Sycamore Partners Management, L.P. v. Endurance American Insurance Company, C.A. No. N18C-09-211 AML CCLD (Del. Super. Feb. 26, 2021)

The bankruptcy estate of Nine West accused investment firm Sycamore Partners of structuring transactions involving Nine West in such a manner as to constitute a fraudulent transfer, with too much debt burdening the entity after Sycamore Partners sold off certain prime assets. Sycamore Partners settled such claims for a payment of $120 million to the bankruptcy estate, and then sought coverage for the settlement from its carriers.

The carriers took the position that a restitutionary payment of “ill gotten gains” was not an insurable loss. Construing a “law most favorable” to insurability choice of law provision and finding Delaware law applied, the Court held that no Delaware policy prevents an insurance policy from covering restitution or disgorgement. Such coverage is possible, although it can be excluded as well. Here, the policies in question excluded coverage for “any personal profit or remuneration gained by [Sycamore Partners or its managers] to which [they are] not legally entitled,” but unlawful gains are only “unlawful” if they have been determined to be so in a “final, non-appealable adjudication." As that did not happen in the bankruptcy settlement, the Court found coverage in favor of Sycamore Partners.