Summary Judgment Denied Where Determinations of Fact Necessary to Apply Continuous Cover and Innocent Non-Disclosure Provisions

The Superior Court of Delaware, applying Delaware law, denied an insurer's motion for summary judgment on the basis that the policy's continuous cover clause and innocent non-disclosure clause required determinations of fact. Ventech Solutions, Inc. v. Certain Underwriters at Lloyd's of London, 2023 WL 315331 (Del. Super. Ct. Jan.4, 2023). In addition, the court held that the policy's liquidated damages exclusion did not bar coverage for a settlement not characterized by the parties with reference to a prior liquidated damages award.

The insured tech company contracted to construct a system for a state government, which subsequently sued the insured in July 2017 for failure to deliver an operational system. In August 2018, more than a year later and under the following policy period, the insured noticed the claim to its insurer. The insurer denied coverage under the policy's claims-made-and-reported provisions and determined that the policy's continuous cover and innocent non-disclosure clauses were inapplicable.

Under the policy's continuous cover clause, the policy provided coverage for claims noticed after the policy period only if the insured had maintained coverage with the same insurer and notice was “neglected through error or oversight only.” The insurer determined that a prior communication indicated that the insured intentionally had delayed providing notice, such that notice had not been merely “neglected.” The policyholder disagreed, and the court ultimately held “there are genuine issues of material fact as to whether [the insured's] non-disclosure of the [claim] was negligent,” so “the Court cannot grant summary judgment.”

Next, the court held that a factual determination as to the continuous cover clause was necessary before addressing the innocent non-disclosure clause, which provided that the insurer would not reject coverage for non-disclosure of a claim except when the non-disclosure was “reckless or fraudulent.” Because a determination as to whether the non-disclosure was negligent under the continuous cover clause would be relevant to the innocent non-disclosure clause, the court denied summary judgment. 

Finally, the court addressed the policy's liquidated damages exclusion. The trial court had entered a judgment for liquidated damages in the underlying action in the amount of $4,973,403.88, but the insured subsequently settled out-of-court for a slightly larger sum of $4,979,300.84. The court held that the liquidated damages exclusion did not preclude coverage for the settlement, reasoning that “the settlement never characterizes the settlement amount in reference to liquidated damages” and “the characterization of the settlement controls” because “[t]he issue of liquidated damages was pending on appeal” of the underlying judgment when the settlement occurred.

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