It has now been several years since the peak of the SPAC boom, but litigation from that period continues to work its way through the courts. One of the ongoing cases, involving a 2020 SPAC transaction, involves the question of when the applicable three-year statute of limitations begins to run.

On February 10, 2026, the Delaware Supreme Court issued its ruling affirming the Delaware Chancery Court’s decision that the standard three‑year statute of limitations applies to fiduciary duty and related claims arising from de‑SPAC transactions. In rejecting arguments for a longer period, the Court reaffirmed Delaware’s long‑standing approach that the limitations clock starts when the alleged wrongful conduct occurs, not when its effects are later discovered. 

The following discusses the GigCapital2 litigation and decision in more detail, including considerations for D&O underwriters of SPAC risks.

The GigCapital2 Litigation

GigCapital2, a healthcare-focused SPAC, completed a two-step de-SPAC transaction in late 2020 and mid-2021 that combined Cloudbreak Health, a telehealth company, with UpHealth Holdings, a portfolio of healthcare businesses. The combined public company filed for bankruptcy in 2023. According to the Delaware Chancery Court’s Opinion, now under appeal, in September 2024, former Cloudbreak equity holders (Cloudbreak plaintiffs) filed their lawsuit against SPAC entities and insiders, as well as the financial advisor involved in the de-SPAC transaction.

The Cloudbreak plaintiffs alleged that they were misled into approving the transaction by inflated financials, misleading diligence materials, and concealed conflicts, including alleged misconduct by the SPAC sponsor, management, and financial advisor (Gig2 defendants). In its July 25, 2025, Memorandum Opinion, the Delaware Court of Chancery dismissed the Cloudbreak plaintiffs’ complaint in full.  Among other grounds, the court held that many of the tort claims were time-barred because they accrued no later than November 2020, when the business combination agreements were executed, and the alleged misrepresentations were made.

In particular, the court rejected the Cloudbreak plaintiffs’ argument that accrual should be tied to the June 2021 closing of the de-SPAC transaction. Applying Delaware’s long-standing “occurrence rule,” the court reasoned that a cause of action accrues at the time of the wrongful act that causes injury, not when damages are fully realized or when a transaction later becomes irrevocable. Thus, the Delaware Chancery Court held that any legally cognizable injury occurred when the plaintiffs allegedly relied on misleading information to approve the transaction documents, not when the deal later closed. Without reaching the substance of the fraud and misrepresentation allegations, the court dismissed the complaint.

On appeal, the Cloudbreak plaintiffs reframed the issue of when the statute of limitations began to run as a misapplication of Delaware tort law rather than a disagreement over facts. According to the Cloudbreak plaintiffs, Delaware law distinguishes between the making of a misrepresentation and the occurrence of injury. In a multi-step transaction like a SPAC de-SPAC, they argue, injury does not occur until reliance becomes irreversible, at the member vote or closing, when investors are locked into the deal and exposed to its economic consequences.

Notably, the Cloudbreak plaintiffs’ appeal emphasizes the structural features of SPAC transactions that complicate traditional accrual analysis: extended timelines between signing and closing, layered approvals, redemption mechanics, and sponsor incentives that may not fully crystallize until late in the process. Thus, from the equity holders’ perspective, tying accruals to early-stage representations effectively immunizes misconduct that only becomes harmful once the transaction is consummated.

In their answer to the Cloudbreak plaintiffs’ appeal, the SPAC Defendants counter that the plaintiffs’ theory would undermine Delaware’s occurrence rule and dramatically extend limitations periods in sophisticated M&A transactions. They warn that allowing accrual to wait until closing, or later discovery, would convert nearly every failed de-SPAC into a potential long-tail tort claim, regardless of how much diligence was conducted or how many contractual protections were negotiated.

Discussion

The Delaware Supreme Court, by affirming that the standard three‑year statute of limitations in the GigCapital2 litigation and declining to recognize a longer limitations period, kept intact Delaware’s long‑standing approach that the statute begins to run when the alleged wrongful act occurs, not when subsequent harm is discovered.

Moreover, in rejecting the Cloudbreak plaintiff’s calls to extend the time for the de-SPAC shareholders to sue, Delaware appeared to favor certainty and finality in certain corporate governance disputes, even in the face of varying timelines that may be present in SPAC‑related transactions. While the Delaware Supreme Court’s decision may limit some late‑filed shareholder claims, the GigCapital2 litigation may also provide lessons for SPAC participants, directors and officers, and their D&O insurers.

First, the GigCapital2 litigation highlights the importance of transaction‑stage diligence and documentation. Because the statute of limitations clock was found to start the time of the alleged conduct, transaction disclosures and approvals by stakeholders may require additional review, to confirm certain deal terms are well‑supported at the time of de-SPAC closure. Second, Delaware Court’s decision may narrow the window of potential exposure, but perhaps shifts the focus on early risk identification, especially when shareholders are unable to bring suit if deal issues emerge later.

From a D&O insurance perspective, the GigCapital2 litigation may also reinforce timing and coverage trigger mechanics in SPAC coverage programs.  The Cloudbreak plaintiff’s arguments highlight that, for SPAC transactions, extended reporting (tail) coverage through the de‑SPAC merger, and into the operating company phase, could be a central issue should a claim arising out of the transaction be made. The enforcement of Delaware’s standard statute of limitations could further limit long‑tail exposure, but it may result in delayed claims falling outside of coverage if reporting or discovery obligations are not timely addressed.

The Delaware Supreme Court’s decision in the GigCapital2 litigation ultimately provides clarity for when a claim involving a de-SPAC needs to be brought, and less concern that a complicated transactions may extend the statute of limitations. The GigCapital2 litigation ruling seemed a nod to Delaware’s preference for applying established corporate law principles to emerging business structures rather than creating new procedural exceptions.

Thus, for SPAC‑related litigation, claims will continue to be evaluated under familiar fiduciary duty and disclosure frameworks, with the same procedural boundaries that have long defined Delaware’s corporate law landscape.  For D&O insurers of SPAC risks, the Gig2Capital litigation and Delaware Supreme Court decision reinforces that exposure resulting from de-SPAC transactions will likely be impacted by Delaware’s firm three‑year filing window.