Delaware Court Rules In Favor of Insurers

September 28, 2000

The Supreme Court of Delaware has affirmed a lower court opinion in favor of 28 insurers who were sued in an insurance coverage action brought by Hercules Incorporated.

In 1989, Hercules, an international aerospace company, was sued by former employee Katherine Colunga for wrongful termination and violations of the False Claims. Colunga alleged that Hercules over-billed the government and fraudulently delivered substandard missile component systems that did not comply with government specifications.

Colunga sought damages in excess of $546 million, prior to statutory trebling. In 1998, after nearly 10 years of litigation, Hercules settled the Colunga litigation by agreeing to pay over $55 million. Just days before publicly announcing the settlement, Hercules sent notice to and commenced an insurance coverage action against 28 insurance companies that insured Hercules between 1981 and 1993 under policies covering Hercules for damages arising from “property damage” caused by an “occurrence.”

In its complaint, Hercules sought to have the insurance companies pay not only the settlement amount, but also $15-20 million in defense costs it incurred in defending the Colunga litigation throughout the 1990s. In a 45-page opinion, Judge Silverman of the Delaware Superior Court granted the insurers’ motion for summary judgment and denied Hercules’ motion.

The Court held that Colunga’s claims were not because of property damage, and, accordingly, were not covered under the policies. The Court also rejected Hercules’ argument that the insurers should have to pay its costs of defending the Colunga litigation.

One day following oral argument before Chief Justice Veasey and Justices Holland and Steele, the Delaware Supreme Court summarily affirmed the Superior Court’s opinion.

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