise would resolve if they understood their exposure
risk. Application of the “Bump Up Exclusion” and determination of the relevant
policy period likely can be accomplished on the basis of the underlying pleadings
and the established facts in the Chancery Cases, and deciding those issues will not
impose unreasonably on judicial resources. Finally, allowing this case to proceed is
consistent with the purpose of the Declaratory Judgment Act, which is liberally
construed to “afford relief from uncertainty and insecurity with respect to rights,
status and other legal relations.”10
The Moving Defendants, however, insist the Delaware Supreme Court’s
decision in XL Specialty Insurance Co. v. WMI Liquidating Trust compels a different
conclusion.11 According to the Moving Defendants, XL Specialty stands for the
proposition that “any judgment as to the availability of indemnity coverage issued
10
10 Del. C. § 6512.
11
93 A.3d 1208 (Del. 2014).
February 16, 2023
Page 7
prior to a judgment or settlement of the underlying action would improperly rest on
the court’s predicted outcome of that underlying action” and therefore declaratory
judgment coverage claims are not ripe before the underlying action is resolved.12
The decision in XL Specialty was not nearly so broad. Rather, XL Specialty confirms
that ripeness depends on the type of case-specific analysis conducted above, and
coverage disputes become ripe when a plaintiff “establish[es] a ‘reasonable
likelihood’ that coverage under the disputed policies will be triggered.”13
In XL Specialty, the plaintiff sought a declaration as to whether a particular
tower of insurance would provide coverage for potential litigation that had not yet
been filed. Importantly, as the XL Specialty Court pointed out, another insurance
tower was providing coverage for defense costs, the plaintiff had not alleged that
that tower was close to being exhausted, and there were no facts from which the
Court could find a reasonable likelihood that any of the policies in the tower at issue
would be triggered.14 The Supreme Court reasoned that resolving coverage
questions under those circumstances “would necessarily be premised on uncertain
and hypothetical facts.”15
12
Opening Br. in Supp. of Mot. of Certain Defs. to Dismiss or in the Alternative Stay, N22C-06-
016 AML, at 17.
13
93 A.3d at 1218 (quoting Hoechst Celanese Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh,
Pa., 623 A.2d 1133, 1137 (Del. Super. 1992)).
14
Id. at 1222.
15
Id. at 1218.
February 16, 2023
Page 8
Notwithstanding that holding, XL Specialty and the cases that precede it make
clear that, in order to find the plaintiffs’ claims are ripe, the Court need not conclude
with certainty that the Moving Defendants’ policies will be triggered. A reasonable
likelihood of coverage is enough.16 In fact, several policies within Viacom’s 2019
tower already have been exhausted through the payment of defense costs. As set
forth above, there are disputes regarding the applicable policy period and the
meaning of the Bump Up Exclusion that can be resolved now on the basis of concrete
facts. If the plaintiffs prevail in their coverage claim, it is reasonably likely that a
settlement or judgment could exhaust the entire insurance tower at issue. Under
those circumstances, the plaintiffs’ claims are ripe.17
The Moving Defendants raise two other bases for dismissal. First, the Moving
Defendants contend Viacom’s policy contains an alternative dispute resolution
provision (the “ADR Provision”) and the plaintiffs did not allow the “cooling-off
period” in that provision to expire before filing their complaints. The ADR
Provision pertinently provides: “in the event of mediation, . . . no [] judicial
proceeding shall be commenced until at least 60 days after the date the mediation
16
Id. at 1217-18.
17
The plaintiffs acknowledge there may be other coverage issues that could arise depending on
the outcome of the Chancery Cases, including with respect to allocation and the conduct exclusion.
For the time being, however, there are disputes between the parties that are ripe for resolution by
this Court. If the plaintiffs prevail in the dispute regarding the Bump Up Exclusion, and the Court
determines the appropriate policy period implicated by the Chancery Cases, the Court could, if
necessary, stay the remaining claims until the Chancery Cases are resolved.
February 16, 2023
Page 9
shall be deemed concluded or terminated.”18 It is undisputed that: (i) the parties in
the underlying Chancery Cases mediated those disputes in January 2022; (ii) the
insurers and insureds engaged in a coverage-specific mediation in March 2022; and
(iii) in both those mediations, the insurers denied any coverage obligations. 19 The
plaintiffs filed their complaints in these cases in June 2022, more than 60 days after
the March mediation. The Moving Defendants, however, argue that another
mediation session occurred in May 2022, less than 60 days before the plaintiffs filed
suit, the mediation never was concluded or terminated, and the plaintiffs’ complaints
therefore were premature. The plaintiffs respond that the May mediation was not
related to coverage and point out that several insurers and Ms. Redstone’s coverage
counsel did not even participate in the May mediation.20
The Court cannot resolve a factual dispute in a pleadings-based motion, and
that alone is a sufficient basis to deny the motions to dismiss on the basis of the ADR
Provision. In addition, the plaintiffs present a compelling argument that the insurers
have uniformly denied coverage, did not change their position in either the January
or March mediation sessions, and the May mediation session did not relate in any
way to coverage disputes. Under those circumstances, it is reasonably conceivable
18
2019-2020 Chubb Primary Policy, Coverage Form § XXIV. Although the ADR Provision did
not require the insureds to mediate, they elected to do so and thereby became subject to the
requirements of that clause.
19
Decl. of Peter Welsh, Esq.; N22C-06-020 AML CCLD, dated Sept. 29, 2022, at ¶¶ 6-7
(hereinafter, “Welsh Decl.”).
20
Welsh Decl. ¶¶ 8-9.
February 16, 2023
Page 10
that the mediation could be “deemed concluded or terminated” in March 2022, such
that the complaints were filed after the cooling-off period expired. Dismissal on the
basis of the ADR Provision therefore is not appropriate at this time.
Finally, the Unique 2016 Insurers argue the plaintiffs’ claims against them in
the Viacom Coverage Case are not ripe because the plaintiffs only are seeking
coverage under Viacom’s 2019 tower. The Unique 2016 Insurers contend: (i) the
plaintiffs’ claims would not affect the Unique 2016 Insurers’ rights; (ii) there is no
adverse interest between the plaintiffs and the Unique 2016 Insurers; and (iii) the
dispute regarding the applicable policy period is not ripe. The Court disagrees. First,
the plaintiffs allege there is a dispute regarding which policy period was implicated
by the Chancery Cases, and some insurers in the 2019 tower who are not part of the
2016 tower have argued the 2016 policies are triggered for coverage. That dispute
is ripe for consideration and places the parties in this case in adverse positions, both
as between the various insurers and as to the plaintiffs.21 Second, the Unique 2016
Insurers’ participation in this action is consistent with the Declaratory Judgment Act,
which provides that “all persons shall be made parties who have or claim any interest
which would be affected by the declaration.”22 Third, the Court can determine what
21
See, e.g. Benefytt Techs., Inc. v. Capitol Specialty Insur. Corp., 2022 WL 16504, at *6-7 (Del.
Super. Jan. 3, 2022) (refusing to dismiss insured’s declaratory judgment action against insurer in
prior policy period when the various insurers were disputing which policy period applied because
the insured “ha[d] a legitimate interest in binding all potentially interested and at-risk insurers to
the judgment.”)
22
10 Del. C. § 6511.
February 16, 2023
Page 11
policy period is implicated now, without relying on hypotheticals, and it is
reasonably likely that the Unique 2016 Insurers’ policies could be triggered.
For the foregoing reasons, the motions to dismiss in the Viacom Coverage
Case and the Redstone Coverage Case are DENIED. The defendants shall answer
the various complaints and the parties shall confer regarding entry of Case
Management Orders in all three coverage cases. To the greatest extent possible,
scheduling and discovery should be coordinated among the three cases.
Additionally, within three days of this opinion’s issuance, the parties in the Viacom
Coverage Case shall contact chambers to obtain an argument date for Plaintiff’s
Motion for Partial Summary Judgment. Once that date is set, counsel shall submit a
stipulated briefing schedule. Having stayed briefing on the summary judgment
motion at the Moving Defendants’ request while the motions to dismiss were
resolved, the Court will expect Defendants to agree to prompt deadlines so the
summary judgment motion may be addressed as expeditiously as possible. IT IS
SO ORDERED.
Sincerely,
/s/ Abigail M. LeGrow
Abigail M. LeGrow, Judge