Northrop Grumman Owed Defense Costs From Insurers for Merger Row

A Northrop Grumman unit can tap multiple directors and officers’ liability insurance policies to help pay for litigation over disclosures tied to a past acquisition.

The Tuesday ruling, largely in favor of Northrop Grumman Innovation Systems Inc. (NGIS), pares down the “sprawling” dispute involving more than a dozen insurers, said Judge Paul R. Wallace of the Superior Court of Delaware.

NGIS, which ran Northrop Grumman’s space and defense business, bought Orbital ATK in 2018, inheriting some legal claims brought by investors against ATK.

The legal claims stem from a 2015 merger between Orbital Sciences Corp. and Alliant Techsystems Inc. that created Orbital ATK.

Underlying Claims

After the 2015 merger, Orbital ATK and three executives were sued by various stockholders with two different claims — one for allegedly providing false post-merger financial disclosures; and another for misrepresentation in proxy materials.

After inheriting the claims, NGIS sought D&O coverage from 13 insurance companies, but sued for contract breaches after being denied.

Insurers, including Travelers Casualty and Surety Co. of America and certain underwriters at Lloyd’s of London, largely argued that coverage isn’t owed because the policies contained terms excluding payouts for the underlying claims.

Several of the 13 insurers only issued policies providing excess coverage once the primary D&O policy’s limits were used up. And they continued to dispute how much each should pay and in what order.

Insurers’ Obligation

Wallace sided with NGIS by finding that Orbital ATK’s insurers—Berkley Insurance Co. and QBE Insurance Corp.—must provide coverage for the post-merger disclosure-related claim brought by Orbital ATK shareholders.

The policies exclude coverage for previous wrongdoings. But that exclusion doesn’t apply and payouts are owed because Orbital ATK wasn’t the entity engaged in the allegedly fraudulent activity, Wallace said.

Wallace also found that Alliant’s insurers are on the hook for the proxy misrepresentation claim, and Orbital Scienes’ insurers could be as well.

Orbital Sciences’ insurers argued that they weren’t given timely notice of the underlying claims and shouldn’t owe anything. Wallace wasn’t convinced, finding the insurers never stated that their policies offered no coverage for such proxy claims.

Wallace rejected the Alliant insurers’ motion for a judgment that NGIS’ fees for investigating the legal claims weren’t payable.

The ruling tees up several other coverage issues—including the order in which insurers might pay—for a jury.

Orbital Sciences’ insurers include Continental Casualty Insurance Co., Carolina Casualty Insurance Co., and certain underwriters at Lloyd’s of London.

Alliant’s insurers insurers included National Union Fire Co. of Pitsburgh, U.S. Specialty Insurance Co., Twin City Fire Insurance Co., Allied World Assurance Co., Starr Indemnity & Liability Co., and Travelers Casualty and Surety Co. of America.

In 2020, Northrop Grumman reorganized its business units, shuffling NGIS businesses to other newly created units.

The case is Northrop Grumman Innovation Sys., Inc. v. Zurich Am. Ins. Co., 2021 BL 34396, Del. Super. Ct., No. N18C-09-210, 2/2/21.