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Nov. 2 — The Delaware Supreme Court Nov. 2 declined to revive professional negligence and contract claims brought by a receiver of an insolvent insurer against Wilmington Trust SP Services and two auditors over work performed for the insurer.
At issue was a March 26 decision in which the Delaware Chancery Court held that the claims were barred by the doctrine of in pari delicto. However, the chancery court allowed aiding and abetting claims to survive against the defendants under a fiduciary exception to the doctrine.
Affirming, the state high court ruled that the chancery court struck the correct balance “between the need for accountability of professional advisors and the costs of exposing professional advisors to potentially excessive risks.”
The Delaware Supreme Court also noted that its decision is in line with other states such as New York, whose laws often reach Delaware corporations. “This harmony is beneficial and if it is to be disturbed, that decision is best made by the General Assembly,” Chief Justice Leo E. Strine Jr. wrote.
Under the in pari delicto doctrine, parties suing each other are barred from receiving relief where they are equally at fault.
In the case, Delaware Insurance Commissioner Karen Weldin Stewart had become the receiver for a liquidated insurance firm, Security Pacific Insurance Co. Stewart alleged that the insurer's sole stockholder and chief executive officer, James M. Jackson, committed various fraudulent acts and that the insurer was never adequately capitalized.
She also alleged that Wilmington Trust and the two auditors were complicit in Jackson's behavior by “turning a blind eye to the unacceptable state of affairs for several years.”
The chancery court found that Stewart stood in Security Pacific's shoes as its receiver. It also ruled that whatever bad acts or negligence Wilmington Trust and the auditors committed were equaled by the acts of Security Pacific's agent, Jackson.
The Delaware Supreme Court agreed, finding the fact the underlying company was an insurer was not a reason to allow the professional negligence and contract claims to move forward.
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