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Delaware Supreme Court rules the three-year statute of limitations for an insurance bad-faith claim accrues when an excess judgment becomes final and is no longer appealable. 

OVERVIEW
On March 4, 2016, the Delaware Supreme Court addressed when bad-faith-failure-to-settle claims accrue in the case of Connelly v. State Farm Mutual Automobile Insur. Co., Del. Supr., No. 426, 2015 (Mar. 4. 2016). In a decision authored by Chief Justice Leo Strine, the Court held that the three-year SOL accrues when an excess judgment becomes final and no longer appealable.

REASONING 
The Court began its analysis with basic principles. It first applied the condition of “good faith and fair dealing” imposed upon all Delaware contracts. The Court explained that in the insurance context, the implied covenant historically “included a duty to settle claims within policy limits where recovery in excess of those limits is substantially likely.” The Court also drew upon reasoning from jurisprudence in the area of indemnification of directors and officers. In that context, indemnity claims do not accrue until there is a final judgment. The Court reasoned that insurance claims are also a type of indemnity because the obligation to cover an indemnified party’s costs only arises if and when a final and non-appealable excess judgment to a third-party claim arises. Applying Delaware General Corporation Law (“DGCL”) Section 145, the Court determined that in non-advancement indemnity claims, the “corporation’s obligation to indemnify its fiduciary, employee, or agent, is also conditioned on that party meeting the standard of conduct.” It further held that similarities between insurance and traditional D&O indemnity claims warrant application of the same policies of “litigative efficiency and preventing waste of judicial resources that have led Delaware courts to determine that an indemnity claim accrues when there is a final judgment.”

IMPLICATIONS 
The case is particularly interesting for its application of director and officer indemnity jurisprudence outside its typical context and because many litigators will benefit from knowing when the SOL begins to run for a claim against an insurance company for bad faith failure to settle within policy limits. Although arguing for a different rule, State Farm accepted the decision “as fair,” telling the Delaware Law Weekly through counsel that “[i]t’s fine, as long as we know what it is.” The decision does provide sound guidance and needed certainty moving forward and establishes precedent for other jurisdictions to adopt.

GB will be opening its Delaware office on April 1, 2016 to better serve institutional investors and corporate clients.

Final rules that dramatically expand the class of employees entitled to overtime could take effect by spring of 2016. 

The Department of Labor (DOL) sent its final rule revising the white collar overtime exemption regulations of the federal Fair Labor Standards Act (FLSA) to the White House Office of Management and Budget (OMB) on Monday March, 14, 2016.

The proposed rule was issued in July of 2015 and would dramatically expand the class of employees entitled to overtime pay. It proposes to:

• Increase the salary level governing the FLSA’s white collar exemptions from $455 per week ($23,660 per year) to approximately $970 per week (or $50,440 per year) and implement an automatic adjustment to the salary test going forward to ensure that salary levels continue to provide an effective and useful test for the exemption;

• Raise the minimum salary test for the highly compensated exemption from $100,000 per year to $122,148 per year and index the level to the 90th percentile of weekly full-time employee earnings so that the level stays appropriate and relevant over time; and

• Seek additional input as to whether the DOL should alter the duties requirements for various exemptions.

OMB review is the last step in the regulatory process before revised regulations take effect and are published in the Federal Register. The OMB is allotted 90 days to review proposed regulations, but it usually reviews and publishes proposed regulations in far less time. Accordingly, a final rule revamping the white collar overtime exemption regulations could be published as early as this spring.

IMPLICATIONS FOR EMPLOYERS
Larger and more sophisticated employers have been well aware that these changes are coming. Given the likely rollout date, it is time to start planning for them. Large and small employers can and should plan ahead to ensure they will be in compliance with the proposed salary requirements. Although potential changes to the duties test remain unclear, employers may also benefit from considering the nature and sophistication of their workforce and revisiting their staffing needs. As for employees, employees should take a hard look at their pay stubs and consider their job duties and consult a qualified attorney if they feel they are being improperly compensated.

GB assists employers in navigating the complexities of employment law and assists employees in adjudicating their rights.