Varsity Brands Holding Co. LLC v. Arch Insurance Companyl.

• Court: Superior Court of Delaware
• Decided: February 19, 2025
• Docket: N23C-10-283 MAA CCLD
• Status: Published

Opinion

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

VARSITY BRANDS HOLDING CO. ) ) LLC, VARSITY BRANDS, LLC, and VARSITY SPIRIT, LLC, ) ) Plaintiffs ) ) v. ) C.A. No. N23C-10-283 MAA CCLD ) ARCH INSURANCE COMPANY, ) UNITED STATES FIDELITY AND ) GUARANTY COMPANY, DISCOVER ) PROPERTY AND CASUALTY ) INSURANCE COMPANY, ) PHILADELPHIA INDEMNITY ) INSURANCE COMPANY, AXIS ) INSURANCE COMPANY, ) GREENWICH INSURANCE ) ) COMPANY, AMERICAN ) GUARANTEE AND LIABILITY ) INSURANCE COMPANY, NATIONAL ) UNION FIRE INSURANCE ) COMPANY OF PITTSBURGH, PA., ) MARKEL AMERICAN INSURANCE ) COMPANY, LEXINGTON ) INSURANCE COMPANY, RSUI ) INDEMNITY COMPANY, ) EVANSTON INSURANCE ) COMPANY, BERKSHIRE ) HATHAWAY SPECIALTY ) INSURANCE COMPANY, and ) WESTCHESTER FIRE INSURANCE ) COMPANY, ) ) ) Defendants. )

Submitted: November 25, 2024 Decided: February 19, 2025 MEMORANDUM OPINION

Arch and PIIC’s Motions to Dismiss: GRANTED.

National Union and Lexington’s Motion, joined by other Insurers, and RSUI’s Motion: DENIED.

Greenwich and Axis’ Motion: DENIED.

David A. Dorey, Esquire, and James G. Gorman, Esquire of BLANK ROME LLP, Wilmington, DE, Natasha Romagnoli (Argued), Esquire of BLANK ROME LLP, New York, NY, David A. Thomas, Esquire (Argued) of BLANK ROME LLP, Los Angeles, CA, and Seth D. Lamden, Esquire, and Jason A. Frye, Esquire of BLANK ROME LLP, Chicago, IL, Attorneys for Plaintiffs.

Carmella P. Keener, Esquire of COOCH AND TAYLOR, P.A., Wilmington, DE, and Ronald P. Schiller, Esquire (Argued) and Anthony J. Palmer, Esquire of HANGLEY ARONCHICK SEGAL PUDLIN & SCHILLER, Philadelphia, PA, Attorneys for Defendant Arch Insurance Company.

Bruce W. McCullough, Esquire, of BODELL BOVÉ, LLC, Wilmington, DE, and Alexander E. Davis, Esquire (Argued) of GOLDBERG SEGALLA LLP, Greensboro, NC, Attorneys for Defendant Philadelphia Indemnity Insurance Company.

Joseph B. Cicero, Esquire of CHIPMAN BROWN CICERO & COLE, LLP, Wilmington, DE, and Ryan S. Appleby, Esquire (Argued) of GIBSON DUNN & CRUTCHER LLP, Los Angeles, CA, Attorneys for Defendants National Union Fire Insurance Company of Pittsburgh, PA and Lexington Insurance Company. Megan T. Mantzavinos, Esquire of MARKS, ONEILL, O’BRIEN, DOUGHERTY & KELLY, P.C, Wilmington, DE, and Kristen C. Kish, Esquire (Argued) of MOUND COTTON WOLLAN & GREENGRASS LLP, New York, NY, Attorneys for Defendant Greenwich Insurance Company.

2 Marla S. Benedek, Esquire, of COZEN O’CONNOR, Wilmington, DE, and John Bonnie, Esquire (Argued) of WEINBERG WHEELER HUGGINS GUNN & DIAL, Atlanta, GA, Attorneys for Defendant AXIS Insurance Company.

Aimee M. Czachorowski, Esquire of LEWIS BRISBOIS BISGAARD & SMITH, LLP, Wilmington, DE, and Edward B. Parks, II, Esquire (Argued) of RUGGERI PARKS WEINBERG LLP, Washington, DC, Attorneys for Defendant Navigators Insurance Company. Justin C. Barrett, Esquire of BAYARD, P.A., Wilmington, DE, Attorney for Defendant RSUI Indemnity Company.

Louis J. Rizzo, Jr., Esquire of REGER RIZZO & DARNALL LLP, Wilmington, DE, Attorney for Defendants United States Fidelity and Guaranty Company and Discover Property and Casualty Insurance Company.

Adams, J.

3 I. INTRODUCTION

In this insurance coverage dispute, plaintiffs seek coverage for underlying

litigation involving allegations of sexual abuse of minors who participated in

competitive cheerleading. The defendant insurance companies denied coverage for

those underlying suits. Plaintiffs allege its primary insurers breached the insurance

policies and refused to settle the underlying suits in bad faith. Plaintiffs seek a

declaratory judgment defining the scope of the defendant insurance companies’

duties to defend and indemnify plaintiffs.

Many of the defendant insurance companies moved to dismiss on various

grounds. This Court finds certain defendants are not subject to its personal

jurisdiction. Thus, the Court GRANTS those Motions to Dismiss pursuant to

Superior Court Civil Rule 12(b)(2). All other Motions brought by the remaining

insurance companies are DENIED.

4 II. FACTS1

A. THE PARTIES

1. Plaintiffs

Varsity Brands Holding Co., LLC (“Varsity Holding”) is an Indiana LLC with

its principal place of business in Texas.2 Varsity Brands, LLC (“Varsity Brands”) is

a Delaware LLC and a subsidiary of Varsity Holding.3 Varsity Spirit LLC (“Varsity

Spirit”) is a Tennessee LLC and a subsidiary of Varsity Brands.4

2. Defendants5

United States Fidelity & Guaranty Company (“USF&G”) and Discover

Property & Casualty Insurance Company (“Discover”) are Connecticut corporations

with principal places of business in Hartford, Connecticut.6

1 These facts are drawn from Varsity’s Second Amended Complaint and the documents integral thereto. D.I. 84 (“Sec. Am. Compl.”). These allegations are presumed to be true solely for purposes of the Motions to Dismiss. Citations to the transcript of the September 25, 2024, hearing addressing the Motions to Dismiss are in the form “Tr. #” (D.I. 184). 2 Sec. Am. Compl. ¶ 7. 3 Id. ¶ 6. 4 Id. ¶ 8. For clarity, the Court refers to the Plaintiffs as “Varsity” and refers to Varsity in the singular, although “Varsity” represents multiple entities. During oral argument, Varsity’s counsel indicated that “all three Varsity Plaintiffs are Delaware entities,” but this appears to be a misstatement. Tr. at 47:18-19. Varsity’s Sec. Am. Compl. alleges only Varsity Brands is a Delaware entity. A search of the Delaware Secretary of State’s website confirms only Varsity Brands is a Delaware entity. Varsity Spirit has a registered agent in Delaware but is listed as a Tennessee LLC. See https://icis.corp.delaware.gov/Ecorp/EntitySearch/NameSearch.aspx (last visited Feb. 17, 2025). 5 Each of the Defendants are authorized to write or sell insurance in Delaware. See Sec. Am. Compl. ¶¶ 9-23. 6 Id. ¶̵̬¶ 9-10. 5 Philadelphia Indemnity Insurance Company (“PIIC”) is a Pennsylvania

corporation with a principal place of business in Bala Cynwyd, Pennsylvania.7

Axis Insurance Company (“Axis”) is an Illinois corporation with a principal

place of business in Alpharetta, Georgia.8

Greenwich Insurance Company (“Greenwich”) is a Delaware corporation

with a principal place of business in Stamford, Connecticut.9

Arch Insurance Company (“Arch”) is a Missouri corporation with a principal

place of business in Jersey City, New Jersey.10

American Guarantee and Liability Insurance Company (“American

Guarantee”) is a New York corporation with a principal place of business in

Schaumburg, Illinois.11

National Union Fire Insurance Company of Pittsburgh, Pa. (“National

Union”) is a Pennsylvania corporation with a principal place of business in New

York, New York.12

Markel American Insurance Company (“Markel”) is an Illinois corporation

with a principal place of business in Glen Allen, Virginia.13

7 Id. ¶ 11. 8 Id. ¶ 12. 9 Id. ¶ 13. 10 Id. ¶ 14. 11 Sec. Am. Compl. ¶ 15. 12 Id. ¶ 16. 13 Id. ¶ 17. 6 Lexington Insurance Company (“Lexington”) is a Delaware corporation with

a principal place of business in Boston, Massachusetts.14

Navigators Insurance Company (“Navigators”) is a New York corporation

with a principal place of business in Hartford, Connecticut.15

RSUI Indemnity Company (“RSUI”) is a New Hampshire corporation with a

principal place of business in Atlanta, Georgia.16

The named defendant insurers fall into three categories: the Primary

Commercial General Liability (“CGL”) Insurers,17 the Excess CGL Insurers,18 and

the Employment Practices Liability (“EPL”) Insurers (together, the “Insurers”).19

Generally, the Primary CGL Insurers are obligated to defend and indemnify

Varsity in cases alleging injury to persons or property.20 The Excess CGL Insurers

14 Id. ¶ 18. 15 Id. ¶ 19. 16 Id. ¶ 20. Varsity also included Evanston Insurance Company (“Evanston”), Berkshire Hathaway Specialty Insurance Company (“Berkshire”), and Westchester Fire Insurance Company (“Westchester”) (collectively, the “EPL Insurers”) as Defendants in the Second Amended Complaint. Id. ¶ 21-23.16 In September 2024, the EPL Insurers notified the Court of a settlement in principle with Varsity, and the Court granted the parties’ stipulation of dismissal without prejudice as to the EPL Insurers in December 2024. D.I. 172, 187. 17 The Primary CGL Insurers are Arch, USF&G, Greenwich, Axis, Discover, and PIIC. Relevant to this dispute, Varsity Holding is the first named insured in the Arch and PIIC policies, “and each CGL policy is addressed to Varsity Holding’s office in Memphis, Tennessee. Arch MTD Skoglund Ex. 2-11; D.I. 126 (“PIIC MTD Opp’n”) Ex. 4. The Schedule of Named Insured(s) in each policy includes Varsity Brands and Varsity Spirit. Arch MTD Skoglund Ex. 2-11, Schedule of Named Insured(s); PIIC MTD Opp’n Ex. 4, Named Insured Schedule. 18 The Excess CGL Insurers are American Guarantee, National Union, Markel, Lexington, Navigators, RSUI, and Arch. 19 The EPL Insurers are Evanston, Berkshire, and West Chester. 20 See, e.g., Sec. Am. Compl ¶ 29. 7 are obligated to indemnify and defend Varsity in cases alleging injury to persons or

property when the policy limit of the underlying Primary CGL Insurance policy (or

lower-tier Excess CGL Insurance policy) is exhausted.21 The EPL Insurers are

obligated to indemnify Varsity in cases in which plaintiffs allege unlawful

discrimination or sexual harassment.22

B. THE UNDERLYING LAWSUITS

In August 2022, counsel for a number of former adolescent cheer athletes

announced they were filing suit in federal court in South Carolina asserting claims

of sexual abuse which occurred while the athletes were still minors (the “South

Carolina Federal Action”).23 In the South Carolina Federal Action, the athletes

alleged Varsity created and controlled the organizations ultimately responsible for

ensuring a safe environment for the young athletes to train and compete. 24 The

athletes also alleged that coaches and choreographers provided them with drugs and

alcohol at team parties.25 The athletes sued Varsity, alleging various causes of

action.26 In June 2023, the United States District Court for the District of South

21 See, e.g., id. ¶ 326. 22 See, e.g., id. ¶ 385-87. 23 Id. ¶ 397. 24 Id. ¶ 398. 25 Id. ¶ 403. 26 Sec. Am. Compl. ¶ 408. 8 Carolina dismissed all of the claims against Varsity except the gross negligence,

unjust enrichment, and negligent security claims.27

Varsity faced similar allegations from claimants in federal courts in North

Carolina, Florida, Georgia, Tennessee, Ohio, and California, as well as a South

Carolina state court action (together with the South Carolina Federal Action, the

“Underlying Lawsuits”).28 Varsity faces potential suits in other states.29

As the Underlying Lawsuits began, Varsity notified Insurers of the claims and

requested a defense.30 Per Varsity, “[n]ot a single one of the Primary CGL Insurers

that owed Varsity a defense met its obligation,” and “[o]nly a few of the Primary

CGL Insurers agreed to defend Varsity but then only as to certain of the claims and

with improper conditions placed upon the staffing and hourly rates.”31

The federal court in the South Carolina Federal Action ordered mediation in

August 2023.32 Varsity and “[a]ll but a few of the claimants” engaged in the

mediation sessions in late 2023.33 The mediation resulted in a conditional settlement

demand from claimants’ counsel.34 Varsity notified the Insurers of the demand and

27 Id. ¶ 409. 28 Id. ¶¶ 411-18. 29 Id. ¶ 419. 30 Id. ¶ 420. 31 Id. ¶¶ 420-21. 32 Sec. Am. Compl. ¶ 422. 33 Id. ¶ 422. 34 Id. The conditional settlement between the claimants’ counsel and Varsity included that “Varsity would have three weeks to determine if it could obtain funding for this amount.” Id. Varsity alleges that, during settlement negotiations concerning the Underlying Lawsuits, Varsity and Arch 9 Varsity’s desire to accept.35 Varsity also requested approval and funding from the

Insurers.36 Varsity alleges Insurers “dragged their feet” before and after receiving

such notice and made “unnecessary and unrealistic demands for information. . . .”37

The Insurers ultimately refused to fund the settlement up to their applicable

policy limits, alleging the claims are excluded from coverage because of Sexual

Abuse and Molestation Endorsement clauses in the various insurance contracts.38

III. PROCEDURAL HISTORY

Varsity filed its complaint on October 31, 2023.39 Shortly thereafter, Varsity

filed an amended complaint adding additional defendants, as well as a second

amended complaint correcting the named defendants (the “Second Amended

Complaint”).40

The Second Amended Complaint seeks relief under five causes of action: (I)

Breach of Contract for the duty to defend against Primary CGL Insurers;41 (II)

agreed via email to a three-week litigation standstill (the “Standstill Agreement”), which Arch violated by filing a declaratory judgement action in the U.S. District Court for the Western District of Tennessee. Id. ¶¶ 462-64. 35 Id. ¶ 423. 36 Id. 37 Id. 38 Sec. Am. Compl. ¶¶ 423-24. During oral argument, Varsity’s counsel stated that the Underlying Lawsuits consisted of over 30 claimants. Tr. 44:11-15. All but two actions—one in Florida and “another claim that was asserted against Varsity in the spring”— have settled. Id. at 44:15-18. 39 D.I. 1. 40 D.I. 6; D.I. 83; Sec. Am. Compl. The Second Amended Complaint removed Zurich American Insurance Company as a named defendant. See generally Sec. Am. Compl. 41 Sec. Am. Compl. ¶¶ 425-31. 10 Breach of Contract for the duty to indemnify against Primary CGL Insurers;42 (III)

Bad Faith Refusal to Settle against Primary CGL Insurers;43 (IV) Declaratory

Judgment against all Insurers;44 and (V) Breach of Standstill Agreement against

Arch.45 Several Insurers moved to dismiss.46

PIIC moved to dismiss for lack of personal jurisdiction and failure to state a

claim upon which relief could be granted.47 Alternatively, PIIC seeks a more definite

statement.48

Arch moved to dismiss for lack of personal jurisdiction and seeks dismissal

of Cause of Action III for failure to state a claim.49 Arch also seeks to dismiss or

strike Causes of Actions III and V based on confidential mediation communications

and inadmissible information.50

42 Id. ¶¶ 432-38. 43 Id. ¶¶ 439-50. 44 Id. ¶¶ 451-60. 45 Id. ¶¶ 461-70. 46 See D.I. 100, Def. PIIC’s Opening Br. in Supp. of its Mot. to Dismiss Pls.’ Sec. Am. Compl. or, in the Alt., for a More Definitive Statement (“PIIC MTD”); D.I. 106, Opening Br. of Defs. Evanston, Berkshire, and Westchester’s in Supp. of Their Mot. to Dismiss (“EBW MTD”); D.I. 107, Def. RSUI’s Mot. to Dismiss and Joinder in Nat’l Union and Lexington’s Mot. to Dismiss Pls.’ Sec. Am. Compl. Under Rule 12(B)(1) (“RSUI MTD”); D.I. 108, Arch’s Opening Br. in Supp. of Mot. to Dismiss the Sec. Am. Compl. for Lack of Personal Jurisdiction, or, in the Alt., Mot. to Strike and Dismiss (“Arch MTD”); D.I. 109, Defs. Greenwich and Axis’ Mot. to Dismiss Pls.’ Sec. Am. Compl.-Opening Br. (“GA MTD”); D.I. 111, Defs. Nat’l Union and Lexington’s Opening Br. in Supp. of Mot. to Dismiss Pls.’ Sec. Am. Compl. Pursuant to Rule 12(b)(1) (“NL MTD”). The EPL Insurers have subsequently been dismissed. D.I. 172; D.I. 187. 47 PIIC MTD. 48 Id. 49 Arch MTD. 50 Id. 11 Greenwich and Axis moved to dismiss Causes of Action II-III for failure to

state a claim and, alternatively, request that Cause of Action III be severed and stayed

pending the resolution of Causes of Action I and II (the “Breach of Contract

Claims”).51 Greenwich, without Axis, also moved to dismiss Cause of Action IV.52

Like Arch, Greenwich and Axis also seek to dismiss or strike Cause of Action III

based on confidential mediation communications and inadmissible information.53

National Union and Lexington moved to dismiss, alleging the action, as

alleged against National Union and Lexington as Excess CGL Insurers, is not ripe.54

RSUI also moved for dismissal adopting the same arguments as National Union and

Lexington.55 American Guarantee and Navigators joined National Union and

Lexington’s Motion to Dismiss.56

Briefing on the Motions was completed on July 26, 2024, and the Court heard

oral argument on September 25, 2024, after which time the Court took this matter

under advisement.57

51 GA MTD. 52 Id. 53 Arch MTD at 1 n.1; D.I. 166 (“GA Joinder”). 54 NL MTD. 55 RSUI MTD. 56 See D.I. 112-13, 148, 150. 57 D.I. 177. At oral argument, Arch objected to Varsity’s use of certain demonstrative slides. The Court allowed some of the slides to be presented but permitted Arch to submit a supplemental submission to articulate its objection. Tr. 11:2-14:12. Arch addressed Varsity’s slides by letter dated October 9. 2024. See D.I. 181. The transcript of the oral argument in this action, which is integral to the Court’s decision, became available on November 25, 2024. D.I. 184. 12 IV. DISCUSSION

A. The Court Lacks Personal Jurisdiction Over Arch and PIIC.

Arch and PIIC argue they, as companies neither incorporated nor

headquartered in Delaware,58 are not subject to personal jurisdiction.59 Personal

jurisdiction over a nonresident defendant is analyzed through a two-part test. First,

the court examines whether the Delaware long-arm statute, 10 Del. C. § 3104(c),

authorizes such jurisdiction.60 Next, the court determines whether such jurisdiction

would violate the nonresident defendant’s due process rights.61

1. The Long-Arm statute authorizes personal jurisdiction over Arch and PIIC. Varsity contends Arch and PIIC are subject to personal jurisdiction pursuant

to 10 Del. C. §§ 3104(c)(2) and (c)(6). Under Section 3104, the Court may exercise

personal jurisdiction over a nonresident who “[c]ontracts to supply services or things

in this State” or “[c]ontracts to insure . . . any person . . . located within the State at

the time the contract is made…”62 Although Arch and PIIC are subject to provisions

of Delaware’s long-arm statute, an exercise of personal jurisdiction would violate

Arch and PIIC’s due process rights.

58 Sec. Am. Compl. ¶¶ 11, 14. 59 Arch MTD at 12; PIIC MTD at 22; D.I. 147 (“Arch MTDR”) at 3; D.I. 149 (“PIIC MTDR”) at 16. 60 Hoechst Celanese Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 1991 WL 190313, at *1 (Del. Super. Sept. 10, 1991). 61 Id. 62 10 Del. C. § 3104(c). 13 a. Arch and PIIC are subject to personal jurisdiction pursuant to 10 Del. C. § 3104(c)(6).

Varsity argues Arch and PIIC are subject to personal jurisdiction pursuant to

§ 3104(c)(6). In support, Varsity cites Hoechst Celanese Corp. v. National Union

Fire Insurance Company of Pittsburgh, PA.63 In Hoechst, the court held that,

although the CGL policies were issued to a Delaware entity’s out-of-state office, the

act of insuring a Delaware entity enabled the court to exercise personal jurisdiction

pursuant to § 3104(c)(6).64 The key fact for the court was that the insured entity was

a Delaware corporation.65 This incorporation location satisfied the statute’s

requirement that the insured be a “person . . . located . . . within [Delaware] at the

time the [insurance] contract [was] made.”66

More recently, in Energy Transfer Equity, L.P. v. Twin City Fire Insurance Co.,

the Superior Court held that Section 3104(c)(6) permits personal jurisdiction over

insurers that issued directors and officers liability (“D&O”) insurance policies to

Delaware entities.67 The court explained that, because the insured entities were

organized under Delaware law, the insurers were “defendants who issued ‘contracts

63 1991 WL 190313 (Del. Super. Sept. 10, 1991). 64 Id. at *2–3. 65 Id. 66 Id. (citing 10 Del. C. § 3104(c)(6)). 67 2020 WL 5757343, at *1, *5 (Del. Super. Sept. 25, 2020). 14 to insure’ a person (the Insureds and their officers and directors) located and/or to be

performed in Delaware at the time the Policies were issued.”68

Yet, the Superior Court concluded otherwise in 300 W 22 Realty, LLC v.

Strathmore Insurance Co.69 In 300 W 22 Realty, the court declined to exercise

personal jurisdiction pursuant to § 3104(c)(6) over an insurer who provided

insurance to a Delaware entity for property located in New York.70 The court

reasoned that the insurance policies at issue covered the property located outside of

Delaware, not the entity itself.71

The Court finds the plain language of Section 3104(c)(6) authorizes personal

jurisdiction over the non-resident insurers who provide insurance to a Delaware

entity, so long as their due process rights are not violated. Varsity Brands is a

Delaware LLC, which makes it a “person” located in Delaware pursuant to Section

3104(c)(6).72

68 Id. at *5. 69 2023 WL 2300628, at *2-4 (Del. Super. Mar. 1, 2023), aff’d, 309 A.3d 1265 (Del. 2023) (TABLE). 70 Id. at *2-4. 71 Id. at *4. PIIC and Arch highlight AR Cap., LLC v. XL Specialty Ins. Co., 2019 WL 1932061 (Del. Super. Apr. 25, 2019). PIIC MTD at 22-23; PIIC MTDR at 18-21; Arch MTDR at 12-13. In AR Capital, this Court held it lacked personal jurisdiction over an out-of-state insurer who issued difference in conditions (“DIC”) insurance policies to a Delaware entity. 2019 WL 1932061 at *5. The court acknowledged the parties’ contradictory arguments about the applicability of §3104(c), but did not make a conclusion about the statute’s applicability; instead, it held generally that “Delaware’s long-arm statute does not permit an exercise of personal jurisdiction, and an exercise of jurisdiction over DIC Defendants would violate due process.” Id. Thus, the Court does not rely on AR Capital. for purposes of analyzing the applicability of 10 Del. C. §§ 3104(c)(2) and (c)(6) in this case. 72 Energy Transfer, 2020 WL 5757343 at *5; 300 W 22 Realty, 2023 WL 2300628 at *4. 15 The Court notes the key distinction between 300 W 22 Realty compared to

Hoechst and Energy Transfer. In 300 W 22 Realty, the insurance policy provision at

issue insured property located outside of Delaware.73 Property insurance is not an

issue here. Like Hoechst and Energy Transfer, the liability insurance and

indemnification policies covered Varsity itself, and protected it from adverse

judgments. Because Arch and PIIC contracted to insure a “person” in Delaware,

they are subject to personal jurisdiction pursuant to Section 3104(c)(6).74 The Court

now turns to the due process analysis.75

2. Exercising personal jurisdiction over Arch and PIIC would violate due process.

The Fourteenth Amendment’s Due Process Clause limits the personal

jurisdiction of state courts.76 Personal jurisdiction refers to the Court’s ability to

73 300 W 22 Realty, 2023 WL 2300628 at *4. 74 10 Del. C. § 3104 (c)(6) (explaining that the Court “may exercise personal jurisdiction over any nonresident . . . who in person or through an agent . . . [c]ontracts to insure . . . a[] person . . . located . . . within the State at the time the contract is made[.]”). 75 The Court need only determine that one provision of 10 Del. C. § 3104(c) applies before turning its focus toward the due process analysis. See Hoechst, 1991 WL 190313 at *1-2 (finding that the long arm statute was satisfied when one subsection applied). Since § 3104(c)(6) applies, the Court will not address the arguments concerning 10 Del. C. § 3104(c)(2). 76 Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 413-14 (1984)) (citation omitted). “The principles governing specific jurisdiction derive from and reflect two sets of values: treating defendants fairly, and protecting interstate federalism. Treating defendants fairly includes an idea of reciprocity between a defendant and a state; only when a defendant exercises the privilege of conducting activities within a state and enjoys the benefits and protections of the state’s law may the state hold the defendant to account for related misconduct. Similarly, specific jurisdiction principles provide defendants ‘fair warning’ that a particular activity may subject the defendant to jurisdiction of a state. In addition to fairness concerns, specific jurisdiction principles consider the interests of the states in relation to each other, and seek to ensure that states with little legitimate interest in a suit do not encroach on states more affected by the controversy.” 16 James Wm. Moore, Moore’s Federal Practice § 108.42[1] (3d ed. 2022). 16 exercise power over a defendant.77 There are two types of personal jurisdiction—

general and specific.78 This case concerns the latter.79

“For a State to exercise jurisdiction consistent with due process, the

defendant’s suit-related conduct must create a substantial connection with the forum

State.”80 Courts can “exercise specific jurisdiction over a corporate defendant where

the ‘suit arises out of or relates to the corporation’s contacts with the forum.’”81 A

nonresident must have sufficient minimum contacts with the forum state so as not to

offend “traditional notions of fair play and substantial justice.”82 This means “there

must be ‘an affiliation between the forum State and the underlying controversy,

principally, [an] activity or an occurrence that takes place in the forum State and is

therefore subject to the State’s regulation.’”83 In determining whether specific

77 See e.g. Sciortino v. Jarden, Inc., 395 F. Supp. 3d 429, 434 (E.D. Pa. 2019). 78 Daimler AG v. Bauman, 571 U.S. 117, 126-127 (2014). 79 Tr. 24:11-18, 33:4-6, 35:4-36:8; Arch MTD at 13-14; PIIC MTD at 22-24; Arch MTD Opp’n at 14-16; PIIC MTD Opp’n at 28-29. 80 Walden v. Fiore, 571 U.S. 277, 284 (2014). 81 Genuine Parts Co. v. Cepec, 137 A.3d 123, 130 (Del. 2016) (quoting Helicopteros, 46 U.S. at 414 n.8) (cleaned up). The relationship between the defendant and the forum state “must arise out of contacts that the ‘defendant himself’ creates with the forum State.” Walden, 571 U.S. at 284 (emphasis in original) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985)). 82 Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)). The “minimum contacts” analysis “looks to the defendant’s contacts with the forum state itself, not the defendant’s contacts with the persons who reside there.” Walden, 571 U.S. at 285 (emphasis added) (citing Int’l Shoe, 326 U.S. at 319). Notably, “the plaintiff cannot be the only link between the defendant and the forum.” Id. at 285. Rather, “[d]ue process requires that a defendant be haled into court in a forum State based on his own affiliation with the State, not based on the ‘random, fortuitous, or attenuated’ contacts he makes by interacting with other persons with the State.” Id. at 286 (citing Burger King, 471 U.S. at 475). 83 Bristol-Myers Squibb Co. v. California., 582 U.S. 255, 262 (2017) (alteration in original) (quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)). 17 jurisdiction exists, the interests of the forum state must be weighed against the

burden on the defendant.84

Varsity points to Hoechst Celanese Corporation v. National Union Fire

Insurance Company of Pittsburgh, Pa. in support of its argument that the Court’s

exercise of personal jurisdiction over Arch and PIIC is warranted.85 In Hoechst,

court exercised personal jurisdiction where the defendant “must have foreseen the

possibility that it could be haled into court in [Delaware]” when it insured a

Delaware entity.86 The foreign defendant (a third-party CGL insurer) challenged the

application of Delaware’s long-arm statute based on an arbitration clause between

the parties.87 That arbitration clause was never invoked by either party.88

The Hoechst court did not articulate the specific contacts between the

defendant and Delaware, instead relying on the defendant’s contacts with a Delaware

company to justify the exercise of personal jurisdiction.89 The court also noted that

84 Id. at 263 (first quoting Kulko v. California, 436 U.S. 84, 92 (1978); then citing Daimler, 571 U.S. at 139-41, n. 20; then citing Asahi Metal Indus. Co. v. California, 480 U.S. 102, 113 (1987); and then citing World-Wide Volkswagen, 444 U.S. 286, 292 (1980)). 85 1991 WL 190313 (Del. Super. Sept. 10, 1991). 86 Id. at *2 (first citing Volkswagen, 444 U.S. 286; and then citing Kulko, 436 U.S. 84). The arbitration provision provided: “Unless the parties otherwise agree, the arbitration shall be heard in London in accordance with the International Arbitration Rules of the London Court of Arbitration, and shall apply the law of the Cayman Islands as the proper law of the policy.” Id. 87 Id. 88 Id. at *3. 89 Id. at *2 (“A single contact between the defendant and the forum state may be sufficient, especially when there is a nexus between the contact and the cause of action. In this case, Tortuga entered into four separate contracts over a two-year period with an insured incorporated in the State of Delaware. In insuring a United States corporation which was incorporated under the laws 18 Delaware’s interest in adjudicating the dispute was relevant to the personal

jurisdiction analysis.90 Notably, Hoechst was decided in 1991, before the Supreme

Court of the United States’ recent decisions in Walden v. Fiore and Bristol-Myers

Squibb v. California, which clarify that minimum contacts must be made with the

forum state itself, not a forum state’s resident.91 Walden teaches that overemphasis

on the foreseeability of litigation “impermissibly allows a plaintiff’s contacts with

the defendant and forum to drive the jurisdictional analysis.”92 Bristol-Meyers

Squibb reiterates that, for a forum state to exercise specific jurisdiction, the relevant

lawsuit must arise out of or relate to a defendant’s contacts with the forum state.93

of this State, Tortuga must have foreseen the possibility that it could be haled into court in this forum.”). 90 Hoechst, 1991 WL 190313 at *2 91 Walden v. Fiore, 571 U.S. 277 (2014); Bristol-Myers Squibb Co. v. Superior Ct. of California, San Francisco Cnty., 582 U.S. 255 (2017). 92 Walden, 571 U.S. at 289. See also Bristol-Myers Squibb, 582 U.S. at 265 (“What is needed— and what is missing here—is a connection between the forum and the specific claims at issue.”). 93 Bristol-Myers Squibb, 582 U.S. at 262. In Bristol-Meyers Squibb, the plaintiffs, most of whom were not residents of California, sued Bristol-Meyers Squibb in California state court, alleging the company’s drug, Plavix, damaged their health. Id. at 258. The plaintiffs alleged a Bristol-Meyers Squibb product was defective and caused injuries, but the plaintiffs were not harmed in California. Id. at 259. Bristol-Meyers Squibb had several research facilities in California, along with 160 employees, 250 sales representatives and a small state-government advocacy office in Sacramento. Id. at 259-260. Plavix was developed and manufactured in New York and New Jersey. Id. at 259. Bristol-Meyers Squibb sold the product in California, but the nonresident plaintiffs did not allege they purchased the product from California sources. Id. The United States Supreme Court rejected the exercise of personal jurisdiction over Bristol-Meyers Squibb, finding there was an insufficient connection between the plaintiffs’ claims and Bristol-Meyers Squibb’s contacts with California. Bristol-Meyers Squibb, 582 U.S. at 258, 264-65. 19 Thus, the “proper focus” is “the relationship among the defendant, the forum, and

the litigation.”94 Delaware heeds this distinction.

In In re Talc Product Liability Litigation, the Superior Court declined to

exercise specific jurisdiction over the claims asserted by the nonresident plaintiff.95

The court reasoned that shipping some quantity of goods to a lab in Delaware “falls

far short of the connection required between the forum and the specific claims at

issue.”96 A “defendant’s unrelated forum activity is just that—unrelated to the

jurisdictional determination.”97

In EBP Lifestyle Brands Holdings, Inc. v. Boulbain, the Court of Chancery

examined specific jurisdiction in the context of a stockholders’ agreement.98 The

plaintiff there sought to enforce a non-compete and non-solicitation clause in a

stockholders’ agreement it entered into with the defendant.99 The plaintiff, however,

failed to show the defendant purposefully availed himself of the benefits and

protections of this forum:

94 Walden, 571 U.S. at 284 (quoting Keeton v. Hustler Mag., Inc., 465 U.S. 770, 775 (1984)). The Hoechst court noted that a “single contact between the defendant and the forum state may be sufficient, especially when there is a nexus between the contact and the cause of action.” 1991 WL 190313 at *2. This decision preceded Walden and Bristol-Myers Squibb and reflects a broad view of personal jurisdiction. Hoechst’s single-contact point has not been expressly overruled, but it does not change the conclusion here. The Insurers issued contracts to insure Varsity, but those contracts were negotiated and delivered outside of Delaware. Insurers’ “single contact” with a Delaware entity—the insurance contracts—does not constitute contact with Delaware itself. 95 2018 WL 4340012, at *12 (Del. Super. Sept. 10, 2018). 96 Id. at *7. 97 Id. at *6. 98 2017 WL 3328363, at *1 (Del. Ch. Aug. 4, 2017). 99 Id. at *1. 20 The dispute at issue is based on a contract that [the defendant] executed in California arising from conduct in which [the defendant] allegedly has engaged and continues to engage in California. The only connection to Delaware is that [the plaintiff] is a Delaware corporation and that the Stockholders’ Agreement contains a Delaware choice of law provision. And, in that latter regard . . . [the defendant] did not purposefully avail himself of Delaware law—he was merely given the company’s Stockholders’ Agreement that contained a Delaware choice of law clause and told that he must sign if he wished to exercise his stock options. These facts are a far cry from the kind of “minimum contacts” that would satisfy due process.100

The court refused to exercise personal jurisdiction because such an exercise could

neither meet the requirements of § 3104 nor satisfy due process.101

Varsity also cites to Energy Transfer Equity, L.P. v. Twin City Fire Insurance

Co. in support of its argument for the exercise of personal jurisdiction.102 In Energy

Transfer, the Superior Court exercised personal jurisdiction over nonresident D&O

100 Id. at *7; see also id. at *7 n.35 (first quoting Burger King, at 478) (“If the question is whether an individual’s contract with an out-of-state party alone can automatically establish sufficient minimum contacts in the other party’s home forum, we believe the answer clearly is that it cannot.”); and then quoting Mobile Diagnostic Gp. Hldgs., LLC v. Suer, 972 A.2d 799, 805 (Del. Ch. 2009) (“It is well settled law that ‘a contract between a Delaware corporation and a nonresident to…transact business outside Delaware, which has been negotiated without any contacts with this State, cannot alone serve as a basis for personal jurisdiction over the nonresident for actions arising out of that contract.’”). 101 Id. at *8. The Superior Court has observed the limitations of personal jurisdiction in the insurance space. See Rosado v. State Farm Mut. Auto. Ins. Co., 2020 WL 3887880 (Del. Super. July 9, 2020) (granting an Illinois insurer’s motion to dismiss against a Maryland resident based on lack of specific jurisdiction where the insurance contract was signed and executed, and the cause of action arose, in Maryland); Eaton v. Allstate Prop. & Cas. Ins. Co., 2021 WL 3662451 (Del. Super. Apr. 28, 2021) (granting an Illinois insurer’s motion to dismiss against a North Carolina resident based on lack of specific jurisdiction where the insurance contract was signed and executed in Maryland, and the cause of action arose in Delaware; the court noted that although “the physical accident occurred in Delaware . . . the basis of [the p]laintiff’s claim against [the insurer] is not the vehicular accident, but rather the contractual obligation owed by [the insurer]”). 102 2020 WL 5757343, at *6 (Del. Super. Sept. 25, 2020). 21 insurers, following the purposeful availment logic of Hoechst.103 The court noted

Delaware has an especially strong connection to D&O insurance disputes because

“rarely are officers and directors of a Delaware entity sued for a breach of fiduciary

duty outside of Delaware.”104

Modern personal jurisdiction jurisprudence guides this Court in producing a

different result from that in Hoechst and Energy Transfer. As discussed in Walden

and Bristol-Myers Squibb, the court must first explore whether Arch and PIIC have

established minimum contacts with Delaware.105 Next, the court must determine

whether this action arises out of or is sufficiently related to Arch and PIIC’s

connections to Delaware.106

The Court begins its analysis here by noting the connections between

Delaware and the Insurers. Varsity emphasizes that PIIC and Arch are “authorized

to sell or write insurance in Delaware and/or, at all material times, has conducted

103 Id. (citations omitted). 104 Id. The first Energy Transfer decision did not address the recent U.S. Supreme Court decisions in Burger King, Walden, or Bristol-Myers Squibb. The Energy Transfer court addressed these decisions when it denied the insurers’ motion for interlocutory appeal, explaining that while these cases were not specifically addressed, the Energy Transfer court had incorporated their analysis in its prior holding. 2020 WL 6112299 at *4 (Del. Super. Oct. 16, 2020). The essential distinction by the Energy Transfer court was that, in providing D&O insurance to a Delaware corporation, the insurers could have foreseen being haled into Delaware. This Court recognizes the subtle, but substantial difference in providing D&O insurance to a Delaware corporation but focuses its decision solely on the facts presented here and the CGL policy— and parties— at issue. 105 Burger King, 471 U.S. at 474 (citation omitted); Walden, 571 U.S. at 291 (citation omitted). 106 Burger King, 471 U.S. at 472 (citation omitted); Bristol-Myers Squibb, 582 U.S. at 262 (citation omitted). 22 business within the State of Delaware.”107 This alone does not invoke specific

personal jurisdiction. The policies were negotiated and executed outside of

Delaware.108 The Court also notes that only one plaintiff—Varsity Brands—is a

Delaware entity. Contracting with a Delaware entity is insufficient, on its own, to

support a finding of personal jurisdiction.109

This action neither arises out of nor is sufficiently related to Arch and PIIC’s

connections to Delaware. PIIC and Arch’s policies, this lawsuit, and the State of

Delaware are connected only because Varsity Brands is a Delaware entity. The

Delaware connection advocated by Varsity thus contradicts the U.S. Supreme

Court’s recent holdings on the due process analysis for personal jurisdiction. By

exercising personal jurisdiction over PIIC and Arch, in a dispute which concerns a

contract executed at a company’s Tennessee headquarters, the Court would be

accepting the existence of minimum contacts based on Varsity Brand’s connection

to Delaware, not Arch and PIIC’s.110

107 Sec. Am. Compl. ¶ 25. 108 Tr. 36:13-36:19, 41:5-41:12; Arch MTD at 5-6; Arch MTDR at 11; PIIC MTD Opp’n Ex. 4. 109 Burger King, 471 U.S. at 478; Lenape Props. Mgmt., Inc. v. Prudential Ins. Co. of Am., 2022 WL 17826010, at *2 (Del. Super. Dec. 20, 2022); Aldossari v. Ripp, 49 F.4th 236, 259 (3d Cir. 2022). 110 Arch and PIIC’s connection to Delaware is further attenuated because the primary named insured on their policies is Varsity Holding, which is not an entity formed under Delaware law. Arch MTD Skoglund Ex. 2-11; PIIC MTD Opp’n Ex 4. Arch and PIIC’s policies only insure a Delaware entity as an additional named insured. Arch MTD Skoglund Exs. 2-11, Schedule of Named Insured(s); PIIC MTD Opp’n Ex. 4, Named Insured Schedule(s). 23 Like in Bristol-Myers Squibb, companies (Arch and PIIC) sold a product

(insurance contracts) in the forum state (Delaware). Varsity did not purchase the

relevant insurance in Delaware. While Arch and PIIC are licensed to sell insurance

in Delaware, those connections are not related to this lawsuit. The fact that one of

the plaintiffs is a Delaware corporation likewise does not change the analysis.111 The

insurance contracts were purchased outside of Delaware, and the alleged harm did

not occur in Delaware because Varsity’s underlying liability does not result from a

Delaware case. In other words, no affiliation exists between the insurance policies

and Delaware. “When there is no such connection, specific jurisdiction is lacking

regardless of the extent of defendant’s unconnected activities in the State.”112

This Court’s exercise of personal jurisdiction over Arch and PIIC is authorized

by the long-arm statute, but under the facts of this case, the exercise of personal

jurisdiction would offend due process. The Court grants PIIC and Arch’s Motions

to Dismiss for Lack of Personal Jurisdiction.

B. The Claims Against the Excess CGL Insurers are Ripe.

Varsity’s Excess CGL Insurers moved to dismiss, alleging the claims against

them are not ripe because Varsity has not exhausted its lower-layer insurance

policies.113

111 EBP, 2017 WL 3328363 at *7. 112 Bristol-Myers Squibb, 582 U.S. at 264 (citing Goodyear, 564 U.S. at 931, n. 6). 113 NL MTD; RSUI MTD; See D.I. 112-13, 148, 150. 24 In evaluating whether an insurance coverage claim is ripe, Delaware courts

adopt a “common sense” approach.114 The court balances the interests of the party

seeking relief against the interests of a court in refraining from addressing issues

which are still developing.115 A dispute is ripe if “litigation sooner or later appears

to be unavoidable and where the material facts are static.”116 For purposes of a

12(b)(1) motion such as this, the court may look to facts alleged outside of the

complaint.117

Five factors, known as the Schick factors, are relevant in assessing ripeness:

(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.118

The Schick test favors ripeness. Some of the underlying disputes implicating

liability insurance coverage are still being litigated. Varsity is currently defending a

114 Viacom Inc. v. U.S. Specialty Ins. Co., 2023 WL 2034445, at *2 (Del. Super. Feb. 16, 2023). 115 XL Specialty Ins. Co. v. WMI Liquidating Tr., 93 A.3d 1208, 1217 (Del. 2014) (citing Stroud v. Milliken Enters., Inc., 552 A.2d 476, 480 (Del. 1989). 116 Id. at 1217 (quoting Julian v. Julian, 2009 WL 2937121, at *3 (Del. Ch. Sept. 9, 2009)). 117 Homeland Ins. Co. of N.Y. v. Corvel Corp., 2011 WL 7122367, at *3 (Del. Super. Nov. 30, 2011); K&K Screw Prod., L.L.C. v. Emerick Cap. Invs., Inc., 2011 WL 3505354, at *6 (Del. Ch. Aug. 9, 2011). 118 Schick Inc. v. Amalgamated Clothing and Textile Workers Union, 533 A.2d 1235, 1239 (Del. Ch. 1987) (citation omitted). 25 claim in Florida which it alleges will implicate the Lexington excess CGL insurance

policy.119 As this court acknowledged in Viacom, Inc. v. U.S. Specialty Insurance

Co., Varsity’s “ability to assess the risks associated with resolving the [Florida claim]

versus proceeding to trial hinges in no small part on an understanding of the

insurance coverage available.”120 As a practical matter, resolving this insurance

coverage dispute assists Varsity in developing a plan to resolve the ongoing

Underlying Lawsuits.121 Therefore, as to the Florida claim which allegedly invokes

the Lexington excess CGL insurance policy, the first factor is met. If the Court

refused to resolve this insurance case until after all the Underlying Lawsuits are

resolved, Varsity would face hardship. The second factor thus favors ripeness.

Varsity would be forced to resolve the underlying disputes, without a clear indication

as to whether liability would be paid by Varsity or the insurance carriers.

The Court recognizes that, with an ongoing dispute, Varsity may potentially

face no liability. For the ongoing disputes, like the Florida claim, the third factor

does not favor a finding of ripeness.

119 D.I. 129, Pls.’ Br. in Opposition to NL MTD (“NL MTD Opp’n”) at 9. 120 2023 WL 2034445 at *2. 121 See id. (“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.”). 26 By resolving this insurance coverage dispute, this Court may save the

resources of the courts in which the ongoing underlying cases are filed;122 the fourth

factor thus favors ripeness. Insurance coverage disputes are well-suited for

declaratory adjudication,123 as contractual interpretation issues in insurance coverage

disputes are questions of law,124 and the declaratory judgments properly resolve

questions regarding “legal relations.”125 Accordingly, the fifth factor is satisfied.

In determining whether an insurance coverage dispute against Excess CGL

Insurers is ripe, the court examines whether the plaintiff has alleged facts indicating

a reasonable likelihood that insurance coverage policies will be reached.126 The

Court finds the allegations alleged in the Second Amended Complaint are sufficient

to meet this standard. As noted during oral argument, Varsity is named as a

defendant in two ongoing tort cases in which the underlying victims allege sexual

122 See XL Specialty, 93 A.3d at 1217 (“The underlying purpose of [ripeness] is to conserve limited judicial resources and to avoid rendering a legally binding decision that could result in premature and possibly unsound lawmaking.”) (citation omitted); Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. FedEx Corp., 2023 WL 4623626, at *14 (Del. Super. July 18, 2023) (“The Court understands that if the Delaware Action is not dismissed or stayed, litigating two concurrent actions in Delaware and [another state] will increase costs to the parties and double the use of judicial resources to adjudicate over duplicative issues.”); Viacom, 2023 WL 2034445 at *2 (“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.”);. 123 Benefytt Techs., Inc. v. Cap. Specialty Ins. Corp., 2022 WL 16504, at *10 (Del. Super. Jan. 3, 2022) (citing Harleysville Mut. Cas. Ins. Co. v. Carroll, 123 A.2d 128 (Del. Super. 1956)). 124 Vaughn v. Stillwater Prop. & Cas. Ins. Co., 2017 WL 2709750, at *5 (Del. Super. June 23, 2017). 125 10 Del. C. § 6512. 126 XL Specialty, 93 A.3d at 1217-18 (citing Hoechst Celanese Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa, 623 A.2d 1133, 1137 (Del. Super. 1992)). 27 misconduct by perpetrators.127 These cases may result in substantial jury verdicts or

settlements, and Varsity alleges that the existing settlement reaches the Excess CGL

Insurers’ policies.128 While Varsity has not identified a monetary figure for its

liability under the settlement agreement, the Court will not reject a finding of

ripeness on this basis.

The claims against the Excess CGL Insurers are ripe, so National Union and

Lexington’s Motion to Dismiss is denied. RSUI’s Motion to Dismiss, which raises

the same arguments, is accordingly denied.

C. Greenwich and Axis’ Arguments for Dismissal Under Rule 12(b)(6) are Insufficient.

Greenwich and Axis moved for dismissal on various grounds, and also moved

to strike sections of the Complaint related to confidential mediation

communications. For the reasons below, Greenwich and Axis’ Motions are denied.

1. The motion to dismiss standard of review

The “pleading standards governing the motion to dismiss stage…are

minimal.”129 The court must “accept all well-pleaded factual allegations in the

Complaint as true.”130 The court also must “read the complaint generously” and

127 Tr. at 44:15-16. 128 NL MTD Opp’n at 12-13. 129 Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011) (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896 (Del. 2002)). 130 Id. (citing Savor, 812 A.2d at 896-97). 28 construe all such allegations “in a light most favorable to the plaintiff.”131 The court

“credits even vague allegations, so long as they provide the opposing party notice of

the claim;…gives the non-movant the benefit of all reasonable factual inferences;

and…denies the motion if recovery on the claim is reasonably conceivable.”132

Dismissal pursuant to Rule 12(b)(6) is appropriate only where a complaint is so

deficient that the plaintiff “could not recover under any reasonably conceivable set

of circumstances susceptible of proof.”133

2. The conflicts of laws analysis

Before addressing the substance of Axis and Greenwich’s Motions, the Court

must first address which state’s law applies. Greenwich and Axis argue Tennessee

law applies to this action, as Varsity is headquartered in Tennessee, and the

Greenwich and Axis insurance policies were delivered to Varsity’s offices in

Tennessee.134 Varsity argues Delaware law applies because there is no outcome

determinative conflict of laws.135

131 Henry v. Middletown Farmers Mkt., LLC, 2014 WL 4426311, at *2 (Del. Super. Sept. 8, 2014) (quoting Klein v. Sunbeam Corp., 94 A.2d 385, 391 (Del. 1952)). 132 Agahi v. Kelly, 2024 WL 1134048, at *7 (Del. Super. Mar. 15, 2024) (first citing Super. Ct. Civ. R. 12(b)(6); and then citing Tilton v. Stila Styles, LLC, 2023 WL 6134638, at *3 (Del. Super. Sept. 19, 2023) (citation omitted)). 133 Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011) (citing Savor, 812 A.2d at 896-97). 134 GA MTD at 6-7. 135 D.I. 127, Pls.’ Br. in Opp’n to GA MTD (“GA MTD Opp’n”) at 8-10. 29 In conducting a conflicts of law analysis, Delaware courts first determine if

there is an actual conflict between the laws of two or more relevant jurisdictions.136

An actual conflict exists when the outcome of the case changes depending upon

which jurisdiction’s laws are applied.137 If the outcome of an issue is the same under

two jurisdictions’ laws, there is a “false conflict,” and a Delaware court should not

conduct a choice of law analysis.138 If an actual conflict between the laws of multiple

jurisdictions exists, Delaware courts determine which jurisdiction has the most

significant relationship to the case, and apply that jurisdiction’s laws. 139

The Court does not currently find any outcome determinative conflict between

the laws of Tennessee and Delaware. Thus, Delaware law applies to this decision.

To demonstrate the lack of any outcome determinative conflict, the Court will

discuss both Delaware and Tennessee law in connection with each of the remaining

defendants’ arguments.

136 Buhl Bldg., L.L.C. v. Commonwealth Land Title Ins. Co., 2019 WL 3916615, at *3 (Del. Super. Aug. 19, 2019) (citing Bell Helicopter Textron, Inc. v. Arteaga, 113 A.3d 1045, 1050 (Del. 2015)). 137 Deuley v. DynCorp Int’l, Inc., 8 A.3d 1156, 1161 (Del. 2010) (first citing Berg Chilling Sys., Inc. v. Hull Corp., 435 F.3d 455, 462 (3d Cir. 2006); and then citing Lagrone v. Am. Mortell Corp., 2008 WL 4152677, at *5 (Del. Super. Sept. 4, 2008) (There is a “false conflict” of laws when the outcome is the same under the laws of each relevant jurisdiction. In that case, a choice-of-law analysis is unnecessary)). 138 Id. 139 Buhl, 2019 WL 3916615 at *3. 30 3. Greenwich’s argument that Varsity breached a condition precedent to coverage fails. Greenwich argues Varsity breached a condition precedent to coverage by

failing to secure Greenwich’s consent before entering into the Conditional

Settlement.140 Greenwich asserts that Varsity’s Second, Third, and Fourth Causes of

Action should therefore be dismissed.141

Greenwich’s policies provide that an insured must obtain the Insurer’s consent

prior to entering into any settlement:

d. No insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation or incur any expense without our consent.142 Both Delaware and Tennessee law require adherence to conditions precedent in the

insurance context.143 Adherence to conditions precedent can be pled by “[averring]

generally that all conditions precedent have been performed or have occurred.”144 In

140 GA MTD at 21. 141 Id. at 23. Axis waived consent and does not join this argument. GA MTD at 1 n. 1, 3 n.3. 142 GA MTD at 21 (citing Id. Ex. 2 at 86). 143 See Am. Guarantee & Liab. Ins. Co. v. Norfolk S. Ry. Co., 278 F. Supp. 3d 1025, 1051 (E.D. Tenn. 2017) (first citing Anderson v. Dudley L. Moore Ins. Co., 640 S.W.2d 556, 560 (Tenn. Ct. App. 1982); and then citing State Auto. Ins. Co. v. Lashlee-Rich, Inc., 1997 WL 781896, at *4 (Tenn. Ct. App. Dec. 22, 1997) (“When an insured makes a payment or incurs an expense as a result of an occurrence, the insured cannot subsequently recover such costs if made without the insurer’s knowledge or consent.”)); Rhone-Poulenc Basic Chemicals Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1198 (Del. 1992) (citing Casson v. Nationwide Ins. Co., 455 A.2d 361, 365 (1982) (“In order for an insured to establish the contractual liability of an insurer for breach of an insurance contract, the insured must show that he has complied with all conditions precedent to the insurer’s performance.”)). 144 Super. Ct. Civ. R. 9(c); See also Tenn. R. Civ. P. 9.03 (same). 31 both states, consent-to-settle provisions in insurance contracts can be waived by the

insurer when the insurer rejects coverage.145

Greenwich argues Varsity admitted to breaching the consent-to-settle

provisions.146 Varsity pleads it “has complied with all terms, conditions and

prerequisites to coverage under the Primary CGL Policies or are excused from doing

so based on the Primary CGL Insurers’ coverage declinations and/or other

conduct.”147 This general averment satisfies the pleading requirements of Rule 9(c).

At this stage, it would be inappropriate for this Court to ignore Varsity’s general

averment and make a factual determination on whether the alleged condition

precedent was waived, satisfied, or breached.148 Varsity’s Second, Third, and Fourth

Causes of Action will not be dismissed for failure to satisfy a condition precedent to

coverage.

145 See Allpress v. Lawyers Title Ins. Corp., 405 S.W.2d 572, 574 (Tenn. 1966) (“We find nothing in the title policy which says that, once the insurance company has been notified of the claim against the insured, and refuses to defend or settle such claim, that the appellant insured cannot settle the claim.”); Shook v. Hertz Corp., 349 A.2d 874, 877 (Del. Super. 1975) (quoting Calhoun v. State Farm Mut. Auto. Ins. Co., 62 Cal. Rptr. 177, 181 (Cal. Ct. App. 1967) (“An insurer may not thus repudiate a policy, deny all liability thereon, and at the same time be permitted to stand on the failure to comply with a provision inserted in the policy for its benefit[.]”)). 146 GA MTD at 21. 147 Sec. Am. Compl. ¶ 435. 148 See Supernus Pharms., Inc. v. Reich Consulting Gp., Inc., 2021 WL 5046713, at *5 n.55 (Del. Ch. Oct. 29, 2021) (citations omitted) (“it would be an error . . . to set aside [the plaintiff’s] general averment that it performed all conditions precedent at the pleading stage.”). 32 4. Varsity’s breach of contract claim is adequately pled.

Greenwich and Axis argue Varsity’s Second Cause of Action (Breach of the

Duty to Indemnify) fails to state a claim because it is duplicative of the Third Cause

of Action (Bad Faith Failure to Settle).149 Greenwich and Axis argue “the crux of

Varsity’s claim for breach of contract is that its insurers refused to provide coverage

for Varsity and failed to fund its proposed Conditional Settlement.”150 Thus, “the

only specific breach Varsity alleges is the implied covenant of good faith and fair

dealing.”151

In both Delaware and Tennessee, a valid claim for breach of contract must

allege: “(1) the existence of a contract; (2) the breach of an obligation imposed by

the contract; and (3) damages that the plaintiff suffered as a result of the breach.”152

Varsity’s Second Amended Complaint easily surpasses the hurdles for stating a

claim. Varsity alleges “[e]ach of the Primary CGL Insurers refused to accept its legal

obligations to provide coverage for Varsity in response to some or all of the

Underlying Actions and Claims[,]” and their “failure to indemnify Varsity fully for

149 GA MTD at 12. 150 Id. 151 Id. 152 Agahi, 2024 WL 1134048 at *8 (quoting Morris v. Delmarva Real Est. Hldgs., LLC, 2024 WL 413512, at *5 (Del. Ch. Feb. 5, 2024)); See also Leedy v. Hickory Ridge, LLC, 663 S.W.3d 537, 548 (Tenn. Ct. App. 2022) (quoting ARC LifeMed, Inc. v. AMC-Tennessee, Inc., 183 S.W.3d 1, 26 (Tenn. Ct. App.) (“The essential elements of any breach of contract claim include (1) the existence of an enforceable contract, (2) nonperformance amounting to a breach of the contract, and (3) damages caused by the breach of the contract.”)). 33 a settlement of the Underlying Actions and Claims constitutes a breach of the

Primary CGL Policies.”153 Varsity further alleges that “Varsity has incurred and will

continue to incur damages in the form of costs to pay settlements and/or judgments

in the Underlying Actions and Claims for which the Primary CGL Insurers are

responsible pursuant to the terms of their respective Primary CGL policies that they

issued to Varsity.”154 Pleading a specific amount of damages is unnecessary where,

as here, it is “reasonable to infer” the plaintiff suffered damages.155 Thus, Varsity

meets the minimum pleading standards pursuant to Superior Court Civil Rule

12(b)(6).

The Second Cause of Action is not duplicative with the Third Cause of Action,

which alleges a violation of the implied covenant of good faith and fair dealing. As

detailed below, the implied covenant and breach of contract claims have distinct

elements, and Varsity states a claim for both independently.

5. The bad faith failure to settle claim is sufficiently pled under Delaware and Tennessee law.

Greenwich and Axis argue that Varsity’s Third Cause of Action (Bad Faith

Failure to Settle against the Primary CGL Insurers (including Greenwich and Axis))

153 Id. ¶¶ 436-37. 154 Id. ¶ 433. 155 Agahi, 2024 WL 1134048 at *8. 34 fails to state a claim for which relief can be granted.156 Both Delaware and Tennessee

law recognize bad faith failure to settle claims as a subset of the implied covenant.157

Greenwich and Axis argue the damages allegations for the Third Cause of

Action are insufficient,158 and that the Second Amended Complaint fails to identify

Greenwich and Axis’ particular misconduct.159 Varsity sufficiently outlines how it

156 GA MTD at 10-21; D.I. 164, Defs. Greenwich and Axis’ Reply in Further Supp. of GA MTD (“GA MTDR”) at 9-17. 157 Connelly v. State Farm Mut. Auto. Ins. Co., 135 A.3d 1271, 1274 (Del. 2016) (“A duty of good faith and fair dealing is implied in every contract. In the context of an insurance policy, the implied covenant has historically included a duty to ‘settle [claims] within policy limits where recovery in excess of those limits is substantially likely.’”) (citations omitted) (alteration in original); Johnson v. Tenn. Farmers Mut. Ins. Co., 205 S.W.3d 365, 370 (Tenn. 2006) (“‘It is well established that an insurer having exclusive control over the investigation and settlement of a claim may be held liable to its insured for an amount in excess of its policy limits if as a result of bad faith it fails to effect a settlement within the policy limits’…[t]o discharge its duty to act in good faith, an insurer must exercise ordinary care and diligence in investigating the claim and the extent of damage for which the insured may be liable.”) (citations omitted). Greenwich and Axis also argue that Tennessee law does not recognize violations of the implied covenant of good faith and fair dealing as a standalone cause of action. GA MTD at 10. Tennessee allows claims for breach of the implied covenant when the plaintiff first satisfies the elements for breach of contract. See, e.g., Costello v. Mountain Laurel Assurance Co., 670 F. Supp. 3d 603, 617 (E.D. Tenn. 2023) (“Here, the Court has already determined…that plaintiff has pled factual content to state a plausible claim for breach of contract. As a result, she can also state a claim for breach of the covenant of good faith and fair dealing.”); Davidson v. Arlington Cmty. Sch. Bd. of Educ., 847 F. App’x 304, 310 (6th Cir. 2021) (citing ARC LifeMed, 183 S.W.3d at 26 (“though she invokes the duty of good faith and fair dealing, [the plaintiff] must still satisfy the elements of a breach-of-contract claim”)). Varsity adequately pleads a breach of contract claim; thus, Varsity can plead a violation of the implied covenant of good faith and fair dealing claim under Tennessee law. 158 GA MTD at 14. 159 GA MTD at 2, 19. Greenwich and Axis also contend that Varsity’s Bad Faith Failure to Settle Claim should be dismissed because Varsity has not suffered a final judgment in excess of the applicable policy limits. GA MTD at 14 n. 8. The Supreme Court of Delaware in Connelly v. State Farm explained that for an insured to prevail in a bad faith failure to settle action, the insured must allege they have suffered a final, non-appealable judgment in excess of the policy limits. Connelly 135 A.3d at 1272. In doing so, the Supreme Court adopted the majority rule and favorably cited a treatise, Allan D. Windt, Insurance Claims & Disputes § 9:2 (6th ed. 2013). Id. at 1276 n. 17. As that treatise explains, when an insured enters into a settlement in excess of the policy limits – after an earlier failure to settle caused by the insurer – the insured should still be able to bring a bad 35 has been damaged by the Insurers’ alleged misconduct. The Third Cause of Action

specifies that “Varsity has been injured and will continue to be injured,”160 and the

remainder of the Second Amended Complaint explains that Varsity will be forced to

pay for the underlying judgments and settlements on its own in the absence of any

insurance coverage. Assuming Varsity’s factual allegations are true, as this Court

must do in resolving a 12(b)(6) motion to dismiss, the Court can infer that the alleged

bad faith conduct by the Primary CGL Insurers (including Greenwich and Axis),

jeopardized Varsity’s settlement, and left Varsity without insurance coverage for the

Underlying Lawsuits, thereby injuring Varsity.161

faith failure to settle claim. Allan D. Windt, Insurance Claims & Disputes § 5:17, Westlaw (database updated Mar. 2024) (citations omitted). If the insurer needed to suffer an excess judgment rather than an excess settlement, they would be penalized for “acting prudently,” and settling the case on their own. Id. Alleging an “excess settlement” is sufficient for a bad faith failure to settle claim under Delaware law. Varsity filed suit not only against the Primary CGL Insurers, but also against the Excess CGL Insurers. By filing suit against all the Insurers, Varsity implies that the settlement amount, which has not been explicitly provided, is likely to exceed the policy limits of the Primary CGL Insurers, including Greenwich and Axis. Without that settlement figure, the Court cannot make a factual determination that Varsity’s settlement amount fails to exceed the policy limits of the Primary CGL Insurers. Cause of Action III cannot be dismissed for failure to plead an excess judgment. Tennessee law does not address the excess judgment vs. settlement issue. In a Tennessee bad faith failure to settle claim, an insurer “may be held liable to its insured for an amount in excess of its policy limits if as a result of bad faith it fails to effect a settlement within the policy limits.” Johnson, 205 S.W.3d at 370 (quoting State Auto. Ins. Co. of Columbus, Ohio v. Rowland, 427 S.W.2d 30, 33 (1968)). This Court finds no Tennessee caselaw – and Greenwich and Axis fail to provide any – which precludes Varsity from alleging bad faith failure to settle against Insurers based on an underlying excess settlement. 160 Sec. Am. Compl. ¶ 450. 161 See Agahi, 2024 WL 1134048 at *8 (noting that pleading a specific amount of damages is unnecessary where the court can “infer [the plaintiff] suffered damages” from the allegations in the complaint). 36 Greenwich and Axis further contend the Breach of Contract and Bad Faith

Failure to Settle Claims are duplicative.162 Varsity’s Breach of Contract claim and

Bad Faith Failure to Settle claims are not duplicative, as the Breach of Contract claim

alleges that Insurers failed to indemnify Varsity for the settlement agreement, while

the Bad Faith Failure to Settle claim alleges bad faith conduct during settlement

negotiations.163

Finally, Greenwich and Axis argue that, for a Tennessee bad faith failure to

settle claim, Varsity must allege that the Insurers had exclusive control over the

settlement negotiations.164 Greenwich and Axis contend that the Insurers’ lack of

exclusive control over the settlement negotiations bars Varsity’s bad faith failure to

settle claim.165

The Supreme Court of Tennessee has declared that, for relief to be granted on

a bad faith failure to settle claim, the plaintiff must allege that the insurer had

“exclusive control over the investigation and settlement of a claim….”166 Courts

applying Tennessee law have found the “exclusive control” requirement is satisfied

when an insurer agreed to defend under a reservation of rights. 167 In For Senior

162 GA MTD at 23. 163 Sec. Am. Compl. ¶¶ 432-38, 439-50. 164 GA MTD at 20. 165 Id. 166 Johnson, 205 S.W.3d at 370 (quoting Rowland, 427 S.W.2d at 33). 167 See For Senior Help, LLC v. Westchester Fire Ins. Co., 515 F. Supp. 3d 787, 804 (M.D. Tenn. 2021) (“The court concludes . . . that the defendant is not entitled to summary judgment on the bad faith failure to settle claim as a matter of law, purely on the basis that it provided a defense subject 37 Help, LLC v. Westchester Fire Insurance Co., the U.S. District Court for the Middle

District of Tennessee held that an insurer who undertook a legal defense of their

insured, even a conditional one, had a duty to explore settlement opportunities in

good faith.168

Delaware law also employs an “exclusive control” standard, but this control

is satisfied when the insurer, because of the terms of their insurance policy, has the

exclusive right to control the defense of the insured.169

Varsity alleges that “[o]nly a few of the Primary CGL Insurers agreed to

defend Varsity but then only as to certain of the claims, and with improper conditions

placed upon the staffing and hourly rates.”170 The Second Amended Complaint does

not specify whether or not Greenwich and Axis are among the few Insurers who

agreed to defend Varsity – meaning Greenwich and Axis could possibly have

negotiated, on Varsity’s behalf, the settlement of the underlying claims which invoke

Greenwich and Axis policies. This satisfies the control requirements of For Senior

Help at the motion to dismiss phase. It is possible, under the facts alleged in the

Second Amended Complaint, that Greenwich and Axis had a sufficient level control

over the defense of Varsity which would require Greenwich and Axis to exercise

to a reservation of rights. By providing a defense, it incurred a duty to negotiate settlement in good faith as an integral part of that defense, and it may be held liable if it failed to do so.”). 168 Id. 169 See Connelly 135 A.3d at 1272, 1274-75 (the insurer “had the exclusive right to control defense strategy and settlement”). 170 Sec. Am. Compl. ¶ 421. 38 good faith in negotiating a settlement, and that Greenwich and Axis then failed to do

so.171 Under Tennessee law, Varsity provides sufficient facts to support an inference

of “exclusive control.”

As for Delaware law, Varsity pleads that Greenwich and Axis had not only the

right, but the obligation to defend Varsity in the underlying dispute. 172 Under

Connelly, this is sufficient.173

Under both Tennessee and Delaware law, Varsity’s Third Cause of Action

survives Greenwich and Axis’ Motion to Dismiss. Any differences in the laws create

a “false conflict,” and the Court will not conduct a choice of law analysis when the

laws of Tennessee and Delaware do not conflict on the issues presented in the

Motions to Dismiss.174

6. Greenwich and Axis’ alternative request to stay the bad faith failure to settle claim is denied. Greenwich and Axis argue Varsity’s Third Cause of Action should be stayed

pending the resolution of the breach of contract claims.175 Delaware courts have

171 The Court also disagrees with Greenwich and Axis that Varsity has admitted to a lack of sufficient control by Insurers. GA MTD at 20; GA MTDR at 9. Varsity’s Second Amended Complaint alleges that some Insurers defended Varsity in the Underlying Lawsuits, and this defense potentially includes participation in the settlement negotiations. Sec. Am. Compl. ¶ 421. 172 See, e.g., Sec. Am. Compl. ¶ 120 (“The 2014-2015 Greenwich Primary CGL Policy also obligates Greenwich to ‘defend the insured…’”); Sec. Am. Compl. ¶ 85 (“The 2008-2009 Axis Primary CGL Policy also obligates Axis to ‘defend the insured…’”). 173 Connelly 135 A.3d at 1272, 1274-75. 174 See ACE Am. Ins. Co. v. Rite Aid Corp., 270 A.3d 239, 244-245 (Del. 2022) (“a choice of law analysis is unnecessary because [the laws of the two relevant jurisdictions] do not conflict on the insurance coverage issues presented here.”). 175 GA MTD at 26. 39 discretion to sever and stay claims because of the Court’s inherent power to control

its docket.176 In evaluating whether to sever and stay an action, a court will balance

“the interests of the plaintiff, [and] the interests of the defendant, all with an eye

toward the efficient and fair administration ... of justice.”177 In determining whether

to sever and stay a cause of action, “expense and litigation economy predominate.”178

The Court disagrees with Greenwich and Axis that severing and staying the

bad faith failure to settle claim is more efficient than allowing it to proceed. A stay

could result in two separate discovery periods for one case, which would

unnecessarily extend the life of this action. The Court, therefore, will not sever and

stay the bad faith failure to settle claim.

7. Varsity’s Third Cause of Action will not be dismissed based on facts alleged by the defendants outside of the Complaint.

Greenwich and Axis argue that Varsity’s Third Cause of Action should be

dismissed because it calls for the disclosure of confidential mediation

communications between Varsity, the underlying claimants, and the Insurers.179

176 Lima USA, Inc. v. Mahfouz, 2021 WL 5774394, at *7 (Del. Super. Aug. 31, 2021) (citing Solow v. Aspect Res., LLC, 46 A.3d 1074, 1075 (Del. 2012)). 177 Id. (quoting Carlton Inv. v. TLC Beatrice Int'l Hldgs., Inc., 1996 WL 33167168, at *9 (Del. Ch. June 6, 1996)). 178 Id. (citation omitted). 179 Arch MTD at 1 n.1; see generally GA Joinder. Arch’s briefs provide Greenwich and Axis’ arguments on this issue. Arch MTD at 26-31; Arch MTDR 13-20. Because the Court dismissed Arch on personal jurisdiction grounds, it will not include Arch when it discusses Greenwich and Axis’ position on this issue. 40 Greenwich and Axis allege Varsity breached the Mediation Confidentiality

Agreement and that Varsity has violated District of South Carolina Local Rule 16.08

(C)180 because the South Carolina Federal Court originally ordered the mediation.181

Greenwich and Axis argue Varsity breached the Mediation Confidentiality

Agreement by disclosing confidential mediation information in its Complaint and

will continue to breach the Agreement in pursuing Cause of Action III.182

Varsity does not discuss the Mediation Confidentiality Agreement in its

pleadings. The Mediation Confidentiality Agreement is not attached as an exhibit to

Complaint or the Amended Complaints. District of South Carolina Local Rule 16.08

(C) is also not mentioned in the Complaint. In resolving a motion to dismiss

pursuant to Rule 12(b)(6), the Court should look to the complaint as the “universe

of facts the trial court may consider[.]”183

Nonetheless, documents which are integral to the plaintiff’s claim and

incorporated by reference into the complaint can be examined without converting

180 “Communications during the mediation conferences shall be confidential. The parties, their attorneys, and other persons present shall maintain the confidentiality of the mediation and shall not rely on, introduce, or attempt to introduce as evidence in any arbitral, judicial, or other proceeding, any event, document, or communication relating in any way to the mediation.” Local Civ. Rule 16.08(C) (D.S.C.). 181 Arch MTD at 27. 182 Id. 183 In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (first citing Malpiede v. Townson, 780 A.2d 1075, 1082 (Del. 2001); then citing In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 65 (Del. 1995); and then citing In re Tri-Star Pictures, Inc., 634 A.2d 319, 326 (Del. 1993)). 41 the motion to dismiss into a motion for summary judgment.184 “The trial court may

also take judicial notice of matters that are not subject to reasonable dispute.”185

The Mediation Confidentiality Agreement is not incorporated by reference

into the Complaint. Nor is it integral to Varsity’s claims: it is being used by the

Greenwich and Axis to shield against Varsity’s claims. The Court will not consider

the Mediation Confidentiality Agreement in resolving the Motion to Dismiss, and

Greenwich and Axis’ argument that Varsity’s Third Cause of Action should be

dismissed because it violates the Mediation Confidentiality Agreement necessarily

fails.

As to the District of South Carolina Local Rule requiring confidentiality in

mediation over the South Carolina Federal Action, Varsity’s complaint alleges that

“the South Carolina federal court ordered mediation.”186 The Court also

acknowledges that District of South Carolina Local Rule 16.08(C) requires that

“[communications] during mediation conferences shall be confidential.”187

184 See Sanders v. Devine, 1997 WL 599539, at *4 (Del. Ch. Sept. 24, 1997) (“[A]n examination of documents outside the pleadings is permitted as long as the documents are integral to the plaintiff's claim.”) (citing Noerr v. Greenwood, 1997 WL 419633, at *3 (Del. Ch. July 16, 1997)); In re Lukens Inc. S'holders Litig., 757 A.2d 720, 727 (Del. Ch. 1999), aff'd sub nom. Walker v. Lukens, Inc., 757 A.2d 1278 (Del. 2000) (citing Santa Fe, 669 A.2d at 69-70) (explaining that “the court may consider, for certain purposes, the content of documents that are integral to or are incorporated by reference into the complaint[.]”)). 185 Gen. Motors, 897 A.2d at 169 (citing D.R.E. 201(b)). 186 Sec. Am. Compl. ¶ 422. 187 Local Civ. Rule 16.08(C) (D.S.C.). The Court notes its concern that Varsity’s pursuit of a Bad Faith claim may result in the admission of mediation-related documents on the record. Discovery on the Bad Faith claim may eventually violate D.S.C. Local Rule 16.08(C) and, at least according to Greenwich and Axis, the Mediation Confidentiality Agreement. To reiterate, the Bad Faith 42 Even acknowledging the District of South Carolina Local Rule, which

requires communications which occurred during the mediation of the South Carolina

Federal Action be kept confidential, Greenwich and Axis’ Motion to Dismiss fails.

The Second Amended Complaint does not specify that Greenwich or Axis are

potentially liable for damages incurred by the South Carolina Federal Action, as

opposed to the many other underlying claims. The Second Amended Complaint

explains that the South Carolina Federal Court ordered mediation, and that Varsity

mediated with “all but a few of the claimants,” including those unrelated to the South

Carolina Federal Action. The Court reviews the Second Amended Complaint

“generously,” and “in a light most favorable to the plaintiff.”188 As such, the Court

accepts the reasonable possibility that Greenwich and Axis have nothing to do with

the South Carolina Federal Action, and that the District of South Carolina Local Rule

mandating confidentiality in mediating the South Carolina Federal Action does not

apply to claims for which Greenwich and Axis may be liable. Greenwich and Axis

do not articulate why South Carolina Local Rule 16.08(c) would apply to all

discussions during settlement negotiations for all underlying claims, including those

claims which are unrelated to the South Carolina Federal Action. Instead,

Failure to Settle claim survives based on the standard of review for a motion to dismiss, even though the Local Rule and Confidentiality Agreement may prevent Varsity from providing sufficient evidence to prove bad faith by the Insurers. 188 Henry v. Middletown Farmers Mkt., LLC, 2014 WL 4426311, at *2 (Del. Super. Ct. Sept. 8, 2014). 43 Greenwich and Axis rely on the applicability of the Mediation Confidentiality

Agreement, which this Court may not consider.189 Greenwich and Axis’ argument

that the South Carolina Local Rule mandates dismissal of Varsity’s Bad Faith Failure

to Settle Cause of Action is therefore unsuccessful.

8. Greenwich and Axis’ Motion to Strike is denied.

As an alternative to their Motion to Dismiss for Failure to State a Claim,

Greenwich and Axis argue that the portions of the Second Amended Complaint

which relate to the underlying mediation session should be stricken under Rule

12(f).190 Greenwich and Axis argue that, because of the mediation’s confidentiality,

paragraphs 1-5, 422-24, and the entire Third Cause of Action (paragraphs 439-50),

should all be stricken from the Second Amended Complaint because those

paragraphs discuss underlying mediation, violating mediation confidentiality

rules.191

189 See Local Civ. Rule 1.01 (D.S.C.) (“These Local Civil Rules of practice shall govern the conduct of the United States District Court for the District of South Carolina”); See also Arch MTDR at 14 (“the mediation was not exclusively subject to the orders of the U.S. District Court for the District of South Carolina (which had jurisdiction solely over the federal lawsuits filed in South Carolina)”). 190 Arch MTD at 1 n.1. Again, Arch’s briefs provide Greenwich and Axis’ arguments on this issue. Id. at 26; Arch MTDR at 13. Because the Court dismissed Arch on personal jurisdiction grounds, it will not include Arch when it discusses Greenwich and Axis’ position on this issue. 191 Arch MTD at 30-31. 44 Superior Court Rule 12(f) provides that “the Court may order stricken from

any pleading any insufficient defense or any redundant, immaterial, impertinent or

scandalous matter.”192

Motions to strike focus on the form of the pleading and not its substance. These motions generally are disfavored and are “granted sparingly and only when clearly warranted with all doubt being resolved in the nonmoving party’s favor.” A motion to strike is granted if the challenged averments are: (1) not relevant to an issue in the case; and (2) unduly prejudicial.193

Greenwich and Axis provide one Delaware case to support their argument that a

motion to strike is an appropriate tool for removing confidential information from a

complaint.194 In NewYork.com Internet Holdings, Inc., the Court of Chancery struck

a paragraph of a counterclaim that described “conduct and language” of a party at a

mediation.195 The paragraph stricken from the complaint was irrelevant and

prejudicial; the paragraph offered no allegation which supported the counterclaim.196

The objected-to paragraphs of Varsity’s Second Amended Complaint are

relevant to Varsity’s Causes of Action. Paragraphs 1-5 are the Preliminary

Statement, which summarizes the entire Second Amended Complaint.197 Paragraphs

192 Super. Ct. Civ. R. 12(f). 193 NewYork.com Internet Hldgs., Inc. v. Ent. Benefits Gp., LLC, 2015 WL 4126653, at *4 (Del. Ch. July 8, 2015) (citing Salem Church Assocs. v. New Castle Cty., 2004 WL 1087341, *2 (Del. Ch. May 6, 2004)). 194 Arch MTD at 29-30. 195 NewYork.com, 2015 WL 4126653 at *5. 196 Id. at *5 (“[The stricken paragraph] is not reasonably likely to reflect unfavorably on the good name, goodwill, or reputation of the Company”). 197 Sec. Am. Compl. ¶¶ 1-5. 45 422-424 acknowledge that a mediation occurred, that it resulted in a settlement, and

that the Insurers refused to fund that settlement. Those factual allegations form the

backbone of Varsity’s entire case.198 Greenwich and Axis provide insufficient

Delaware caselaw to support their argument that information contained in a

complaint, which is relevant to the claims sought, should nonetheless be stricken

because of mediation confidentiality. As to Greenwich and Axis’ request that the

entire Third Cause of Action be stricken, this appears to be a request for an

alternative method of dismissing a Cause of Action which otherwise survives a

motion to dismiss for failure to state a claim. Greenwich and Axis provide no

Delaware caselaw to support such a dramatic strike.

As mentioned above, motions to strike are granted if “the challenged

averments are: (1) not relevant to an issue in the case; and (2) unduly prejudicial.”199

The objected-to paragraphs of Varsity’s Second Amended Complaint are relevant to

Varsity’s claims, and a motion to strike is an inappropriate method of dismissing

those claims.

Each of Greenwich and Axis’ arguments for dismissal under Rule 12(b)(6)

fails, so their Motion to Dismiss is accordingly denied.

198 Id. ¶¶ 422-24. 199 NewYork.com, 2015 WL 4126653 at *4 (emphasis added) (citing Salem, 2004 WL 1087341, at *2).

46 V. CONCLUSION

Arch’s Motion to Dismiss is GRANTED. PIIC’s Motion to Dismiss is

GRANTED. Greenwich and Axis’ Motion to Dismiss is DENIED. National Union

and Lexington’s Motion to Dismiss is DENIED, and RSUI’s Motion to Dismiss is

DENIED accordingly.

IT IS SO ORDERED.