Delaware state and federal courts have issued several important rulings on allocation under D&O insurance policies. Most recently, in SSC Technologies Holdings, Inc. v. Endurance Assurance Corp., No. N20C-01-088 EMD CCLD, 2022 Del. Super. LEXIS 164 (Del. Super., April 26, 2022) (Davis, J.), the court declined to apply the “larger settlement rule” for allocation when there are covered and uncovered matters.

In SSC Technologies, the insured argued for application of the larger settlement rule, which the court applied in Arch Insurance Co. v. Murdock, C.A. No. N16C-01-104 EMD CCLD, 2020 Del. Super. LEXIS 156 (Del. Super., Jan. 17, 2020) (Davis, J.), aff’d, RSUI Indemnity Co. v. Murdock, 2021 Del. LEXIS 90 (Del., Mar. 3, 2021). In Murdock, the court applied the larger settlement rule to allocate a settlement between insured and uninsured parties, even though the policy’s allocation provision specifically stated that relative exposures should be considered. The allocation provision stated, in pertinent part, that “the Insureds and the Insurer agree to use their best efforts to determine a fair and proper allocation of covered Loss,” and “[i]n making such determination, the parties shall take into account the relative legal and financial exposures of the Insureds[.]” Id. at *6-7. The court found in Murdock that, as written, the allocation provision’s reference to the relative exposure test applied only to the insurer’s and insured’s potential negotiation of an allocation agreement, and that the provision was silent as to how a court should address allocation if they did not reach an agreement. Id. at *16-17.

Without expressly addressing its Murdock decision, the court in SSC Technologies questioned whether it would be appropriate to apply the larger settlement rule where there are covered and uncovered matters, rather than insured and uninsured parties. The court stated that it “is not prepared to extend, on this record, the Larger Settlement Rule beyond the coverage/allocation situation where indemnifiable and non-indemnifiable parties are involved.” SSC Technologies, 2022 Del. Super. LEXIS 164, at *2.

In a previous case, the court expressly distinguished Murdock based on different policy terms. In Verizon Communications, Inc. v. Illinois National Insurance Co., C.A. No. N14C-06-048 WCC CCLD, 2020 Del. Super. LEXIS 3090 (Del. Super. Ct., Dec. 11, 2020) (Carpenter, J.), the policy provided that “there shall be a fair and equitable allocation… taking into account the relative legal and financial exposures and relative benefits obtained[.]” Id. at *4-5. The court found this allocation provision “significantly different” from the provision in Murdock because its reference to the relative exposure test was not expressly limited in its application to the parties’ attempt to reach an agreement on allocation. Id. at 14.

Similarly, in Calamos Asset Management v. Travelers Casualty & Surety Co. of America, C.A. No. 18-1510 (MN), 2021 U.S. Dist. LEXIS 83132 (D. Del., Apr. 30, 2021) (Noreika, J.), the court held that an allocation provision required a relative exposure analysis even when the insured and the insurer could not reach an agreement on allocation. The provision stated that if the parties could not agree on allocation, a court should determine a proper allocation “pursuant to the provisions of this Policy and applicable law.” Id. at *28. The court held that “pursuant to the provisions of this Policy” referred back to the part of the allocation provision stating that the parties should consider relative exposures. Id. at *13-14.

In summary, when presented with an allocation issue under Delaware law, a careful review of the policy’s allocation provision is required to determine whether it falls closer to the provisions in Verizon or Calamos, on the one hand, or Murdock, on the other hand. Furthermore, there also is some question, based on the court’s recent decision in SSC Technologies, whether the larger settlement rule applies under Delaware common law when there are covered and uncovered matters.