In a November 30, 2021 opinion (here), a Delaware Superior Court judge, applying Delaware law, held that the later investigations of the insured policyholder by two regulatory agencies were unrelated to an earlier investigation of the company by one of the agencies. In making this “relatedness” determination, the court declined to apply the “fundamentally identical” standard that some Delaware courts have applied to relatedness issues, but instead applied a “meaningful linkage” test. Because relatedness disputes are so frequent, and because Delaware’s court increasingly are becoming the forum in which insurance disputes are addressed, this court’s adoption of the revised relatedness standard court have important implications.



The Options Clearing Corporation (OCC) is a registered clearing agency. The agency is regulated both by the SEC and the CFTC. Within the SEC, oversight responsibility for the OCC falls to the Office of Compliance Inspections and Examinations (OCIE). In 2012, the OCIE identified compliance deficiencies at OCC and informed the company that an investigation was underway. During the course of the investigation, the OCIE sent the company multiple letters. Three of these letters, referred to in the coverage litigation as the 2012—2014 OCIE Letters are the subject of an Event Exclusion in the insurance policies at issue in the coverage dispute.


In 2017, the SEC advised OCC that the agency was conducting an investigation. Separately in 2018, the CFTC also launched an investigation. OCC ultimately resolved these investigations by its entry into agreements to adopt remedial measures and to pay specified penalties. In the subsequent insurance coverage litigation, this SEC investigation was referred to as the SEC Enforcement Action and the CFTC investigation was referred to as the CFTC Enforcement Action.


OCC submitted the investigations to its D&O insurers as Claims under the policy. The insurers denied coverage for the Claims on a number of grounds. Among other things, the insurers argued that coverage for the Claims was precluded by the Event Exclusion and by the Prior Notice Exclusion in the primary policy. OCC initiated coverage litigation against the insurers and filed a motion for partial summary judgment on the issue of whether or not the later Enforcement Actions were interrelated with the prior investigation.


OCC argued that the prior investigation and the subsequent Enforcement Actions were not interrelated, and therefore that coverage was not precluded by either the Event Exclusion or by the Prior Notice Exclusion. The insurers argued that the prior and subsequent investigation were interrelated, or in the alternative that the relatedness issues was a factual question for which further discovery was required.


The Relevant Policy Language

The Event Exclusion provides that:


The Insurers will not be liable to make any payment of Loss in connection with a Claim arising out of, based upon, or attributable to: (a) any Event(s); (b) the prosecution, adjudication, settlement, disposition, resolution or defense of any Event(s) and/or any Claim(s) arising from any Event(s); (c) any Wrongful Act, underlying fact or circumstance in any way relating to any Event(s); or (d) any Interrelated Wrongful Act, regardless of whether or not such Claim involves the same or different Insureds or parties, the same or different causes of action or the same or different claimants, or is brought in the same or different venue or resolved in the same or different forum.

For purposes of this provision, “Event” means: any of the following Claim(s), notice(s), event(s), investigation(s), litigation(s) and/or action(s): detailed in the June 7, 2012, September 18, 2013 and September 18, 2014 letters from the SEC and [OCC’s] subsequent response letters dated August 6, 2012, November 1, 2013 and November 3, 2014.


The Prior Notice Exclusion precludes coverage for Loss in connection with a Claim:


Arising out of, based upon or attributable to facts or circumstances allege or to the same or related Wrongful Acts alleged or contained, in any claim which has been reported , or with respect to which any notice has been given, under any policy of which this Policy is a renewal or replacement or which it may succeed in time.


The November 30, 2021 Opinion

In a detailed November 30, 2021 opinion, Delaware Superior Court Judge Abigail LeGrow granted OCC’s motion for partial summary judgment, concluding that neither the Event Exclusion nor the Prior Notice Exclusion operated to preclude coverage for the expenses OCC had incurred in defense of the SEC and CFTC Enforcement Actions.


In seeking partial summary judgment, OCC had argued, in reliance on prior Delaware case law relating to interrelatedness issues, that the prior investigation and the subsequent Enforcement Actions were not interrelated because they were not “fundamentally identical.” Judge LeGrow declined to apply the “fundamentally identical” standard, saying that the standard is not “grounded in the policies’ language.”


In footnote 98, Judge LeGrow quoted with approval from a September 2021 Delaware Superior Court opinion in the Sycamore Partners case, in which that earlier court had said that “neither the Delaware Supreme Court nor any other jurisdiction has adopted ‘fundamental identity’ as the standard for all relatedness inquiries.” To “apply indiscriminately that type of gloss to an otherwise unambiguous policy language arguable could contravene Delaware law requiring this Court to interpret insurance policies according to their plain language.”


Judge LeGrow went on the find in this case that the policies’ relevant terms are “clear and unambiguous.” Relying on prior Delaware Supreme Court authority, she interpreted the phrase “arising out of” to mean having “some meaningful linkage,” and phrases like “based upon” and “attributable to” to “most logically mean ‘originating from’ or ‘sharing some meaningful linkage.’”


Turning to the parties’ dispute, Judge LeGrow concluded that “no such meaningful link” exists between the later Enforcement Actions and the 2012-2014 OCIE Letters or wrongful acts alleged therein. In making this determination, she noted that it is not enough to establish a “meaningful linkage” for “two claims to mention the same facts.” She also noted that the Delaware Supreme Court had instructed the lower courts to “implement ‘meaningful linkage’ in a coverage context broadly, where possible, to find coverage.”


Judge LeGrow noted that “although the insurers identify some general similarities between the earlier investigations and the later enforcement actions,” the nature of OCC’s business “makes it likely that those similarities would exist in any regulatory action directed toward the plaintiff.” She also found it significant that the enforcement actions for which OCC was seeking coverage “relate to regulations adopted after the previous investigation and – by extension – conduct allegedly occurring after that date.” Under the exclusions’ “plain language” the Enforcement Actions are not related to the earlier investigation because “there is no meaningful linkage between them.”



The specifics of the dispute here about whether and to what extent the earlier investigation and the later enforcement actions overlap in a way of significance for the determination of insurance overage here involve minutely detailed aspects of the regulatory structure under which OCC operates as well as the specifics of the compliance issues involved in the earlier and later proceedings. Because of the specificity of these regulatory minutia, it is hard for me to form any opinion about the overlap, or lack thereof, between the earlier and later proceedings. But whether or to what extent there was overlap is not what makes Judge LeGrow’s opinion interesting to me.


What makes here opinion interesting to me is her refusal to apply the “fundamentally identical” standard. As I have noted on this site, most recently here, Delaware’s courts have applied this standard in a number of insurance disputes relating to relatedness issues. To be sure, Judge LeGrow declined to apply the “fundamentally identical” standard in reliance on an earlier Delaware Superior Court decision and with reference to Delaware Supreme Court authority. However, the “fundamentally identical” standard had seemed to be established in Delaware case law.


Judge LeGrow did not say that the “fundamentally identical” standard would never apply; instead, she said, in reliance on the earlier Delaware Superior Court decision, that there was no authority for the “fundamentally identical” standard to apply in all cases and without regard to the policy language at issue.


It seems to me that Judge LeGrow’s determination that there is no single standard that should apply to all relatedness disputes and that the standard to be applied depends on the policy language involved opens the door for litigants to try to argue that one standard or another should govern, depending on which standard they think is most helpful to their specific position in the dispute.


I will say that from my perspective the “fundamentally identical” standard seems harder to meet than the “some meaningful linkage” standard. To my mind. “fundamentally identical” implies complete or almost complete overlap, while the “meaningful linkage” standard means just some significant overlap. To be sure, in this case, Judge LeGrow concluded that even under the “meaningful linkage” standard, the earlier investigation and the later enforcement actions were not interrelated. But it still seems to me that the “meaningful linkage” standard leaves more room for argument.


It is worth emphasizing that while Judge LeGrow’s opinion was favorable to the policyholder in this case, it is not always going to be the case that a “not interrelated” conclusion is going to be favorable to the policyholder. There are situations where the policyholder is the one trying to argue that two proceedings are not interrelated; for example, the policyholder may want to argue to that two policies in two different policy periods apply, thus increasing the total amount of insurance money potentially available. By the same token, in situations in which the insurer is trying to argue that two or more retentions apply, the insurer may be the one arguing that two proceedings are not interrelated.


As I noted at the outset, relatedness disputes in insurance coverage disputes arise frequently, and it is becoming increasingly the case that insurance coverage disputes are being addressed in Delaware’s courts. So a shift by Delaware’s courts in the legal standard to be used in determining relatedness disputes has the potential to be a significant factor in future insurance coverage disputes. Readers interested in thinking further about the standards to be applied and how they might affect future disputes will want to read footnote 98 of Judge LeGrow’s opinion and the accompanying text.


Special thanks to a loyal reader for sending me a copy of Judge LeGrow’s opinion.