Exercise of Personal Jurisdiction Over Nonresident Insurers in Delaware Violates Due Process Where Action Does Not Arise Out of Insurers’ Contacts with State
The Delaware Superior Court, applying Delaware law, has held that the exercise of personal jurisdiction over two nonresident insurers would violate due process where the coverage action did not arise out of, or was not sufficiently related to, the insurers’ contacts with Delaware. Varsity Brands Holding Co. LLC v. Arch Ins. Co., 2025 WL 552500 (Del. Super. Ct. Feb. 19, 2025).
Former adolescent cheer athletes had filed suit against three companies in federal court in South Carolina alleging claims of sexual abuse that occurred while the athletes were still minors. The athletes alleged that the companies created and controlled the organizations ultimately responsible for ensuring a safe environment in which the athletes could train and compete. In addition to these underlying lawsuits, the companies faced similar allegations in federal courts in other states. As the lawsuits began, the companies notified their CGL and EPL insurers of the claims and requested a defense; only a few of the defendants’ carriers responded. The federal court in the South Carolina action ordered a mediation, which resulted in a conditional settlement demand from claimants’ counsel. The companies notified their insurers of the demand and the companies’ desire to accept. The insurers refused to fund the settlement up to policy limits, asserting that the claims were excluded from coverage because of sexual abuse and molestation endorsements in the various policies. The companies filed suit against the insurers in Delaware Superior Court, alleging several causes of action, including breach of contract for the duty to defend and the duty to indemnify and bad faith refusal to settle. Several insurers filed separate motions to dismiss, with two insurers asserting lack of personal jurisdiction.
The Delaware Superior Court held that it lacked personal jurisdiction over the two insurers. Although it determined that those insurers were subject to Delaware’s long-arm statute, Del. Code, tit. 10. § 3104, because they provided insurance to a Delaware entity, the court nonetheless concluded that the exercise of personal jurisdiction would violate the insurers’ due process rights under the Fourteenth Amendment. In reaching this conclusion, the court analyzed whether the two insurers had sufficient minimum contacts with Delaware and whether the underlying action arose out of, or was sufficiently related to, the insurers’ connections to Delaware.
First, the court evaluated the connections between Delaware and the two insurers and determined that the insurers were authorized to do business within Delaware, that the relevant policies were negotiated and executed outside of Delaware, and that only one insured company was a Delaware entity. Second, the court concluded that the action did not arise out of, or was not sufficiently related to, the insurers’ connections to Delaware. The court emphasized that the only nexus of the policies, the action, and Delaware was the fact that one insured company was a Delaware entity. The court explained that exercising personal jurisdiction on those facts would constitute acceptance of the existence of minimum contacts based on the Delaware entity’s connection to Delaware, not the insurers’. The court noted that the insurers’ licenses to sell insurance in Delaware were unrelated to the lawsuit, that the policies were purchased outside of Delaware, and that the alleged harm did not occur in Delaware because the underlying liability does not result from a Delaware action. Accordingly, the court concluded that it could not exercise personal jurisdiction over those defendants.
