Ferrellgas Partners L.P. V. Zurich Am. Ins. Co.
Temporarily unable to receive Shepard’sAs of: January 30, 2020 5:40 PM ZSignal Ferrellgas Partners L.P. v. Zurich Am. Ins. Co.Superior Court of Delaware, New CastleNovember 13, 2019, Submitted; January 21, 2020, DecidedC.A. No. N19C-05-275 MMJ [CCLD]Reporter2020 Del. Super. LEXIS 41 *; 2020 WL 363677FERRELLGAS PARTNERS L.P. et al., Plaintiffs, v.ZURICH AMERICAN INSURANCE COMPANY andBEAZLEY INSURANCE COMPANY, Defendants.Notice: THIS OPINION HAS NOT BEEN RELEASED FORPUBLICATION. UNTIL RELEASED, IT IS SUBJECT TOREVISION OR WITHDRAWAL.Prior History: [*1] On Plaintiffs' Motion for PartialSummary Judgment AND Defendant Zurich AmericanInsurance Company's Motion for Summary Judgment ANDDefendant Beazley Insurance Company's Motion forSummary Judgment.exclusion" applied to transfers of property and debtforgiveness that allegedly caused a breach of contract allegedin litigation involving a rail company, and the litigation didnot pursue a claim for alleged misleading statements made toinduce the company into entering a rail services agreement;thus, the litigation was excluded from an insurer's policycoverage; [2]-A "retroactive date exclusion" applied to claimssolely with respect to an LLC and clearly and unambiguouslyexcluded solely with respect to the LLC any wrongful actactually or allegedly committed or any conduct actually orallegedly undertaken prior to June 21, 2015; therefore,coverage applied to the alleged wrongful acts and anyinterrelated wrongful acts committed on or after June 21,2015, by two officers of an LP.OutcomeSummary judgment granted in part and denied in part.Core TermsInducement, coverage, defense costs, Interrelated, Insured,summary judgment, argues, damages, fraudulent transfer,contracts, allegations, trigger, policy period, entities, excludecoverage, take place, crude oil, Wrongful Act,unambiguously, Subsidiaries, nexus, insurance policy,circumstances, Endorsement, allegedly committed, requestedrelief, cause of action, indemnification, arbitration, ambiguityLexisNexis HeadnotesCivil Procedure . Summary Judgment Entitlementas Matter of Law AppropriatenessCivil Procedure . Summary Judgment Burdens ofProof Nonmovant Persuasion & ProofCase SummaryCivil Procedure Judgments SummaryJudgment Evidentiary ConsiderationsOverviewHOLDINGS: [1]-In an insurance coverage action, a "run-offHN1[] Entitlement as Matter of Law, Appropriateness
Page 2 of 152020 Del. Super. LEXIS 41, *1Summary judgment is granted only if the moving partyestablishes that there are no genuine issues of material fact indispute and judgment may be granted as a matter of law. Del.Super. Ct. R. Civ. P. 56(c). All facts are viewed in a lightmost favorable to the non-moving party. Summary judgmentmay not be granted if the record indicates that a material factis in dispute, or if there is a need to clarify the application oflaw to the specific circumstances. Del. Super. Ct. R. Civ. P.56(c). When the facts permit a reasonable person to draw onlyone inference, the question becomes one for decision as amatter of law. If the non-moving party bears the burden ofproof at trial, yet fails to make a showing sufficient toestablish the existence of an element essential to that party'scase, then summary judgment may be granted against thatparty.Insurance Law Claim, Contract & PracticeIssues Policy Interpretation Plain LanguageHN4[] Contract Interpretation, IntentInsurance policies are contracts. Interpretation of contracts isa question of law. The court must give effect to the parties'mutual intent at the time of contracting. The court shouldinterpret contract language as it would be understood by anyobjective, reasonable third party. Absent ambiguity, contractterms should be accorded their plain, ordinary meaning.Ambiguity exists when the disputed term is fairly orreasonably susceptible to more than one meaning.Business & Corporate Compliance . ContractsLaw Types of Contracts Adhesion ContractsInsurance Law Choice of LawHN2[] Insurance Law, Choice of LawAbsent a choice-of-law provision in an insurance policy,Delaware courts employ the most significant relationship testto determine what state's law applies. This doctrine considerswhat jurisdiction bears the most significant relationship to theinsurance coverage as a whole. Delaware courts avoid, wherepossible, a choice-of-law analysis if the result would be thesame under the law of either of the competing jurisdictions.Insurance Law Choice of LawInsurance Law Types of Insurance BusinessInsurance Directors & Officers Liability InsuranceHN3[] Insurance Law, Choice of LawDelaware courts consistently have held that Delaware lawapplies to disputes over directors and officers liabilityinsurance coverage where the insured companies areDelaware corporations.Contracts Law Contract Interpretation IntentInsurance Law Claim, Contract & PracticeIssues Policy Interpretation Ambiguous TermsInsurance Law Claim, Contract & PracticeIssues Policy Interpretation Ordinary & UsualMeaningsInsurance Law . Policy Interpretation AmbiguousTerms Construction Against InsurersInsurance Law Claim, Contract & PracticeIssues Policy Interpretation Plain LanguageInsurance Law Claim, Contract & PracticeIssues Policy Interpretation Reasonable ExpectationsHN5[] Types of Contracts, Adhesion ContractsInsurance policies are adhesion contracts, not generally theresult of arms-length negotiation. Thus, the rules ofconstruction differ from those applied to most other contracts.Where policy language is ambiguous, the doctrine of contraproferentem requires the court to interpret the policy in favorof the insured because the insurer drafted the policy. Thecourt, pursuant to this doctrine, looks to the reasonableexpectations of the insured at the time when he entered thecontract. The court will only apply this doctrine where thepolicy is ambiguous. When the policy language is clear andunambiguous, a Delaware court will not destroy or twist thewords under the guise of construing them and each party willbe bound by its plain meaning.Insurance Law Liability & PerformanceStandards Good Faith & Fair Dealing Duty to DefendHN6[] Good Faith & Fair Dealing, Duty to DefendWhile the duty to defend test asks whether the factualallegations in the underlying complain potentially support acovered claim, the proper test for determining duty to advance
Page 3 of 152020 Del. Super. LEXIS 41, *1defense costs is whether an action states a claim covered bythe insurance policy.Civil Procedure Pleading &Practice Pleadings ComplaintsEvidence Inferences & Presumptions InferencesHN7[] Pleadings, ComplaintsThe court looks at the facts stated in the complaint as well asany causes of action, and may review the complaint as awhole and consider all reasonable inferences that may bedrawn from the allegations therein.Civil Procedure Pleading &Practice Pleadings ComplaintsHN8[] Pleadings, ComplaintsCounsel: Brenton W. Vincent, Esq. (Argued), Steven G.Trubac, Esq., Bryan Cave Leighton Paisner LLP, Chicago,Illinois, David J. Baldwin, Esq., Carla M. Jones, Esq., TraceyE. Timlin, Esq., Potter Anderson & Corroon LLP,Wilmington, Delaware, Attorneys for Plaintiffs Ferrelgas, etal.Louis A. Bove, Esq., (Argued), Bodell Bove, LLC,Philadelphia, Pennsylvania, Bruce W. McCullough, Esq.,Bodell Bove, LLC, Wilmington, Delaware, Attorneys forDefendant Zurich American.Neel Lane, Esq. (Argued), Norton Rose Fulbright US LLP,San Antonio, Texas, Samantha Miller, Esq., Norton RoseFulbright US LLP, Washington, D.C., Thomas G. Macauley,Esq., Wilmington, Delaware, Attorneys for DefendantBeazley Insurance Company.The court is not limited to a complainant's unilateralcharacterization of the nature of its claims.Judges: Hon. Mary M. Johnston, J.Insurance Law Claim, Contract & PracticeIssues Policy Interpretation Ambiguous TermsInsurance Law Claim, Contract & PracticeIssues Policy Interpretation Reasonable ExpectationsHN9[] Policy Interpretation, Ambiguous TermsThe reasonable expectations of the insured must beconsidered to see if the policy terms are ambiguous orconflicting, contain a hidden trap or pitfall, or if the fine printtakes away that which has been provided by the large print.Opinion by: Mary M. JohnstonOpinionJOHNSTON, J.FACTUAL AND PROCEDURAL CONTEXTInsurance Law Claim, Contract & PracticeIssues Policy Interpretation ExclusionsInsurance Law Claim, Contract & PracticeIssues Policy Interpretation Reasonable ExpectationsHN10[] Policy Interpretation, ExclusionsInsurance coverage language is interpreted broadly to protectthe insured's objectively reasonable expectations. Exclusions,on the other hand, are construed narrowly in favor ofcoverage.Plaintiffs filed this coverage action seeking declaratory relieffor advancement of defense costs pursuant to insurancepolicies each defendant issued.1 Plaintiffs are FerrellgasPartners L.P. ("FGP"), Ferrellgas, L.P. [*2] ("FG"), BridgerLogistics, LLC, Bridger Administrative Services II, LLC,Bridger Lake, LLC, Bridger Leasing, LLC, Bridger Marine,LLC, Bridger Rails Shipping, LLC, Bridger Real Property,LLC, Bridger Storage, LLC, Bridger Terminals, LLC, Bridger1 FGP'sFirst Am. Compl. at 23-30.
Page 4 of 152020 Del. Super. LEXIS 41, *2Transportation, LLC, Bridger Swan Ranch, LLC,Energy, LLC, J.J. Addison Partners, LLC, and J.J.LLC (collectively, "Plaintiffs"). Defendants areAmerican Insurance Company ("Zurich") andInsurance Company ("Beazley").BridgerLiberty,ZurichBeazleyOn February 13, 2013, Eddystone Rail Company, LLC("Eddystone") and Bridger Transfer Services, LLC ("BTS")executed a Rail Facilities Services Agreement ("RSA").2Eddystone alleged that it entered into the RSA with BTSbased on representations made by its parent company, BridgerLogistics, and BTS officers Julio Rios and Jeremy Gamboa.3Eddystone alleged that Bridger Logistics, Rios and Gamboafalsely represented that BTS was an independent, bona fidecompany with substantial operations and capital.4The RSA provided that Eddystone would construct andoperate a Facility in Eddystone, Pennsylvania ("Facility").5The purpose of the Facility was to transfer crude oil fromrailcars to river barges.6 [*3] In exchange, BTS agreed tobring a minimum of 64,750 barrels of crude oil to the Facilityevery day from the time Eddystone completed the Facilityuntil June 2019.7 BTS agreed that if it failed to deliver, itwould make a deficiency payment to Eddystone of 1.75 perbarrel below the minimum volume commitment.8 Eddystoneinvested 170 million in the construction of the Facility.9Eddystone completed construction of the Facility in April2014.10On June 24, 2015, FGP acquired Bridger Logistics, BTS andthe "Fraudulent Transfer Recipient Subsidiaries.11 Rios and2 Eddystone's3 Id.First Am. Compl. (the "FAC") ¶ 36.¶¶ 42-45.4 Id.Gamboa then joined Ferrellgas Inc., the general partner of FGand FGP,12 as its management team for Bridger Logistics.13Through January 2016, Eddystone transloaded every trainloadof crude oil that BTS and its affiliates brought to Eddystone.BTS "made the transloading capacity it obtained fromEddystone available to Bridger Logistics on a long-term,exclusive basis. Bridger Logistics delivered North Dakotacrude oil to a refinery in Trainer, Pennsylvania.14 BridgerLogistics provided funds to BTS so that BTS could payEddystone pursuant to the deficiency provisions in theRSA."15Eddystone alleged that, beginning in May 2015, FGP, FG,16Rios and Gamboa developed a "plan" to "strip BTS of itsassets so as to avoid payment to Eddystone for the anticipateddeficiencies in the monthly minimum volume commitmentunder the RSA."17 Eddystone alleged that between May 2015and January 2016, Rios, Gamboa, [*4] Bridger Logistics,FGP and FG stripped BTS of assets, causing BTS to act aslittle more than a liability shield for other FGP and FGentities.18 During this same period, BTS transferred away allof its real and personal property and valuable contracts toother FGP and FG subsidiaries, including the FraudulentTransfer Recipient Subsidiaries.19 Also in January 2016,Rios, Gamboa, Bridger Logistics, and FGP caused BTS toforgive millions of dollars in accounts receivable that it wasowed by other Bridger Logistics and FGP affiliates, includingthe Fraudulent Transfer Recipient Subsidiaries.20Eddystone alleged that this process left BTS "without anyvaluable assets and ongoing businesses so that it served as aLLC, Bridger Storage, LLC, Bridger Swan Ranch, LLC,Terminals, LLC, Bridger Transportation, LLC, BridgerLLC, Bridger Leasing, LLC, Bridger Lake, LLC,Administration, Bridger Management, J.J. Liberty, LLC,Addison Partners, LLC. Id. ¶ 34.5 Id.¶ 35-37.6 Id.¶ 35.13 FAC7 Id.38.14 Id.¶ 36.8 Id.it 37.15 Id.¶ 6.9 Id.¶ 38.16 Eddystone12 Plaintiffs'Op. Br. at 4 (Jul. 11, 2019).¶ 54.refers to FGP and FG collectively as "FGP" in the FAC.Id. ¶ 4.10 Id.11 Id.¶ 52. Eddystone names the following subsidiaries of BridgerLogistics as "Additional Fraudulent Transfer RecipientSubsidiaries": Bridger, LLC, Bridger Marketing, Bridger Logisticsand its subsidiaries Bridger Administrative Services II, LLC, BridgerMarine, LLC, Bridger Rail Shipping, LLC, Bridger Real Property,17 Zurich's18 FAC19 Id.20 Id.BridgerEnergy,Bridgerand J.J.Op. Br. at 7 (Sept. 18, 2019).¶ 69.¶¶ 65-68.
Page 5 of 152020 Del. Super. LEXIS 41, *4mere tool of Defendants through which they hoped to evadethe RSA obligations without cost to the Defendants."21Around January 2016, crude prices fe11.22 North Dakotacrude became more expensive relative to Brent-priced crudebecause of the higher transportation costs.23 As a result, theshipper that was purchasing the Bridger Logistics supply ofNorth Dakota crude oil from the Trainer refinery becameunable to pay the minimum amounts it owed to BridgerLogistics.24 "If the shipper [*5] defaulted, Bridger Logisticswould still have to pay its obligations to BTS for the reservedcapacity of the Eddystone terminal, but would have to find anew destination for the crude oil."25On February 1, 2016, BTS stopped delivering oil to theFacility, or paying Eddystone for the deficiencies in theminimum volume commitment, in breach of the RSA.26Eddystone filed a demand for arbitration and, on January 5,2017, secured an award for unpaid invoices that had accruedto date and for future minimum volume payments.27Eddystone filed its First Amended Complaint ("FAC") in theUnited States District Court for the Eastern District ofPennsylvania on September 9, 2018, seeking recovery of thearbitration award from FGP, FG, Rios and Gamboa, ontheories of alter ego liability, intentional and constructivefraudulent transfer, and breach of the duty of care and loyaltyto creditors.28 Eddystone requested all payments owed toEddystone under the RSA, all amounts awarded througharbitration, all expectation damages available to a partyinjured by breach of contract, an order undoing the allegedfraudulent transfers, compensatory damages, punitivedamages, and interest.29Rios and Gamboa submitted a demand for indemnification toFG pursuant to the Partnership Agreement.31 FG accepted thedemand under a full reservation of rights and is currentlypaying Rios and Gamboa's defense costs.32 Plaintiffs soughtcoverage under the Beazley Policy for indemnity of Rios andGamboa. Both insurers denied coverage.On July 1, 2019, Plaintiffs brought this coverage actionagainst Zurich and Beazley seeking to enforce its insurancecontracts and for advancement of defense costs in relation tothe Eddystone Litigation. On July 11, 2019, Plaintiffs filed aMotion for Partial Summary Judgment, asking the Court toenter judgment in their favor on both Counts I and II, and tofind as a matter of law that each insurer has a duty to advancedefense costs covering certain defendants in the EddystoneLitigation.On September 18, 2019, Zurich submitted an Answering Briefand Motion for Summary Judgment asking the Court todismiss Count I on the grounds that Zurich has no duty toadvance defense costs covering the Eddystone Litigation. OnSeptember 18, 2019, Beazley submitted its [*7] AnsweringBrief, and Motion for Summary Judgment asking the Court todismiss Count II on the grounds that Beazley has no duty toadvance defense costs covering the Eddystone Litigation. Theparties submitted additional briefing, and the Court heard oralargument on November 13, 2019.STANDARD OF REVIEWSummary JudgmentPlaintiffs sought [*6] coverage under the Zurich Policy forBridger Logistics and the Fraudulent Transfer Recipients.3021 Id.¶ 69.22 Id.¶ 7 & 61.23 Id.HN1[ ] Summary judgment is granted only if the movingparty establishes that there are no genuine issues of materialfact in dispute and judgment may be granted as a matter oflaw.33 All facts are viewed in a light most favorable to thenon-moving party.34 Summary judgment may not be grantedif the record indicates that a material fact is in dispute, or ifthere is a need to clarify the application of law to the specificcircumstances.35 When the facts permit a reasonable person to24 Id.25 Id.26 Zurich's27 Id.;Ex. 5-6.32 Id.Ex. 7; Ruisinger Aff. ¶¶ 16-17.FAC ¶ 75.28 FAC29 Id.Op. Br. at 7; FAC ¶¶ 73-74.31 Id.at 20-27.Ct. Civ. R. 56(c).34 Burkhartat 28.30 Plaintiffs'33 Super.Op. Br. at 6-7.35 Super.v. Davies, 602 A.2d 56, 58-59 (Del. 1991).Ct. Civ. R. 56(c).
Page 6 of 152020 Del. Super. LEXIS 41, *7draw only one inference, the question becomes one fordecision as a matter of law.36 If the non-moving party bearsthe burden of proof at trial, yet "fails to make a showingsufficient to establish the existence of an element essential tothat party's case," then summary judgment may be grantedagainst that party.37Choice-of-LawAll motions before the Court require insurance policyinterpretation. Neither the [*8] Zurich Policy nor the BeazleyPolicy contains a choice-of-law provision. HN2[ ] Absentsuch express direction, Delaware courts employ the "mostsignificant relationship test" to determine what state's lawapplies.38 This doctrine considers what jurisdiction bears themost significant relationship to the insurance coverage as awhole.39Delaware courts avoid, where possible, a choice-of-lawanalysis if the result would be the same under the law ofeither of the competing jurisdictions.40 It appears to the Courtthat there is no material or significant difference between thelaws of Delaware and Texas with respect to this coverageaction. The parties also concede that Texas and Delaware lawon interpretation of insurance contracts provides for the sameoutcome on the relevant coverage issues.41The Court also notes that HN3[ ] Delaware courtconsistently have held that Delaware law applies to disputesover directors and officers liability ("D&O") insurance36 Woottencoverage42 where, as here, the insured companies areDelaware corporations.43Insurance Contract InterpretationHN4[ ] Insurance policies are contracts.44 Interpretation ofcontracts is a question of law. The Court must give effect tothe parties' mutual intent at the time of contracting.45 TheCourt should interpret contract language as it "would beunderstood by any objective, reasonable third party."46Absent ambiguity, contract terms should be accorded theirplain, ordinary meaning.47 Ambiguity exists when thedisputed term "is fairly or reasonably susceptible to more thanone meaning."48HN5[ ] Insurance policies are also adhesion contracts, notgenerally the result of arms-length negotiation.49 Thus, therules of construction "differ from those applied to most othercontracts."50 Where policy language is ambiguous, thedoctrine of contra proferentem requires the Court to interpretthe policy in favor of the insured because the insurer [*10]drafted the policy.51 The Court, pursuant to this doctrine,looks to "the reasonable expectations of the insured at thetime when he entered the contract[.]"52 The Court will only42 IDTWhen they must engage in the multifaceted "most significantrelationship" test, Delaware courts recognize that for [D&Opolicie
Insurance Directors & Officers Liability Insurance HN3[ ] Insurance Law, Choice of Law Delaware courts consistently have held that Delaware law applies to disputes over directors and officers liability insurance coverage where the insured companies are Delaware corporations. Contracts Law Contract Interpretation Intent
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