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Delaware Superior Court Sustains Breach Of RWI Contract Claim Against Insurer, Finding Sufficient Allegations Of Breach Of Representation
08/04/2026On July 6, 2026, Judge Kathleen Miller of the Superior Court of the State of Delaware granted in part and denied in part a motion to dismiss breach of contract claims brought by Surteco North America, Inc. against AIG Specialty Insurance Company. Surteco N. Am., Inc. v. AIG Specialty Ins. Co., CA No. N25C-10-178 (Del. Super. Ct. July 6, 2026). Plaintiff asserted that the insurer wrongly denied coverage under a representations and warranties insurance (RWI) policy purchased in connection with plaintiff’s acquisition of Omnova Solutions, Inc. The Court dismissed claims based on alleged breaches of material adverse effect and ordinary-course representations but allowed a claim based on an alleged breach of a “top customer” representation.
Plaintiff asserted that the target breached three representations that triggered plaintiff’s buy-side RWI coverage, all of which arose out of written notice allegedly delivered by the target’s top customer that it intended to limit future purchases. The target represented that, in the nine months prior to signing, it had not “received written notice that any … Top Customer intends to … materially and adversely limit its … purchase of the services and products.” The target also represented that no material adverse effect (MAE) had occurred during that time and that it had operated the business in the ordinary course “consistent in all material respects with past practices.” The RWI policy purchased by plaintiff contained a materiality scrape, which stated that for purposes of determining whether a breach of a representation has occurred, “any materiality, Business Material Adverse Effect or other similar qualification … shall be disregarded, other than with respect to the” MAE representation.
The Court held that plaintiff did not adequately allege a breach of the MAE clause, noting that the representation was backward-looking and mere awareness that its top customer might alter course in the future was insufficient, even though—four months after the representation period—the top customer terminated its contract. The Court further found that actions by a customer, as opposed to by the target, did not constitute a departure from ordinary-course operations. Finally, the Court held that plaintiff adequately alleged a breach of the top customer representation, even though the allegations were vague. In so holding, the Court noted that, because the RWI policy removed the materiality qualifier from the top customer representation, written notice reflecting an intent to adversely limit its business was sufficient to potentially trigger the policy.
M&A and Corporate Governance