In re Aearo Technologies LLC Insurance Appeals

IN THE SUPREME COURT OF THE STATE OF DELAWARE

§

§ Nos. 381, 2024

IN RE AEARO TECHNOLOGIES § 423, 2024 LLC INSURANCE APPEALS §

§ Court Below—Superior Court § of the State of Delaware § § C.A. No. N23C-06-255 §

Submitted: May 14, 2025 Decided: August 12, 2025

Before SEITZ, Chief Justice; VALIHURA, TRAYNOR, LEGROW, and GRIFFITHS, Justices, constituting the Court en Banc.

Upon appeal from the Superior Court of the State of Delaware. AFFIRMED. David J. Baldwin, Esq., Peter C. McGivney, Esq., Berger McDermott LLP, Wilmington, Delaware; Robin L. Cohen, Esq. (argued), Kenneth H. Frenchman, Esq., Orrie A. Levy, Esq., Cohen Ziffer Frenchman & McKenna LLP, New York, New York; Donald W. Brown, Esq., Covington & Burling LLP, San Francisco, California; Rani Gupta, Esq., Covington & Burling LLP, Palo Alto, California; Tyler Weinblatt, Esq., Covington & Burling LLP, Washington, DC, for Appellants Aearo Technologies LLC, Aearo Holding LLC, Aearo Intermediate LLC, Aearo LLC, and 3M Company.

David J. Soldo, Esq., Morris James LLP, Wilmington, Delaware; Joshua D. Weinberg, Esq. (argued), Sean T. Kelly, Esq., Ruggeri Parks Weinberg LLP, Washington, DC, for Appellee Twin City Fire Insurance Company.

Peter B. Ladig, Esq., Elizabeth A. Powers, Esq., Justin C. Barrett, Esq., Bayard, P.A., Wilmington, Delaware; Suzanne C. Midlige, Esq. (argued), Michael E. Hrinewski, Esq., Coughlin Midlige & Garland LLP, Morristown, New Jersey, for Appellee MS Transverse Specialty Insurance Company, f/k/a Transverse Specialty Insurance Company, f/k/a Royal Surplus Lines Insurance Company.

Richard L. Renck, Esq., Tracey E. Timlin, Esq., Duane Morris LLP, Wilmington, Delaware; Garrett B. Moritz, Esq., R. Garrett Rice, Esq., Ross Aronstam & Moritz LLP, Wilmington, Delaware; Robert M. Palumbos, Esq., Andrew R. Sperl, Esq. (argued), Ryan F. Monahan, Esq., Duane Morris LLP, Philadelphia, Pennsylvania; Daren S. McNally, Esq., Barbara M. Almeida, Esq., Daniel B. Palmer, Esq., Clyde & Co US LLP, Morristown, New Jersey, for Appellee ACE American Insurance Company.

Joseph B. Cicero, Esq., Chipman Brown Cicero and Cole LLP, Wilmington, Delaware, for Appellees American National Fire Insurance Company, Great American Insurance Company, and TIG Insurance Company.

Aaron M. Nelson, Esq., Heyman Enerio Gattuso & Hirzel LLP, Wilmington, Delaware, for Appellees Illinois National Insurance Company, American International Specialty Lines Insurance Company, and National Union Fire Insurance Company of Pittsburgh, PA. GRIFFITHS, Justice, for the Majority:

In this insurance coverage action, a corporate parent sought coverage from its subsidiaries’ insurers for defense costs that the parent and its subsidiaries incurred in the defense of products-liability lawsuits. This appeal centers on the self-insured retention provisions of the insurance policies. In many insurance contracts, a self- insured retention functions as a condition precedent to coverage and must be satisfied before an insurer’s coverage obligations are triggered. We must decide whether, based on the language of the insurance policies, the insureds’ corporate parent can satisfy each policy’s self-insured retention given that each policy required the “Named Insured” to satisfy the retention and the corporate parent is not a “Named Insured” under any policy. The Superior Court determined that, because each policy required the “Named Insured” to satisfy the retention and the corporate parent was not a “Named Insured,” payments made by the parent did not satisfy the retentions, so the insurers’ coverage obligations had not been triggered. We agree.

The insureds and the parent made an alternative argument that, even if the insureds had to satisfy the retentions and did not do so, each policy’s “maintenance clause” still entitled them to coverage for all defense costs, minus the amount the insureds owed for the retention. The Superior Court found that the maintenance clauses had not been triggered. We find that the maintenance clauses do not apply in this case. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND A. The Earplug Lawsuits and Aearo’s Bankruptcy Proceedings In the late 1990s, plaintiffs below, appellants Aearo Technologies LLC, Aearo Holding LLC, Aearo Intermediate LLC, and Aearo LLC (collectively, “Aearo”) developed and distributed a type of earplug known as the Combat Arms Earplugs for military and non-military users.1 In 2008, plaintiff below, appellant 3M Company (“3M”) acquired Aearo and continued to produce the Combat Arms Earplugs for the next several years.2

Beginning in 2018, 3M and Aearo were named in lawsuits alleging defects in, and personal injury caused by, the Combat Arms Earplugs.3 The plaintiffs claimed that they experienced hearing-related injuries due to defective design of the Combat Arms Earplugs.4 Most of the lawsuits were consolidated into a multidistrict litigation in the United States District Court for the Northern District of Florida (the “MDL”).5 The MDL comprised over 280,000 lawsuits at its peak.6 A smaller number of lawsuits were coordinated and litigated in Minnesota state court (together with the MDL, the “Earplug Lawsuits”).7 Twenty-seven of the Earplug Lawsuits were selected as bellwether cases—eight were dismissed before trial, six resulted in defense verdicts for 3M and Aearo, and thirteen resulted in verdicts for plaintiffs.8

Additionally, in July 2022, while the Earplug Lawsuits were ongoing, Aearo filed voluntary petitions for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of Indiana.9 The bankruptcy court, relying on a 3M Form 10-K, noted that 3M adopted a strategy to have Aearo file for bankruptcy to manage the liabilities arising from the Earplug Lawsuits, not because Aearo was in financial distress.10 In June 2023, the bankruptcy court dismissed Aearo’s bankruptcy petitions, concluding that Aearo is “financially healthy” and “is not presently suffering financial problems of the type that warrants Chapter 11 relief.”11

Two months later, 3M and Aearo reached a global settlement of $6.01 billion for the Earplug Lawsuits.12 3M states that it has paid over $370 million in legal fees and defense costs for the Earplug Lawsuits.13 For its part, Aearo Technologies LLC states that it has paid approximately $411,000 in legal fees and defense costs for the Earplug Lawsuits.14

B. This Insurance Coverage Litigation A few weeks after the bankruptcy court dismissed Aearo’s petitions, Aearo and 3M filed this insurance coverage action against Aearo’s insurers seeking coverage for, among other things, the defense costs incurred by both Aearo and 3M in the Earplug Lawsuits. the Aearo entities and the company adopted a change in strategy for managing these litigation liabilities that led to the Aearo entities initiating the Chapter 11 proceedings.’”).

1. The Insurance Policies Three policies are relevant to this appeal. Defendants below, appellees Twin City Fire Insurance Company (“Twin City”), ACE American Insurance Company (“ACE”), and MS Transverse Specialty Insurance Company, f/k/a Transverse Specialty Insurance Company, f/k/a Royal Surplus Lines Insurance Company (“Royal Surplus”) each issued a commercial general liability insurance policy to an Aearo entity in the years preceding 3M’s acquisition of Aearo.15 Because this appeal concerns interpretation of the three policies, it is necessary to set out the relevant provisions.

a. The Twin City Policy Central to this appeal is the definition of “self-insured retention” (“SIR”) and the meaning of the word “you” in each policy. Twin City issued an “excess commercial general liability insurance policy” to Aearo Corporation—now, Aearo LLC16—for the period of September 30, 2000 to November 2001.17 The policy provides:

[Twin City] will pay on behalf of the insured those sums that the insured shall become legally obligated to pay as damages because of “bodily injury,” . . . but only to the extent that such damages are in excess of the [SIR] that has been exhausted solely by the payment of “claim expenses[.]” . . . The insured will also have the obligation of paying . . . all defense costs. These costs will continue to be borne by the insured until the [SIR] has been exhausted solely by the payment of “claim expenses[.]”18

The policy further states that Twin City “will pay ‘claim expenses’ which are incurred after the exhaustion of the [SIR], but only if the insured has satisfied its [SIR] obligation.”19

Under the Twin City policy, SIR is defined as the amount you or any insured must pay as damages and “claim expenses” . . ., before [Twin City] pays anything. Your obligation to pay the [SIR] . . . shall not be reduced by . . . [a]ny payment made on your behalf by another, including any payment from any other applicable insurance.20 regarding when the Twin City policy period ended. Twin City filed an affidavit with its summary judgment briefing, which states that the policy period ended November 12, 2001. A1516–17 (Aff. of Joseph Juidiciani in Support of Twin City’s Partial Motion for Summary Judgment). But Aearo and 3M direct us to the Twin City policy, which states that the policy period ended November 29, 2001. A1035 (Twin City Policy). This discrepancy is not material for purposes of this appeal.

The policy states that “you” and “your” “refer to the Named Insured in the Declarations[.]”21 The “Named Insured” is Aearo LLC.22 The SIR is $250,000 per occurrence, subject to an aggregate maximum of $1.5 million.23

The Twin City policy contains a maintenance clause, titled “Maintenance of the [SIR],” which states that Aearo LLC shall do whatever is required, including provision of sufficient funds, to maintain the [SIR] in full effect during the currency of this policy. If the [SIR] becomes invalid, suspended, unenforceable or uncollectable for any reason, including bankruptcy or insolvency, we shall be liable only to the extent we would have been had such [SIR] remained in full effect.24

b. The Royal Surplus Policy Next, Royal Surplus issued a “commercial general liability” policy to Aearo LLC for the period of September 30, 1997 to September 30, 2000. 25 The policy states that Royal Surplus will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” . . . to which this insurance applies. [Royal Surplus] will have the right and duty to defend the insured against any “suit” seeking those damages. However, [Royal Surplus] will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” . . . to which this insurance does not apply.26

The policy further states that “[e]xpenses incurred in the investigation, settlement or defense of a claim . . . are . . . included in the ‘Retained Limit’ [i.e., SIR].”27

The SIR is defined as “the amount . . . which you are obligated to pay and only includes damages otherwise payable under this policy.”28 The SIR endorsement next states that Royal Surplus’s “obligation . . . to pay damages on your behalf applies only to that amount of damages in excess of the [SIR].”29 The policy provides that “you” and “your” “refer to the Named Insured shown in the Declarations[.]”30 The “Named Insured” is Aearo LLC, as well as certain subsidiaries.31 The SIR is $250,000 per occurrence, subject to an aggregate maximum of $1.5 million.32

The Royal Surplus policy contains a maintenance clause, titled “Non Drop Down Bankruptcy or Insolvency of the Named Insured,” which states:

For all purposes of this policy, if the [SIR] is not available or collectible because of (a) the bankruptcy or insolvency of the named insured or (b) the inability or failure for any other reason of the named insured to comply with the provisions of the [SIR] endorsement, then this policy should apply (and amounts payable hereunder shall be determined) as if such [SIR] were available and collectible.33

c. The ACE Policy Finally, ACE issued a “commercial general liability policy” to Aearo Holding Corporation and Aearo Company—now, Aearo Holding LLC and Aearo Technologies LLC, respectively34—for the period of September 30, 2007 to September 30, 2008.35 The policy provides that ACE “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ . . . to which this insurance applies, and which are in excess of the [SIR] stated in the Declarations.”36

The SIR is defined as “those sums that you or any insured shall become legally obligated to pay as damages because of ‘bodily injury’ . . . to which this insurance applies.”37 The ACE policy further provides that the SIR under this policy must be satisfied by actual payment by you. The [SIR] shall not be satisfied by payment by the insured of any deductible of any other policy or payments made on behalf of the insured by any other insurer, person or entity. The [SIR] under this policy shall not be satisfied by any insurance coverage whatsoever.38 The ACE policy states that “you” and “your” “refer to the Named Insured shown in the Declarations[.]”39 The “Named Insured” is Aearo Holding LLC and Aearo Technologies LLC, as well as certain subsidiaries.40 The SIR is $250,000 per occurrence, subject to an aggregate maximum of $1.5 million.41

The ACE policy contains a maintenance clause, titled “Bankruptcy; Payment of the [SIR],” which states:

In the event of bankruptcy or insolvency of any insured, or the inability, failure, or refusal to pay the [SIR] by any insured, we will not be liable under the policy to any greater extent than we would have been liable had the insured not become bankrupt or insolvent or had such inability, failure or refusal not occurred, and this policy will not apply as a replacement for the [SIR]. You will continue to be responsible for the full amounts of the [SIR] before the limits of insurance under this policy apply. In no case will we be required to pay the [SIR] or any portion thereof.42

2. The Superior Court Proceedings In November 2023, Aearo and 3M filed their operative complaint. They seek, among other claims, a declaration that they have satisfied the SIRs in the relevant policies and that Twin City, Royal Surplus, and ACE each have a duty to “defend and/or pay for” Aearo’s and 3M’s defense costs arising from the Earplug Lawsuits.43

In early 2024, a flurry of motion practice began. Aearo and 3M filed a motion for partial summary judgment, contending that Twin City, Royal Surplus, and ACE are obligated to pay the defense costs from the Earplug Lawsuits. They argued that payments by either Aearo or 3M are sufficient to satisfy the applicable SIRs. Twin City then filed a motion for partial summary judgment, contending that its obligations to pay defense costs had not been triggered because the Twin City policy required Aearo, not 3M, to satisfy the SIR, and Aearo had not done so. ACE filed a notice of joinder as to Twin City’s motion, contending that the same outcome follows from the ACE policy. Royal Surplus also filed a notice of joinder in Twin City’s motion for the same reasons as ACE.

In July 2024, the Superior Court issued its opinion granting Twin City’s motion and denying Aearo’s and 3M’s motion. The court determined that, under the “express language” of the Twin City, Royal Surplus, and ACE policies, “costs paid by 3M do not count towards the [SIR].”44 The court reasoned that each policy provides that “you” or the “insured” must pay the SIR, and 3M is not an insured under any of the policies.45 In response to Aearo’s and 3M’s argument that such a reading created a pointless formality, the court disagreed and stated that the “purpose of requiring that the insured pay the [SIR] is so that the insured can partially bear the costs of the risk that is being insured. Aearo, however, seeks to credit to itself those defense costs paid for by 3M, a non-policy holder who is not bound by the [p]olicies’ restrictions and requirements.”46

Invoking the maintenance clauses, Aearo and 3M argued in the alternative that the insurers were required to provide coverage even if Aearo did not satisfy the SIRs. According to Aearo and 3M, the insurers were entitled to only a setoff in the amount of the SIR, not a denial of coverage. The court rejected this argument and found that the maintenance clauses did not apply because Aearo and 3M had not shown that any insured was “unable to pay the [SIR] due to [its] lack of availability, collectability, invalidity, or suspension.”47 The court granted summary judgment for Twin City and denied it for Aearo and 3M because Aearo LLC, the “Named Insured,” had not made “any payment for defense costs that satisfy the [SIR], and Twin City has no obligation to provide coverage for sums in excess of the [SIR].”48

Aearo and 3M moved for reargument under Superior Court Civil Rule 59(e). They contended that the court did not consider the language of ACE’s and Royal Surplus’s maintenance clauses, which purportedly contain language materially different from the Twin City maintenance clause and preserve coverage if Aearo did not satisfy the SIR. The court denied reargument, concluding that it did consider the language of the ACE and Royal Surplus maintenance clauses.49

Aearo, 3M, and Twin City thereafter filed a joint stipulation with the Superior Court under Civil Rule 54(b) requesting entry of final judgment. In September 2024, the court granted the joint stipulation based on its ruling that Twin City had no duty to pay Aearo’s and 3M’s defense costs for the Earplug Lawsuits.50 Aearo and 3M have appealed the Superior Court’s judgment regarding Twin City.51 3M presented some evidence that Aearo Technologies LLC paid approximately $411,000 in defense costs for the Earplug Lawsuits. Id. at 8.

Aearo and 3M filed an application for certification of interlocutory appeal regarding the court’s ruling on Royal Surplus’s and ACE’s obligations to pay defense costs for the Earplug Lawsuits. The Superior Court denied the application, finding that it did not meet Supreme Court Rule 42’s strict standards for certification.52 But this Court accepted interlocutory appeal, noting that the Superior Court’s opinion “addressed substantial issues of material importance to the merits of this insurance- coverage dispute, including whether 3M’s payment of defense costs count toward its wholly owned subsidiaries’ [SIR].”53 The direct appeal and interlocutory appeal have since been consolidated.

II. STANDARD OF REVIEW

We review the Superior Court’s decision to grant or deny summary judgment, as well as its interpretation of an insurance contract, de novo.54

III. ANALYSIS

We look to the language of the contract to determine the parties’ intent. 55 If the relevant language is “clear and unambiguous, the parties’ intent is ascertained by giving the language its ordinary and usual meaning.”56 A contract is not ambiguous simply because the parties do not agree on the proper construction of the relevant provisions.57 Instead, a contract is ambiguous “only when the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings.”58 But we will not torture the policy language “under the guise of construing it” because “creating an ambiguity where none exists could, in effect, create a new contract with rights, liabilities and duties to which the parties had not assented.”59

A. The meaning of “You”: Aearo had to satisfy the SIRs.

Aearo’s and 3M’s primary contention on appeal is that the Superior Court erred when it held that the policies’ language precluded 3M—Aearo’s corporate parent—from satisfying the SIRs on Aearo’s behalf. Twin City, Royal Surplus, and ACE argue that each policy unambiguously requires that “you” must satisfy the SIR, “you” is defined as the “Named Insured,” and 3M is not a “Named Insured” under any policy.

“Where the insured and another defendant are jointly and severally liable for injury or damage, an SIR under the insured’s liability policy may be satisfied by payments made by the other defendant or its liability insurer . . . unless the policy clearly provides otherwise.”60 Here, the relevant language in each policy unambiguously provides otherwise—Aearo had to satisfy the SIRs.

The Twin City policy states that the SIR is the “amount you or any insured must pay as damages and ‘claim expenses’ . . ., before [Twin City] pays anything.”61 “You” is defined as the “Named Insured.”62 The “Named Insured” is Aearo LLC.63 The policy unambiguously states that “you” must satisfy the SIR, and “you” is Aearo LLC. This reading is further supported by the remainder of the SIR, which states that it “shall not be reduced by . . . [a]ny payment made on your behalf by another, including any payment from any other applicable insurance.”64 For purposes of the Twin City policy, 3M is “another” because 3M is not specifically designated as a “Named Insured.” There is no record evidence that Aearo LLC paid anything to satisfy the SIR.

The Royal Surplus policy states that the SIR is “the amount . . . which you are obligated to pay and only includes damages otherwise payable under this policy.”65 “You” is defined as the “Named Insured.”66 The “Named Insured” is Aearo LLC, as well as “[a]ll subsidiary and affiliated entities or successors, as may now or hereafter exist by way of acquisition, merger, formation or transformation in which [Aearo LLC] has at least 51% ownership or interest.”67 Thus, the Royal Surplus policy unambiguously states that Aearo LLC—or a majority-owned subsidiary—must satisfy the SIR. Under the plain language of the Royal Surplus policy, 3M is not a “Named Insured” and cannot satisfy the SIR.68

The ACE policy states that the SIR “must be satisfied by actual payment by you.”69 “You” means the “Named Insured.”70 The “Named Insureds” are Aearo Holding LLC and Aearo Technologies LLC.71 The “Named Insureds” also include certain subsidiary entities.72 The ACE policy clearly provides that Aearo Holding LLC, Aearo Technologies LLC, or certain subsidiaries must satisfy the SIR. The ACE policy further states that the SIR “shall not be satisfied by payment by the insured of any deductible of any other policy or payments made on behalf of the insured by any other insurer, person or entity.”73 Under the ACE policy, 3M is “any other . . . entity” because 3M is not a “Named Insured.”74

The clear meanings of “you” and “Named Insured,” and requirements of the SIRs, do not permit more than one reasonable reading—3M is not a “Named Insured” under any policy and cannot satisfy the SIRs.

We disagree with Aearo and 3M that this reading creates “unintended and pointless requirements.”75 First, when the relevant policy language is unambiguous, as here, we find the parties’ intent in the plain meaning of the language. 76 The language plainly states that the “Named Insured” under each policy was required to satisfy the respective SIRs. 3M is not a “Named Insured” under any policy. The Royal Surplus and ACE policies also explicitly state that certain subsidiary entities of the “Named Insured” can satisfy the SIRs. Second, we respect the separateness of distinct legal entities. Although 3M is the corporate parent, the Aearo entities are each distinct legal entities, and, absent specific circumstances not present here, we will not disregard that distinction.77

B. The SIRs function as conditions precedent to the insurers’ coverage obligations.

Aearo and 3M contend that the SIRs do not act as conditions precedent to the insurers’ coverage obligations, meaning that, even if Aearo was required to satisfy each SIR, Aearo’s failure to satisfy each SIR does not result in a failure to trigger coverage. Twin City, Royal Surplus, and ACE respond that the SIRs operate as conditions precedent to coverage, and their respective coverage obligations are not triggered unless and until Aearo satisfies the SIR of the policy for which Aearo seeks coverage.

It is helpful to understand the nature of an SIR. An SIR is “[t]he dollar amount specified in a liability-insurance policy to be paid by the insured before the insurer will respond to a loss.”78 “An insured maintains a[n] SIR to reduce the cost of separate corporate entity[.]”); Hart Hldg. Co. Inc. v. Drexel Burnham Lambert Inc., 1992 WL 127567, at *10 n.11 (Del. Ch. May 28, 1992) (“Our law tends to accord dignity to legal entities except in cases in which the traditional law of piercing the corporate veil is met.”); Am. Bottling Co. v. BA Sports Nutrition, LLC, 2021 WL 6068705, at *12 (Del. Super. Dec. 15, 2021) (“[R]espect for and recognition of corporate separateness [] is an essential part of . . . Delaware law.”); Kodiak Bldg. P’rs, LLC v. Adams, 2022 WL 2455987, at *4 (Del. Ch. July 6, 2022) (stating that Delaware law has a “high bar for blurring corporate separateness”); Barbey v. Cerego, Inc., 2023 WL 6366055, at *9 (Del. Ch. Sept. 29, 2023) (“Delaware law respects corporate separateness.”); see also, e.g., Winkler v. V.G. Reed & Sons, Inc., 638 N.E.2d 1228, 1234 (Ind. 1994) (“Indiana courts are extremely reluctant to disregard corporate identity and certainly the mere fact of a subsidiary- parent relationship is not, without more, sufficient reasons to piece the corporate veil.”); CBR Event Decorators, Inc. v. Gates, 962 N.E.2d 1276, 1281 (Ind. Ct. App. 2012) (“Courts are reluctant to disregard corporate identity[.]”). Although these cases mostly concern piercing the corporate veil, the general premise holds—Delaware and Indiana respect the distinction of separate legal entities. premiums on its insurance policy.”79 “Typically, the excess insurer’s obligations do not arise until the primary limits or the SIR have been exhausted.”80 Simply put, an SIR “refers to a specific sum or percentage of loss that is the insured’s initial responsibility and must be satisfied before there is any coverage under the policy.”81

An SIR is different from a deductible. “[A] policy with a deductible obliges the insurer to respond to a claim from ‘dollar one’ (i.e., immediately upon tender), subject to the insurer’s right to later recoup the amount of the deductible from the insured.”82 By contrast, “[a] policy subject to a[n] SIR . . . obliges the policyholder itself to absorb expenses up to the amount of the SIR, at which point the insurer’s obligation is triggered.”83

“[A]s between an insurer and a single insured, the insurer’s responsibilities arise only ‘[a]fter the [SIR] amounts specified in the policies are satisfied.’”84 “[I]t is the responsibility of the policyholder to prove this condition precedent to coverage—SIR exhaustion—and unless and until it is able to do so, the duty to defend is not triggered.”85

Considering the purpose of SIRs, we conclude that each one in this case functions as a condition precedent to the respective insurer’s coverage obligations.86 coverage begins to apply. Once a[n] SIR is satisfied, the insurer is then liable for amounts exceeding the retention.”).

Walsh Constr. Co., 72 N.E.3d at 963 (quoting Cinergy Corp. v. Associated Elec. & Gas Ins. Servs., Ltd., 865 N.E.2d 571, 576–77 (Ind. 2007)).

Id. (quoting Allianz Ins. Co., 884 N.E.2d at 420); Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1198 (Del. 1992) (“In order for an insured to establish the contractual liability of an insurer for breach of an insurance contract, the insured must show that he has complied with all conditions precedent to the insurer’s performance.”); Restatement of the Law of Liability Insurance § 1 (“Unless otherwise stated in the insurance policy, an insurer has no duty to defend or indemnify the insured until the insured has paid any applicable [SIR].”); 23 Williston on Contracts § 63:6 (4th ed.) (May 2025 Update) (“[T]he failure to comply with conditions precedent ordinarily prevents an action to enforce the contract by the party failing to comply.”).

In its supplemental opening brief, Aearo and 3M argue that the ACE and Royal Surplus SIRs should not be treated as conditions precedent. For that proposition, Aearo and 3M rely on Lasorte v. Those Certain Underwriters at Lloyd’s, 995 F. Supp. 2d 1134 (D. Mont. 2014), which held that “[i]f the insurer intends to make actual payment in cash of the [SIR] a condition precedent to liability on its policy, then it can include specific language to that effect in the policy.” Id. at 1143 (emphasis added). But the issue in Lasorte concerned the form of payment and not the payment itself—whether the SIR could be satisfied by a stipulated judgment instead of cash. Id. at 1140. Aearo and 3M also rely on Phillips v. Noetic Specialty Insurance Co., 919 F. Supp. 2d 1089 (S.D. Cal. 2013), for the same proposition. But Phillips concerned an insurer’s coverage obligations where the insured did not satisfy the SIR due to the insured’s insolvency. Id. at 1098–99 (“[The insurer]’s contentions urge the [c]ourt to relieve it of all obligations under the policy based on [the insured]’s insolvency and resulting failure to pay the SIR. . . . Adopting [the insurer]’s interpretation of the policy and requiring payment of the SIR to trigger coverage, even in the event of the insured’s insolvency, is contradictory to the language of the policy . . . and would also As established above, the summary judgment record is undisputed that Aearo LLC— the “Named Insured” under the Twin City policy—did not satisfy that policy’s SIR. Twin City’s obligations have not been triggered. Although the Royal Surplus and ACE SIRs also act as conditions precedent, there remain unresolved questions as to whether those SIRs have been satisfied. Namely, Aearo Technologies LLC averred that it paid approximately $411,000 in defense costs for the Earplug Lawsuits. Aearo Technologies LLC is a “Named Insured” under the ACE policy and appears to be a “Named Insured” under the Royal Surplus policy. But the record does not establish the specifics of that $411,000 payment. So questions remain regarding whether Aearo Technologies LLC satisfied the SIRs under the Royal Surplus or ACE policies.

During oral argument, our colleague in dissent asked Aearo’s and 3M’s counsel whether this Court’s recent decision in Thompson Street Capital Partners IV, L.P. v. Sonova United States Hearing Instruments, LLC,87 bears on this case. In Thompson Street, we held that, under certain circumstances, a court may excuse a party’s noncompliance with a condition precedent if the party “demonstrates that the condition precedent was not a material part of the agreement and satisfies the conflict with the public policy as reflected by California’s direct action statute.”). None of the Aearo entities are insolvent.

Thompson Street Capital Partners IV, L.P. v. Sonova United States Hearing Instruments, LLC, - -A.3d--, 2025 WL 1213667 (Del. Apr. 28, 2025). requirements for disproportionate forfeiture.”88 We disagree with the dissent that “principles of fairness” mandate a remand to consider Thompson Street. This issue was not raised below because we decided Thomspon Street after the parties completed appellate briefing. But Aearo and 3M could have followed our Court rules and called Thompson Street to our attention before argument.89 They also could have requested supplemental briefing to explore the issue. In our view, the time to consider Thompson Street in this appeal has passed. We should be especially reticent to take up new issues for the first time on appeal that might impact settled interpretive principles in the insurance field.

C. The maintenance clauses do not apply.

Aearo and 3M advance an alternative argument: even if specific Aearo entities, not 3M, had to satisfy each SIR, the maintenance clause in each policy establishes that Aearo’s failure to satisfy each SIR means only that each insurer has a setoff equal to the SIR and still must pay those defense costs exceeding the setoff. Stated differently, they argue that failure to satisfy the SIRs does not affect coverage. Instead, they contend that the insurers are required to pay for all defense costs, minus the amount that the insureds owe for the SIRs. We disagree.

Id. at *17, *20.

See Del. Supr. Ct. R. 15(a)(vi) (“A party may, by letter to the Clerk, bring to the Court’s attention pertinent cases decided after a party’s final brief is filed or after the case is under submission for decision. The letter shall identify the arguments to which the cases relate and provide copies of the cases to the Court and opposing counsel. The letter shall not contain any argument.”).

The maintenance clause in each provision serves two purposes: to ensure that (a) bankruptcy or insolvency of Aearo does not relieve the respective insurer of its coverage obligations, and (b) the insurer’s coverage obligations do not drop down if Aearo fails to maintain the SIR.90 Neither helps Aearo and 3M, who seek to turn these provisions into setoffs for Aearo’s failure to satisfy the SIRs.

Indiana law—one of the two states’ laws relevant to this case—has codified the bankruptcy requirement of these clauses. Indiana Code Section 27-1-13-7 states that “[n]o policy of insurance against . . . loss or damages resulting from accident to; or . . . death or injury suffered by[] an employee or other person or persons and for which the person or persons insured are liable . . . shall be issued” in Indiana by an insurance carrier “unless” the policy contains a provision that “the insolvency or bankruptcy of the person or persons insured shall not release the insurance carrier See A1015 (Twin City Policy) (stating that the “Maintenance of the [SIR]” clause requires Aearo LLC to “do whatever is required, including provision of sufficient funds, to maintain the [SIR] . . .. If the [SIR] becomes invalid, suspended, unenforceable or uncollectable for any reason, including bankruptcy or insolvency, we shall be liable only to the extent we would have been had such [SIR] remained in full effect”); A5010 (Royal Surplus Policy) (stating that the “Non Drop Down Bankruptcy or Insolvency of the Named Insured” requires that “if the [SIR] is not available or collectible because of (a) the bankruptcy or insolvency of the named insured or (b) the inability or failure for any other reason of the named insured to comply with the provisions of the [SIR] endorsement, then this policy should apply . . . as if such [SIR] were available and collectible”); A4926 (ACE Policy) (stating that the “Bankruptcy; Payment of the [SIR]” clause requires that “[i]n the event of bankruptcy or insolvency of any insured, or the inability, failure, or refusal to pay the [SIR] by any insured, we will not be liable under the policy to any greater extent than we would have been liable had the insured not become bankrupt or insolvent or had such inability, failure or refusal not occurred . . .. You will continue to be responsible for the full amounts of the [SIR] before the limits of insurance under this policy apply. In no case will we be required to pay the [SIR] or any portion thereof”). from the payment of damages for injury sustained or loss occasioned during the life of the policy.”91 This statutory provision “embodies the public policy of permitting an injured victim to recover under a valid insurance policy from the insurer itself in the event the insured is unable to pay due to its insolvency or bankruptcy.” 92 Additionally, a “[m]aintenance [c]lause is designed to protect an excess insurer by establishing that its coverage will not ‘drop down’ in the event that the insured fails to maintain a lower level policy or the lower level policy is invalidated.”93

Ind. Code § 27-1-13-7. The statute also provides that if “execution against the insured is returned unsatisfied in an action brought by the injured person . . . because of insolvency or bankruptcy . . . then an action may be maintained by the injured person” against the insurance carrier “under the terms of the policy for the amount of the judgment in the said action not exceeding the amount of the policy.” Id.; see also In re FairPoint Ins. Coverage Appeals, 311 A.3d 760, 772 (Del. 2023) (interpreting a standard bankruptcy provision in an insurance policy and stating that the “bankruptcy provision protects contractual rights as they existed outside of bankruptcy from being altered by bankruptcy”).

In re Federal Press Co., Inc., 104 B.R. 56, 63 (Bankr. N.D. Ind. 1989); see also Fuller-Austin Insulation Co. v. Highlands Ins. Co., 38 Cal. Rptr. 3d 716, 747 (Cal. Ct. App. 2006) (“The primary purpose of the statute [codifying bankruptcy provisions under California law] is to protect an injured person when the insured is bankrupt or insolvent.”); Theresa A. Guertin & Tracy Alan Saxe, Insurance Coverage of Construction Disputes § 46:4 (2d ed.) (June 2025 Update) (“CGL policies generally contain a provision in the conditions section of the policy to the effect that bankruptcy or insolvency of the insured does not relieve the insurer of its obligation under the policy.”). Even in states where bankruptcy provisions are not codified by statute, public policy still has dictated the same result. See, e.g., Rosciti v. Ins. Co. of Pennsylvania, 659 F.3d 92, 98 (1st Cir. 2011) (stating that Rhode Island does not have a bankruptcy provision codified by statute but “[n]evertheless, it is clear that Rhode Island’s public policy is to prevent insurance companies from avoiding their obligations when an insolvent insured cannot make expenditure towards discharging liability.”); In re Vanderveer Ests. Hldg., LLC, 328 B.R. 18, 25 (Bankr. E.D.N.Y. 2005) (“[C]ase law interpreting [] the Bankruptcy Code makes it clear that even in the absence of an applicable statutory provision, the failure of a bankrupt insured to fund a[n] [SIR] does not relieve the insurer of the obligation to pay claims under the policy.”).

In re Rapid-Am. Corp., 2016 WL 3292355, at *11 (Bankr. S.D.N.Y. June 7, 2016) (citing JP Morgan Chase & Co. v. Indian Harbor Ins. Co., 930 N.Y.S.2d 175, 2011 WL 2320087, at *8 (N.Y. Sup. Ct. May 26, 2011)).

Aearo’s and 3M’s argument rings hollow given the purposes of this type of clause. The maintenance clauses are triggered in situations where the insured is in financial distress or where the insured has not maintained a lower-level policy. Admittedly, Aearo has not maintained the “lower-level policy” in that it has not satisfied the SIRs. But in this circumstance, the maintenance clause protects an insurer from dropping down and expanding its coverage obligations to liability not within the specific policy’s purview. The clause does not, as Aearo and 3M suggest, protect the insured by creating a setoff if the insured fails to satisfy the SIR. Aearo and 3M have not cited any case where satisfaction of the SIR is excused, and a maintenance clause applies to create a setoff, where a non-“Named Insured” attempted to satisfy the SIR despite that the policy prohibited it and the “Named Insured” is financially healthy.94 And if we read these clauses to create setoffs, that

Aearo and 3M rely on Liberty Mutual Insurance Co. v. Wheelwright Trucking Co., Inc., 851 So.2d 466 (Ala. 2002). There, the Alabama Supreme Court determined that, based on the policy language in that case, the insured was entitled to a “setoff” equal to the amount of that policy’s SIR. Id. 487. But the insured in Wheelwright filed for Chapter 11 protection and, during the pendency of the bankruptcy proceedings, entered into a consent judgment with an injured party in an amount exceeding the policy’s SIR and that conditioned recovery “to the extent that the [insured’s] insurance provides coverage.” Id. at 470–71. The insurers received notice of the consent judgment and did not object. Id. at 479. The Alabama Supreme Court’s determination that the insured was entitled to a setoff and that the insurers were required to provide coverage in excess of the setoff cannot be separated from the fact that the insured had filed for bankruptcy protection. Similar to Phillips, Wheelright is factually distinct because none of the Aearo entities are bankrupt or insolvent. reading would render meaningless the condition precedent nature of the SIRs, which is not how we interpret contracts.95 These clauses do not apply in this case.

The dissent states that the maintenance clauses, “at a minimum, inject[] further ambiguity into the parties’ intent and exposes the trial court’s error in interpreting the SIR provisions as unambiguous conditions precedent.” But the language of the clauses must be viewed through the appropriate lens. That is, they are triggered in specific instances, none of which are present here. The maintenance clauses do not inject ambiguity into the SIRs.

The dissent also appears to frame our interpretation of these clauses as applying only in “the context of insolvency or financial distress.” Based on that framing, the dissent states that our interpretation “render[s] superfluous whole portions of the maintenance clause.” But that framing is not accurate. As previously stated, a key aspect of these clauses is the “maintenance” aspect, which protects an insurer from dropping down and expanding its coverage obligations to a lower-level policy.96 Here, the SIRs act as those lower-level policies.

See In re Verizon Ins. Coverage Appeals, 222 A.3d 566, 575 (Del. 2019) (“Contracts are to be interpreted in a way that does not render any provisions illusory or meaningless.” (internal quotation marks omitted)); Thomas v. Valpo Motors, Inc., 258 N.E.3d 236, 241 (Ind. 2025) (“When interpreting a contract, [the Indiana Supreme Court] reviews the document as a whole, seeking to determine the parties’ intent while making every attempt to construe the contract’s language so as not to render any words, phrases, or terms ineffective or meaningless.” (internal quotation marks omitted)).

See In re Rapid-Am. Corp., 2016 WL 3292355, at *11 (“A [m]aintenance [c]lause is designed to protect an excess insurer by establishing that its coverage will not ‘drop down’ in the event that the insured fails to maintain a lower level policy or the lower level policy is invalidated.”); Playtex

IV. CONCLUSION

The policies unambiguously required certain Aearo entities to satisfy each SIR. The policies also specifically identified which entities in the corporate hierarchy could satisfy the SIR or stated that the SIR could not be satisfied by “another.” No policy identified 3M as an entity that could satisfy the SIR. So 3M’s payments of defense costs did not trigger coverage under the policies issued to Aearo. This result reflects our practice of enforcing unambiguous contracts as written and respecting corporate separateness. We affirm the Superior Court’s decision granting summary judgment for Twin City. We also affirm the Superior Court’s interpretation of the relevant provisions in the Royal Surplus and ACE policies.

FP, Inc. v. Columbia Cas. Co., 622 A.2d 1074, 1085 (Del. Super. 1992) (“Keeping in mind that [the maintenance clause] of the [insurer’s] policy is a condition meant to obligate the insured to maintain its underlying insurance, it is clear that the provision is not intended to expand the insured’s coverage and force the excess insurers to drop down.”).

LEGROW, J. dissenting, joined by TRAYNOR, J.:

The insurers have framed this appeal as requiring this Court to decide whether payment of a self-insured retention by a corporate parent satisfies an insurance policy’s requirement that the insured—the parent’s wholly-owned subsidiary—pay the retention. I view the question somewhat differently. The critical question from my perspective is whether satisfaction of the self-insured retention was a condition precedent to the insurers’ coverage obligations and, if so, whether the failure of that condition as a result of the parent’s payment should result in a complete forfeiture of the coverage for which the insured paid premiums.

In the absence of unambiguous contractual language creating a condition precedent, our law avoids construing a contract as containing conditions whose nonoccurrence results in the forfeiture of a contractual obligation. And when a disproportionate forfeiture would otherwise result from the nonoccurrence of a condition that is not material, forfeiture may be excused. Questions of proportionality and materiality are fact intensive and layered. The Majority Opinion concludes that the self-insured retention provisions are conditions precedent despite language in the policies that supports the opposite conclusion. And after finding that a forfeiture of coverage results because the retention was paid by the wrong entity, the Majority does not address whether the factors for excusal are met. I therefore respectfully dissent.

With slight variations, the policies define the SIR1 and refer to the SIR being paid only by Aearo or certain of its subsidiaries, rather than another party, including another insurer.2 For example, the Twin City policy defines the SIR as “the amount you or any insured must pay as damages and ‘claim expenses’ . . ., before [Twin City] pays anything.”3 “You” refers to Aearo LLC, and it is undisputed that 3M is not an insured under the Twin City policy. Similarly, the Royal Surplus policy defines the SIR as “the amount . . . which you are obligated to pay” 4 and states that Royal Surplus’s obligation to pay damages on “your” behalf applies only to amounts that exceed the SIR.5 “You” and “your” refer to Aearo LLC and certain of its subsidiaries.6 Likewise, the ACE policy provides that ACE will pay damages in excess of the SIR and states that the SIR must be satisfied by “actual payment by you.”7 As with the other two policies, “you” refers to Aearo LLC and certain subsidiaries.8

The trial court treated this language as creating a condition precedent capable of working a forfeiture of Aearo’s insurance coverage, and the Majority Opinion adopts that position. But that conclusion, in my view, is at odds with two established principles of Delaware law: first, that conditions precedent must be clearly and unambiguously stated; and second, that our common law abhors a forfeiture. The policies’ language can be interpreted to avoid the conclusion that the SIRs operated as conditions precedent to the insurers’ coverage obligations, and the trial court therefore should have avoided a construction that created conditions precedent from ambiguous contractual terms.

A condition precedent is “an act or event, other than a lapse of time, that must exist or occur before a duty to perform something promised arises.”9 Because the nonoccurrence of a condition precedent may cause a forfeiture, our law requires a condition precedent to be stated clearly and unambiguously.10 That rule balances Delaware’s contractarian principles and its contempt for forfeitures.11 Where contractual language does not plainly provide for a forfeiture, a court should avoid interpreting a contract as creating one.12

There is no single method that contracting parties must employ to create a condition precedent, and they need not expressly use the phrase “condition precedent” to establish one. Our courts closely examine contractual language to determine whether the parties intended to create a condition, the nonoccurrence of which would result in forfeiture. But certain contractual elements typically signal the existence of a condition precedent, and their absence weighs against finding such a condition. For example, when parties create a contractual condition and expressly identify a consequence for failing to satisfy it, such language supports a conclusion that the contractual provision is a condition precedent capable of working a forfeiture.13 Conversely, when the contract is silent as to the consequences of failing to satisfy a condition, a court may decline to find a condition precedent.14 Similarly, employing the phrase “unless or until,” or even the word “unless,” may be viewed as “unmistakable language of condition.”15 But as with all contracts, we look to the language of the policy to discern the parties’ intent, not to a “generic standard.”16

The trial court did not evaluate whether the policies contained express language of condition but instead limited its analysis to whether payments by 3M satisfied the terms of the SIR provisions. The Majority Opinion expressly holds that the SIR provisions “function as conditions precedent to the insurers’ coverage obligations,”17 but the Majority rests that conclusion on the “nature of an SIR,” citing various treatises and out-of-state cases.18 The insurers do not identify language, like that described above, that unambiguously identifies satisfaction of the SIR as a condition precedent.

The absence of this express language weighs against interpreting the SIR provisions as creating a condition precedent to coverage. But even if those provisions, read in isolation, could be interpreted as unambiguously creating a condition precedent, Delaware law requires courts to read a contract as a whole, giving meaning to each term and avoiding an interpretation that would render any provision “mere surplusage.”19 In this case, each of the policies contains a maintenance clause—which Aearo and 3M refer to as a “savings clause”—that, at a minimum, injects further ambiguity into the parties’ intent and exposes the trial court’s error in interpreting the SIR provisions as unambiguous conditions precedent.

Each of the maintenance clauses uses different language, but each clause confirms that the parties did not intend for a failure to satisfy the SIR to work a forfeiture. The Majority Opinion shelves these clauses by drawing conclusions about the “purposes” served by the clauses and concluding that they are “triggered in situations where the insured is in financial distress or where the insured has not maintained a lower-level policy.”20 But that interpretation does not hew to the contractual language. The maintenance clauses in the Royal Surplus and ACE policies are particularly broad. The Royal Surplus clause states:

[I]f the [SIR] is not available or collectible because of (a) the bankruptcy or insolvency of the named insured or (b) the inability or failure for any other reason of the named insured to comply with the provisions of the [SIR] endorsement, then this policy should apply (and amounts payable hereunder shall be determined) as if such [SIR] were available and collectible.21

Using equally broad language, the ACE policy states:

In the event of bankruptcy or insolvency of any insured, or the inability, failure, or refusal to pay the [SIR] by any insured, we will not be liable under the policy to any greater extent than we would have been liable had the insured not become bankrupt or insolvent or had such inability, failure or refusal not occurred, and this policy will not apply as a replacement for the [SIR]. You will continue to be responsible for the full amounts of the [SIR] before the limits of insurance under this policy apply. In no case will we be required to pay the [SIR] or any portion thereof.22 Although the Twin City clause is not as broadly phrased, it also states that “[i]f the [SIR] becomes invalid, suspended, unenforceable or uncollectable for any reason, including bankruptcy or insolvency, we shall be liable only to the extent we would have been had such [SIR] remained in full effect.”23 Each of the clauses contains unambiguous language that applies outside the context of insolvency or financial distress, and each confirms that the insurers’ coverage obligations are not excused if there is a “failure” to pay the SIR (in the case of Royal Surplus and ACE) or if the SIR is “uncollectable for any reason” (in the case of Twin City). 24 The insurers’ attempt to cabin these clauses as “bankruptcy clauses” would render superfluous whole portions of the maintenance clauses, a result that our case law requires us to avoid if possible.25

Finally, even if the SIR provisions were conditions precedent capable of working a forfeiture of coverage, this case should be remanded to the trial court to consider whether forfeiture was excused under the circumstances. In Thompson Street Capital Partners IV, L.P. v. Sonova United States Hearing Instruments, LLC, this Court held that if contractual language clearly provides for a forfeiture, “then a court may consider whether compliance with the condition may be excused” if the forfeiture would be disproportionate and the occurrence of the condition was not a material part of the agreed exchange.26 Thompson Street identifies several factors that a court may apply in exercising its discretion to determine that a forfeiture is excused.

Although the parties did not have the benefit of the Thompson Street decision in the Superior Court proceedings or when they filed their briefs in this court, the parties’ briefs directly address forfeiture and the substantial coverage obligations that the insurers seek to avoid in this case. Principles of fairness should not allow the insurers to avoid addressing the analysis set forth in Thompson Street simply because the opinion was not issued before this appeal was briefed.27 I therefore would reverse the Superior Court’s decision granting summary judgment in favor of the insurers and remand this matter for further proceedings.