AIG dodged most of a coverage fight over a deal gone wrong - but Delaware court let one representations-and-warranties claim live, at least for now.
The ruling came at an early stage. The judge was not deciding whether AIG owed anything, only whether the buyer had adequately stated its claims.
The dispute began when Surteco North America (Surteco) bought the wear-layer business of chemical company Omnova Solutions (Omnova). Wear-layer is the tough, clear plastic layer that shields vinyl flooring from foot traffic. To protect itself if the seller's promises proved false, Surteco bought a buyer-side representations and warranties policy - coverage that pays out when the assurances in a deal turn out to be wrong - from AIG Specialty Insurance Company (AIG).
The policy covered "Losses" flowing from a "Breach," defined as "any breach of, or inaccuracy in, the representations and warranties set forth in" the sale agreement. It also included a materiality scrape, which tells the insurer to ignore materiality qualifiers when testing whether a promise was broken, with a carve-out for the material adverse effect promise.
After closing, Surteco said three of Omnova's promises had been broken and filed a claim. AIG investigated, denied coverage, and - after mediation failed - asked the judge to dismiss the case.
The problem traced to Shaw Industries, Omnova's top customer. According to the complaint, Shaw quietly pulled away: orders fell, it locked Omnova out of its plant, and would not renew a supply deal on the old terms. Omnova allegedly told Surteco none of it. Weeks after closing, Shaw confirmed it no longer needed Omnova's product and sent a termination letter.
Surteco said that broke three promises: that no "Business Material Adverse Effect" had occurred, that the business ran "in the ordinary course of business," and that Omnova had not received "written notice" that a top customer meant to cut back.
The court agreed with AIG on the first two. Merely having "awareness" that Shaw might act later did not count; Omnova, the court said, "was not required to speculate about Shaw's future intentions." The ordinary course promise turned on the seller's own conduct, yet Surteco pointed only to Shaw's moves. Both claims were dismissed.
The top customer claim held up. Surteco alleged Omnova received "[w]ritten correspondence" from Shaw that "reflects that Shaw intended to decrease" its buying, and never shared it. The court called that vague - but under Delaware's forgiving pleading rules, vague was enough. That claim proceeds, and Surteco has 20 days to amend.
For transactional risk insurers, the reasoning is a reminder that the precise wording of each representation drives coverage - and this was only a pleading-stage ruling, not the last word.
