On May 28, 2014, the Delaware Supreme Court held that a "demand letter" could not be the basis of a D&O insurance claim because it was unripe. XL Specialty Ins. Co. v. WMI Liquidating Trust, Case No. N12C-10-087 (Del. S. Ct May 28, 2014). By way of background, Washington Mutual, Inc.'s ("WMI") Liquidating Trust sent a demand letter to WMI's former directors and officers (D&Os) seeking damages from them for downstreaming $500 million from WMI to its banking subsidiary Washington Mutual Bank, even though, according to the Trust, WMI was insolvent at the time of the downstream. WMI purchased two consecutive D&O insurance policy towers covering the D&Os. The insurers in the first tower accepted coverage for the downstreaming claim and are advancing defense costs. The insurers in the second tower (including AXIS) assert coverage is unavailable because, among other things, the downstreaming claim relates back to claims made in the first tower. The Trust wants the insurers in the second tower to cover the downstreaming claim because the first tower is almost exhausted. The Trust has not yet sued the D&Os. Instead, the Trust sued the second tower insurers so that it can determine whether suing the D&Os would be a worthwhile endeavor. The Trust filed its first lawsuit against the second tower insurers in March 2012 in Delaware bankruptcy court. The bankruptcy court dismissed the Trust's complaint on jurisdictional grounds in October 2012. The Trust then re-filed its complaint in Delaware state court a few days later, asserting causes of action against the second tower insurers for breach of contract, bad faith, and declaratory judgment. The second tower insurers moved to dismiss the Trust's complaint, arguing that the Trust did not have standing to sue the insurers and that the Trust's lawsuit against the insurers was not ripe. The trial court denied the motion to dismiss but certified the ruling for interlocutory appeal to the Delaware Supreme Court, which accepted the appeal.

In its opinion, the Delaware Supreme Court found that the trial court should have dismissed the Trust's complaint as unripe. The court found that, because the Trust has not yet sued the D&Os, the dispute between the Trust and the insurers has not yet assumed a "concrete and final form." The court held that the facts pled by the Trust do not demonstrate a "reasonable likelihood" that the second tower will be triggered because the first tower is advancing defense costs and because the Trust has not and may never sue the D&Os. The court also found that the Trust has not suffered any injury traceable to the second tower insurers' conduct because the Trust has disclaimed any duty to indemnify the D&Os for the downstreaming claim. The court held that the Trust seeks "guidance, not as a contractual counterparty seeking to vindicate the D&Os contractual rights, but rather a potential claimant against the D&Os." According to the court, the "Trust's desire to receive advice is not a cognizable interest that will justify a Delaware court exercising jurisdiction to decide the dispute." Because the court found that the trial court should have dismissed the Trust's complaint on ripeness grounds, it did not reach the issue of whether the Trust had standing to sue the insurers. The Delaware Supreme Court therefore reversed the trial court's ruling, and remanded the case to the trial court with instructions to enter a dismissal in favor of the insurers. Ommid C. Farashahi and Michael T. Skoglund represented one of the insurers in the action.