In a ruling that reverberates through the high-stakes world of mergers and acquisitions insurance, a Delaware court has determined that a $30 million legal victory is not necessarily the final word on the full scope of a company’s financial loss. This decision, stemming from a complex dispute between energy firm Hartree Natural Gas Storage and insurer AIG, has forced AIG to remain a defendant in a major coverage lawsuit, underscoring a critical distinction between damages awarded in a fraud case and the definition of “Loss” within a representations and warranties insurance (RWI) policy. The case serves as a crucial reminder for insurers and policyholders alike that litigation strategy in one legal arena may not automatically dictate the outcome in another.
The legal battle’s origins trace back to Hartree’s 2021 purchase of the Pine Prairie Energy Center from PAA Natural Gas Storage. Soon after the deal closed, Hartree discovered what it alleged was a significant operational deficiency: a substantial amount of “missing base gas,” a crucial component for maintaining the facility’s pressure and a core asset of the business. This discovery led Hartree to claim it had been deceived and had fundamentally overpaid for the energy center, sparking a multifaceted legal strategy to recoup its losses from both the seller and its insurers. The ruling from Judge Paul R. Wallace of the Delaware Superior Court now ensures this complex web of claims will be untangled in a full trial, not dismissed on procedural grounds.
When a Victory Is Not the Final Word
The core of the dispute originated from Hartree’s assertion that its financial injury was far greater than just the cost of replacing the missing gas. It put forward a broader argument that the entire facility was overvalued due to the seller’s alleged misrepresentations. This position set the stage for a conflict over how “loss” should be calculated, a question with tens of millions of dollars hanging in the balance. Hartree promptly notified its RWI insurers of the breach, contending that its damages would easily surpass the initial layers of its coverage program and trigger the excess policies.
From the outset, the insurers, particularly AIG, whose policy sat high up in the insurance tower, challenged this expansive view of the loss. AIG maintained that Hartree’s claims were unlikely to ever reach its coverage layer, setting up a legal showdown. This fundamental disagreement prompted Hartree to file suit against its insurers in Delaware, seeking a court declaration that its losses were covered. However, in a strategic maneuver, the insurance lawsuit was temporarily paused, allowing Hartree to first pursue a separate fraud case directly against the seller, PAA Natural Gas Storage.
The Anatomy of a High Stakes Acquisition and Its Insurance Safety Net
To safeguard its investment in the Pine Prairie facility, Hartree had secured a sophisticated, multi-layered RWI insurance program, a common tool in large M&A transactions. This insurance “stack” was designed to provide robust financial protection against breaches of the seller’s representations and warranties made in the Membership Interest Purchase Agreement (MIPA). The program was structured with a self-insured retention of $6.375 million, meaning Hartree would cover this initial portion of any loss itself.
Above this retention sat a primary insurance policy from Euclid, providing the first $25 million of coverage. Next in the stack was a first excess layer from Liberty, offering an additional $25 million. Only after these initial $56.375 million in losses were exhausted would the next policy be triggered. This is where AIG Specialty Insurance Company entered the picture, providing the second excess layer with a limit of $13.75 million. The tiered structure meant AIG’s liability was contingent on Hartree proving a massive, validated loss, a threshold that became the central pillar of AIG’s defense.
A Tale of Two Lawsuits
Hartree’s decision to sue the seller for fraud before fully engaging its insurers proved to be a pivotal, high-stakes gamble. In the fraud lawsuit against PAA, Hartree’s legal team presented two alternative theories for calculating damages. The first was a direct and tangible claim for approximately $55 million, representing the cost to replace the missing gas and cover related expenses. The second was a much larger and more complex “overpayment” theory, which used a discounted cash flow analysis to argue that the entire transaction was overvalued by as much as $90 million.
During the trial, however, Hartree made a crucial strategic decision. It dropped the ambitious $90 million overpayment claim and proceeded to argue its case solely on the narrower, more straightforward missing-gas theory. This tactic was successful, to a point. In January 2025, the court awarded Hartree over $30 million for the missing gas. Following the verdict, Hartree and PAA reached a settlement. This outcome gave AIG what it believed was a powerful weapon to exit the parallel insurance lawsuit. AIG argued that the $30 million verdict judicially established Hartree’s total loss, a figure far below AIG’s $56.375 million attachment point, making it impossible for its policy to ever be triggered.
The Courts Decisive Ruling
In a detailed and methodical opinion, Judge Wallace dismantled AIG’s arguments for an early exit. The court found that because Hartree had voluntarily withdrawn its $90 million overpayment theory before the fraud case concluded, that specific claim was never actually litigated or decided on its merits. Therefore, legal doctrines like judicial estoppel, which prevent a party from taking contradictory positions in different legal proceedings, did not apply. AIG could not use Hartree’s trial strategy against the seller to bar it from pursuing the larger claim against its insurers.
The ruling emphasized that the controlling factor was the language within the insurance policy itself, not the outcome of an external lawsuit. The policy defined “Loss” broadly, tying it to liabilities arising from a breach of the MIPA’s warranties, without any clause limiting it to a damages award from a separate case. Furthermore, the policy explicitly stated that Hartree was under no obligation to sue the seller as a precondition for coverage. This contractual language proved supreme, allowing Hartree to keep its larger claim alive within the confines of the insurance dispute, irrespective of the fraud verdict.
The Path Forward
Judge Wallace’s decision did not hand a complete victory to either side but instead cleared the path for a full trial by concluding that critical factual disputes remained unresolved. These issues revolve around key clauses in the insurance policy concerning subrogation and mitigation. AIG contends that Hartree’s settlement with the seller may have damaged its subrogation rights—that is, AIG’s right to step into Hartree’s shoes and pursue the seller to recover any money it pays out. This question will require a deep factual analysis at trial.
Furthermore, the court must now consider whether Hartree’s actions, particularly its decision to abandon the $90 million claim in the fraud trial, were consistent with its obligation to use “commercially reasonable efforts” to mitigate its losses. The resolution of these matters will hinge on evidence regarding Hartree’s intent, communications between the parties, and an assessment of what a reasonable business would have done under the circumstances. These complex, fact-intensive inquiries are precisely what summary judgments are designed to avoid, ensuring this legal battle is far from over.
The court’s refusal to grant an early exit to AIG ultimately solidified an important principle in the RWI landscape. It established that an insured’s strategic choices in a lawsuit against a seller did not automatically cap its potential recovery under a separate insurance contract with its own distinct terms and definitions. The ruling underscored that the language of the policy remained paramount and that complex questions of an insured’s conduct, such as efforts to mitigate damages or preserve an insurer’s subrogation rights, were matters for a full trial, not a premature dismissal. This decision left both parties positioned for a protracted legal fight, with the final determination of the “Loss” still waiting to be decided.
