The Supreme Court of Delaware affirmed a trial court decision holding that a “run-off exclusion” in a management and company liability policy absolved an insurer of the obligation to advance defense costs. Ferrellgas Partners L.P. v. Zurich Am. Ins. Co., 2024 WL 2885282 (Del. June 10, 2024). The court also declined to find that the exclusion was inconsistent with the reasonable expectations of the insured.

The insured, an oil transport company, was sued for allegedly breaching a contract with a company hired to construct a $170 million oil transloading facility. The allegation was that, when oil prices fell in the fall of 2015, the insured took steps in late 2015 and early 2016 to wind down the operation while insulating itself from obligations under the contract.

The insured sought coverage for advanced defense costs under the policy. The policy contained a “run-off exclusion,” which precluded coverage for “any Claim made against any Insured based upon, arising out of, or attributable to any Wrongful Acts including any Interrelated Wrongful Acts, taking place in whole or in part subsequent to 06/24/2015 [the run-off date].” The insurer denied coverage on the basis that some, but not all, of the wrongful acts giving rise to the claim occurred after the run-off date. The insured argued that the lawsuit alleged fraudulent inducement years prior to breach of the contract, which was separate from the wrongful acts occurring during the run-off period, thereby triggering coverage.

The court affirmed the trial court decision, finding that the run-off exclusion barred coverage. The court held that the meaning of the run-off exclusion was clear and unambiguous and required that alleged wrongful acts take place “entirely before” the run-off date of June 24, 2015. The court also declined to find that the alleged acts of inducement before the run-off date triggered coverage, holding that the policy covers “claims” and not simply alleged wrongful acts.

The insured attempted to invoke the reasonable expectations doctrine, asserting that its purchase of run-off coverage effectively left it with less coverage than a party who did not purchase the coverage because of the exclusion. The court rejected the argument, holding that the run-off coverage expanded the availability of coverage for claims made during the run-off period. The court also rejected the argument that the trial court erred by requiring a finding of ambiguity before applying the reasonable expectations doctrine, holding that, even assuming the doctrine could apply in circumstances where the policy language was unambiguous, none of those circumstances were present. According to the court, the policy language presented no “conflict, ‘hidden trap or pitfall’” and contained no “fine print which eviscerates rights conferred in large print.”

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