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Stillwater: Delaware Supreme Court addresses choice of law principles and insurance coverage for shareholder appraisal actions | Kennedys

The majority of publicly traded companies are incorporated in Delaware but have their principal place of business in another state. This can raise thorny issues of what state’s laws should apply to an insurance coverage dispute under the company’s directors and officers liability policy. In Stillwater Mining Company v. National  Union Fire Insurance Company of Pittsburgh, PA et al., C.A. No. N20C-04-190 (Del. Jan. 12, 2023), the Delaware Supreme Court weighed in on choice of law principles under Delaware law as well as coverage under D&O policies for shareholder appraisal actions.


Stillwater was publicly traded until 2017 when Sibanye Gold Limited, a South African mining company, acquired Stillwater in a merger and took it private. Following the merger, Stillwater stockholders filed an appraisal action in the Court of Chancery, seeking the fair value of their stock. In the appraisal action, the shareholders claimed that Stillwater’s board and CEO conducted a flawed and biased sale process and breached their fiduciary duty to obtain fair value for Stillwater stock.

Stillwater notified its D&O insurers of the appraisal action and sought coverage for the costs it incurred in defending the action. The insurers denied coverage. Stillwater then filed suit against the insurers alleging breach of contract and breach of the duty to defend and advance defense costs. The Superior Court granted the insurers’ motions to dismiss after it found that Delaware law applied to the coverage dispute and that Solera II[1] precluded coverage under a D&O policy for losses incurred in an appraisal action. On January 12, 2023, the Delaware Supreme Court affirmed.

The Court’s Key Holdings

The Delaware Supreme Court’s decision in Stillwater is important for three reasons:

First, the Delaware Supreme Court re-affirmed that where the policy does not specify a choice of law, and two potentially applicable jurisdictions conflict on the relevant legal principles, Delaware courts will apply the law of the state that “has the most significant relationship to the contract and the parties to the contract using the considerations in the Restatement (Second) of Conflict of Laws.” The Second Restatement considerations for deciding which state has the “most significant relationship” are: (1) the place of contracting; (2) the place of negotiation of the contract; (3) the place of performance; (4) the location of the subject matter of the contract; and (5) the domicile, residence, nationality, place of incorporation, and place of business of the parties.

Second, the Delaware Supreme Court reiterated its view in Murdock[2] that Delaware has the “most significant relationship” to a coverage dispute involving D&O policies purchased by a Delaware corporation and an appraisal action brought in Delaware. The Court rejected Stillwater’s arguments that Montana law, not Delaware law, should apply. Stillwater had argued that its principal place of business is in Montana and the policies contain Montana amendatory endorsements, one of which provided for conformity with Montana law. The Court explained: “Here, the D&O policies can be performed anywhere in the world, including Delaware, and the underlying appraisal action was brought by shareholders of a Delaware corporation in the Delaware Court of Chancery. Montana does not have a stronger relative interest in this case than Delaware.”

Finally, the Delaware Supreme Court re-affirmed its holding in Solera II. In Solera II, the Court held that an appraisal action under 8 Del. C. § 262 is not a claim “for a violation of law” and therefore is not a “securities claim” under a D&O policy. The Court explained: “[T]his conclusion is compelled by the plain meaning of the word ‘violation,’ which involves some element of wrongdoing, even if done with an innocent state of mind. It is also compelled by section 262’s historical background, its text, and by a long, unbroken line of cases that hold that an appraisal under section 262 is a remedy that does not involve a determination of wrongdoing. Rather, it is a remedy limited to the determination of the fair value of the dissenters’ shares as of the effective date of the merger or consolidation.” Because Solera II precludes coverage for losses incurred in an appraisal action under a D&O policy, the Delaware Supreme Court affirmed dismissal.

[1] In re Solera Ins. Coverage Appeals, 240 A.3d 1121 (Del. 2020)

[2] RSUI Indem. Co. v. Murdock, 248, A.3d 887 (Del. 2021)

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