Dole Plantation in Oahu, Hawaii. Photo Credit: MECU via Wikimedia Commons

The Delaware Supreme Court has denied a fast-tracked appeal of a lower court's holding that state law allows a company's directors and officers to collect insurance for fraud-based claims.

The April 6 ruling from the high court refused interlocutory appeal to insurers of Dole Food Co. Inc.'s brass in a dispute over $190 million in coverage for a settlement that resolved a lawsuit stemming from the company's take-private deal in 2013.

Navigators Insurance Co., RSUI Indemnity Co. and Berkley Insurance Co. argued that Judge Eric M. Davis, of the Superior Court's complex commercial litigation division, misapplied Delaware law in his ruling last month that Delaware public policy does not prohibit insurers from paying for fraud committed by their insureds.

The insurers petitioned Davis for certification to take the challenge straight to the state's five justices, saying the result would allow directors and officers under insurance policies to commit fraud knowing that their conduct would be covered.

Davis, however, denied the request March 28. The ruling, he said, was rooted in a 1986 Supreme Court decision that found insurers are not barred from providing coverage for an insured's breach of loyalty for fraud.

In a 2-page order, a three-judge panel of the Supreme Court agreed that the insurer's application did not meet the “strict standards” for granting interlocutory appeal.

The case dates back to a 2015 Delaware Court of Chancery ruling that found C. Michael Carter, Dole's president and CEO, and director David Murdock had shortchanged investors by driving down Dole's trading price prior to the buyout. At multiple points in his post-trial opinion, Vice Chancellor J. Travis Laster said Murdock and Carter's conduct had constituted fraud.

The sides quickly settled the dispute for about $116 million before a final judgment was entered, and Murdock agreed to pay $74 million to settle a separate federal lawsuit.

Dole's director-and-officer insurers sued the following year, arguing that they should not be responsible for providing indemnification. In court papers, they pushed Davis to decide the case under California law, which provides that “an insurer is not liable for a loss caused by the willful act of the insured's agents or others.”

Davis ruled on March 1 that Delaware law applied to the case because Dole is incorporated in the First State.

“Although it may strain public policy to allow a director to collect insurance on a fraud, it does not appear explicitly prohibited by Delaware statutory law,” Davis wrote, citing Supreme Court precedent that public policy did not prohibit insurance companies from covering punitive damages.

“Therefore, public policy does not prohibit insurers from indemnifying the insured's fraud.”

Attorney from both sides were not immediately available to comment on the Supreme Court's order, which was signed by Chief Justice Leo E. Strine Jr. and Justices Karen L. Valihura and James T. Vaughn Jr.

The insurers are represented by Robert J. Katzenstein and Kathleen M. Miller of Smith, Katzenstein & Jenkins.

Dole and the two directors are represented by Elena C. Norman and Mary F. Dugan of Young Conaway Stargatt & Taylor and Kirk Pasich, Pamela Woods and Mikaela Whitman of Pasich LLP in New York and Los Angeles.

The case is captioned Navigators Insurance v. Murdock.