August 15, 2025 | Dover, DE – MedLegalNews.com — In a closely split 3-2 decision, the Delaware Supreme Court affirmed that 3M’s payment of defense costs in ongoing combat earplug litigation cannot count toward the self-insured retention (SIR) required under subsidiary Aearo Technologies’ liability policies. This ruling means the insurers’ duty to provide coverage has not been triggered.
The decision stems from one of the largest multidistrict litigations (MDLs) in U.S. history, involving over 260,000 claims alleging defective earplugs supplied by 3M and its subsidiary caused hearing damage to service members.
Court’s Key Findings
The justices concluded that the liability policies issued by Twin City Fire Insurance Co., Ace American Insurance Co., and Royal Surplus Lines Insurance Co. unambiguously required the named insured — Aearo Technologies — to satisfy the SIR before coverage obligations would arise.
The majority opinion emphasized that:
- 3M is not a named insured under the policies.
- The contractual terms specifically list which corporate entities could meet the retention requirements, and 3M is absent from that list.
- Payments made by 3M therefore do not fulfill the SIR requirement.
The ruling underscores the principle of enforcing contracts as written and maintaining corporate separateness in insurance obligations.
Dissent Raises Concerns Over Forfeiture
Justice Abigail M. LeGrow, joined by Justice Gary F. Traynor, issued a dissent arguing that the policies did not clearly and unambiguously state that satisfying the SIR was a condition precedent to coverage. She cautioned against interpretations that lead to forfeiture of coverage, especially when the insured has paid premiums.
LeGrow suggested the case should be remanded to determine whether forfeiture was excused under the circumstances, even if the SIR requirement was unmet.
Background of the Case
The coverage dispute began in June 2023, when 3M and Aearo sued several insurers for defense cost coverage under commercial general liability policies issued between 1998 and 2008 — years before 3M acquired Aearo. The companies later sought coverage for a $6 billion settlement agreement aimed at resolving the earplug claims.
In July 2024, Delaware Superior Court Judge Sheldon K. Rennie ruled against 3M and Aearo, finding that 3M’s payments did not satisfy the retention requirement. The Supreme Court’s decision now affirms that outcome.
Implications for Corporate Policyholders
This decision serves as a cautionary example for corporate parents and subsidiaries managing joint defense strategies in large-scale litigation. Key takeaways include:
- Strict SIR enforcement: Courts may strictly require that only named insureds satisfy retentions.
- Corporate structure impact: Parent company contributions might not trigger subsidiary insurance coverage.
- Contract clarity: Policy language must explicitly address whether third-party or parent payments can meet retention thresholds.
Official Court Opinion: Supreme Court of Delaware Opinions.
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FAQs: Delaware Supreme Court’s 3M Earplug Coverage Decision
Why did the court rule against 3M in satisfying the SIR?
Because 3M was not listed as a named insured in Aearo’s liability policies, the court determined its payments could not satisfy the self-insured retention requirement.
What is a self-insured retention in liability policies?
A self-insured retention is the amount the insured must pay out-of-pocket before insurance coverage begins. It functions like a deductible but is often tied to defense and indemnity obligations.
How does this decision affect corporate parents and subsidiaries?
It highlights the risk that payments made by a parent company may not trigger insurance for a subsidiary unless the policy language explicitly allows it.