Judge Davis Grants Motion for Partial Summary Judgment for a Declaratory Judgment Arising from an Insurance Policy Dispute

July 24, 2018

Publication

In WoodSpring Hotels LLC v. National Union Fire Insurance Co. of Pittsburgh, PA, 2018 WL 2085197 (Del. Super. Ct.), Judge Davis granted a Motion for Partial Summary Judgment in an insurance coverage dispute. In this case, plaintiff WoodSpring Hotels LLC obtained a directors and officers insurance policy (the “Policy”) from defendant National Union Insurance Co. of Pittsburgh, PA. Subsequently, Extended Stay America, Inc. and ESA Management LLC sued WoodSpring and one of its officers, Ms. Ruby (the “ESA Litigation”). WoodSpring demanded that National Union, pursuant to the Policy, defend the ESA Litigation, but National Union refused to cover any costs incurred by WoodSpring and covered only some of the costs incurred by Ms. Ruby in defending the ESA Litigation. Thereafter, WoodSpring sued National Union, seeking declaratory judgment with respect to National Union’s failure to honor its obligations under the insurance policy and damages for breach of contract. WoodSpring filed a Motion for Partial Summary Judgment on Counts I and III, seeking a declaratory judgment that National Union owed a duty to defend WoodSpring and Ms. Ruby under the Policy.

First, the Court conducted a conflict of law analysis to determine whether Kansas or Delaware law should apply. The Court determined that “Delaware and Kansas laws do not conflict for purposes of this Motion,” id. at *7, finding that Kansas and Delaware “take a substantially similar approach to the law regarding an insurer’s duty to defend.” Id. at *9. Therefore, the Court applied Delaware law to conclude that National Union “would have a duty to defend the entire ESA litigation if Ms. Ruby and/or WoodSpring were entitled to defense on any claim asserted in the ESA Litigation.” Id.

Next, the Court decided whether WoodSpring or Ms. Ruby were entitled to defense on any claim asserted in the ESA Litigation. The Court looked to the Policy exclusions to guide its analysis. With respect to Ms. Ruby, the Court considered Exclusion 4(g), which excluded coverage for any claim made against WoodSpring that did not involve acts or omissions of an executive or employee of WoodSpring. The Court held that Exclusion 4(g) did not apply because Ms. Ruby was being sued “as an employee of WoodSpring and with respect to her conduct as WoodSpring’s Vice President of Sales.” Id. at *10. Thus, the Court granted summary judgment on Count I, holding that National Union had a duty to defend Ms. Ruby in the ESA Litigation.

With respect to WoodSpring, the Court had to consider whether Exclusion 4(t) applied to relieve National Union of any duty to defend WoodSpring in the ESA Litigation. Exclusion 4(t) excluded coverage from claims arising out of the misappropriation of trade secrets. Count V of the ESA Litigation alleged that WoodSpring was liable for Ruby’s conspiracy to violate the Federal Computer Fraud and Abuse Act (“CFAA”). The Court determined that the CFAA does not require the involvement of a trade secret. The Court found that although “the gravamen of the ESA Litigation is misappropriation of ESA’s Trade Secrets,” “ESA’s claim under Count V is broader than a misappropriation of a trade secret.” Id. at *12. Because Count V “could arise in relation to a covered claim,” the Court held that summary judgment as to Count III of the Complaint was appropriate and “National Union should have satisfied its duty to defend WoodSpring under the Policy.” Id. at *13.

Analysis: The CCLD has become a favored venue for handling complex insurance coverage disputes. Here, as in many insurance coverage disputes, the Court was required to engage in a choice of law analysis before turning to an evaluation of the disputed contractual provisions. A careful analysis of the provisions by an experienced jurist ultimately led to a ruling holding the insurer to its duty to defend its insureds.