Northrup Grumman Innovation Systems, Inc. v. Zurich American Insurance Co.

Superior Court of Delaware·Decided March 1, 2021·No. N18C-09-210 PRW CCLD·Published

Opinion

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

NORTHROP GRUMMAN ) INNOVATION SYSTEMS, INC., )

Plaintiff, )

)

v. )

)

ZURICH AMERICAN INSURANCE ) COMPANY, CERTAIN UNDERWRITERS ) AT LLOYDS OF LONDON, ) C.A. No. N18C-09-210 CONTINETAL CASUALTY INSURANCE ) PRW CCLD COMPANY, CAROLINA CASUALTY ) INSURANCE COMPANY, TRAVELERS ) CASUALTY AND SURETY COMPANY ) OF AMERICA, NATIONAL UNION FIRE ) COMPANY OF PITTSBURGH, PA, U.S. ) SPECIALTY INSURANCE COMPANY, ) TWIN CITY FIRE INSURANCE COMPANY, ) ALLIED WORLD ASSURANCE ) COMPANY, STARR INDEMNITY & ) LIABILITY COMPANY, XL SPECIALTY ) INSURANCE COMPANY, BERKLEY ) INSURANCE COMPANY, QBE ) INSURANCE CORPORATION, )

Defendants. )

Submitted: February 23, 2021 Decided: March 1, 2021

Upon Defendant Alliant Insurers’ Application for Certification of an Interlocutory Appeal DENIED

ORDER

This 1st day of March, 2021, upon consideration of Defendants National

Union Fire Insurance Company of Pittsburgh, Pa., U.S. Specialty Insurance

Company, Twin City Fire Insurance Company, Allied World National Assurance

Company, Travelers Causality and Surety Company of America, and Starr

Indemnity and Liability Company’s (collectively, the “Alliant Insurers”) application

under Rule 42 of the Supreme Court for an order certifying an appeal from an

interlocutory order of this Court, dated February 2, 2021, it appears to the Court that:

(1) This is an insurance coverage dispute in which Northrop1 contends its

insurers wrongfully denied it coverage for settlement and defense expenses it

incurred in the Knurr Litigation. On February 2, 2021, the Court issued a

memorandum opinion and order (the “Order”)2 addressing seven then-pending

dueling and cross-dispositive motions that revolved primarily around the question

of whether coverage for the 14(a) and 10(b) Claims brought in the Knurr Litigation

was available under any or all of three Policies.

(2) Relevant here, the Order granted Northrop’s summary judgment

motion, and denied the Alliant Insurers’ summary judgment motions in part, holding

1 Unless otherwise noted, each capitalized term herein has the meaning given it in the Court’s February 2, 2021 memorandum opinion and order. 2 D.I. 727; see generally Northrop Grumman Innovation Sys., Inc. v. Zurich Am. Ins. Co., 2021 WL 347015 (Del. Super. Ct. Feb. 2, 2021). Citations to the Order track the web-published version.

that coverage for the 14(a) Claim lied with the Alliant Policies. In doing so, the

Order declined to resolve issues concerning the Alliant Insurers’ liability for certain

defense costs, allocation of damages among those Insurers and the Orbital Sciences

and OATK Insurers, and attachment of excess layers in the Alliant Policies. These

issues, along with many others not pertinent to the Alliant Insurers but left open in

the active litigation between Northrop and the Orbital Sciences and OATK Insurers,

have been submitted for trial.

(3) The Alliant Insurers request the Court’s certification of the entire Order

as it relates to them. The Court, though, may certify an application in part only

where appropriate.3 And the Court must clarify what is certifiable, especially where,

as here, the ask in the application is imprecise.4 Based on the Alliant Insurers’

substantive arguments on the Rule 42(b)(iii) factors, the sole question properly

distilled (or clearly articulated) for appeal is whether the Order correctly construed

the Bump Up Exclusion in finding that the Exclusion did not bar coverage for the

3 See In re Port of Wilmington Gantry Crane Litig., 2020 WL 5757344, at *2 & n.16 (Del. Super.

Ct. Sept. 28, 2020), appeal refused, 241 A.3d 221 (Del. 2020). 4 Gantry Crane, 2020 WL 5757344, at *2 n.16 (“It is important that this Court distill and clarify the issue or issues posed in a certification request, because a trial court may certify an order for appeal in whole or in part, and the Supreme Court may review it the same way.”); see, e.g., Dow Chem. Corp. v. Blanco, 67 A.3d 392, 394 (Del. 2013) (“The Defendants applied for an interlocutory appeal of the Superior Court’s opinion under Supreme Court Rule 42. The Superior Court granted the application for an interlocutory appeal presenting one narrow question . . . [t]he Superior Court denied certification of the Defendants’ remaining questions for interlocutory appeal. . . . Our inquiry is limited to the question certified.”).

14(a) Claim.5 Specifically: whether, contrary to the Order’s reading, a federal proxy

fraud lawsuit really is a “Claim” that “alleges” “inadequate consideration” given for

the “acquisition of all or substantial all the ownership interests or assets of an entity,”

the settlement of which “represent[s]” an “effective increase” of that consideration.

(4) Supreme Court Rule 42 governs interlocutory appeals from this Court’s

orders.6 Certification is not an appropriate vehicle for re-litigating unsuccessful

arguments preserved for, and naturally amenable to, direct appeal. The Rule thus

cautions this Court not to certify interlocutory review often.7 And so the Court will

assess the Alliant Insurers’ application under Rule 42’s “rigorous” standards.8

(5) Under Rule 42, the Court must: (a) determine whether the Order

“decide[d] a substantial issue of material importance that merits appellate review

5 The Alliant Insurers suggest the Order’s finding that they failed to meet their summary judgment burdens to show some fees were not “jointly incurred” Defense Costs as a matter of law should be certified. But, abiding by summary judgment’s genuine issue standard, the Order did not decide any Defense Costs liability. It simply found these fees presented fact questions based on the same definition of “incurred” the Alliant Insurers adopted in their briefs. See National Union’s Reply Brief at 16 (citing Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Est. Fund, 68 A.3d 665, 684 (Del. 2013)) (D.I. 680). As a result, this issue wasn’t decided on the merits and therefore does not advance past Rule 42(b)(i)’s prefatory query. See Sprint Nextel Corp. v. iPCS, Inc., 2008 WL 2861717, at *1 (Del. Ch. July 22, 2008) (observing that an issue is not substantial if not decided on the merits); infra nn.14-17 & accompanying text. 6 Gantry Crane, 2020 WL 5757344, at *1 (citing DiSabatino Bros., Inc. v. Wortman, 453 A.2d 102, 103 (Del. 1982)). 7 Del. Supr. Ct. R. 42(b)(ii).

8 Gantry Crane, 2020 WL 5757344, at *1 (citing TowerHill Wealth Mgmt., LLC v. Bander Fam. P’ship, L.P., 2008 WL 4615865, at *2 (Del. Ch. Oct. 9, 2008)).

before a final judgment;”9 (b) engage up to eight factors listed in Rule

42(b)(iii);10 (c) mind the most efficient and prudent schedule for resolving the case;

and (d) identify whether and why the likely benefits of interlocutory review

outweigh the probable costs, such that interlocutory review best serves the interests

of justice.11 “If the balance is uncertain,” the Court is instructed to refuse

certification.12 That is because “[a]pplications for . . . interlocutory appeal . . . are

9 Del. Supr. Ct. R. 42(b)(i).

10 (A) The interlocutory order involves a question of law resolved for the first time in this State; (B) The decisions of the trial courts are conflicting upon the question of law; (C) The question of law relates to the constitutionality, construction, or application of a statute of this State, which has not been, but should be, settled by this Court in advance of an appeal from a final order;

(D) The interlocutory order has sustained the controverted jurisdiction of the trial court; (E) The interlocutory order has reversed or set aside a prior decision of the trial court, a jury, or an administrative agency from which an appeal was taken to the trial court which had decided a significant issue and a review of the interlocutory order may terminate the litigation, substantially reduce further litigation, or otherwise serve considerations of justice;

(F) The interlocutory order has vacated or opened a judgment of the trial court;

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Northrup Grumman Innovation Systems, Inc. v. Zurich American Insurance Co., (Del. Ct. App. 2021).

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