In an interesting decision analzing how a D&O run-off policy’s Subsequent Acts Exclusion operates, a New York federal district court has ruled that acts after the cut-off date that aren’t unlawful don’t preclude coverage for an underlying claim based on alleged misrepresentations made before the cut-off date. Judge Jed Rakoff’s March 13, 2026, decision in the case, applying New York law, can be found here. A March 18, 2026 post about the decision on the Pillsbury law firm’s Policyholder Pulse blog can be found here.

Background

In January 2018, the controlling stockholder group of AmTrust Financial Services initiated a transaction to take the company private. The company’s executives publicly stated that the company’s preferred stock would remain listed after the transaction. The take-private transaction was completed in November 2018. About two months after the transaction closed, in January 2019, the company announced that it would delist the preferred stock. The delisting became effective on February 7, 2019.

In August 2019, investors sued the company and certain of its executives in a securities class action lawsuit (the Martinek action) filed on behalf of a class of the company’s preferred stockholders. Among other things, the complaint in the Martinek action described the January 2019 delisting announcement as “the public disclosure of the true facts” – what the court in the subsequent insurance coverage action described as a “corrective disclosure, not a wrongful act.”

AmTrust moved to dismiss the Martinek Action. The court in the Martinek action denied the motion to dismiss, finding that the company’s statements that it “will” maintain the preferred stock listings were actionable because “the very fact that Defendants decided to delist the preferred shares barely two months after the Merger closed … strongly suggests that Defendants knew this statement to be false when made.” The Martinek action later settled.

The company sought coverage under an Excess Run-Off Policy for defense costs and settlement amounts it incurred in the Martinek action. The insurer denied coverage on the grounds that the company’s action to delist the preferred shares took place after the subsequent acts cutoff date in the run-off policy. AmTrust sued the insurer in the Southern District of New York. The insurer filed a motion to dismiss.

The Relevant Policy Language

The Subsequent Acts Exclusion in the Excess Run-Off Policy provides in relevant part that:

No coverage will be available under this Policy for any Claim based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving a Wrongful Act committed or allegedly committed on or after November 29, 2018 ….

The primary policy, of which the Excess Run-Off policy sits excess, defines “Wrongful Act” as “any actual or alleged act, error, omission, statement, misleading statement, neglect or breach of duty by an Insured Person while acting in his capacity as such or due to his or her status as such,” and, solely with respect to entity coverage, “any actual or alleged act, error, omission, statement, misleading statement, neglect, breach of duty by the Company.”

The Court’s March 13, 2026, Opinion

On March 13, 2026, Southern District of New York Judge Jed Rakoff, applying New York law, denied the insurer’s motion to dismiss.

The insurer had argued that since the January 18, 2019, delisting announcement led to the Martinek action filing, this was the “Wrongful Act” that led AmTrust to incur the defense fees and settlement payments, and since the delisting occurred after November 28, 2018 date in the exclusion, it fell within the Subsequent Acts Exclusion.

Judge Rakoff said that the problem with the insurer’s argument is that “it never establishes that the January 2019 announcement or the February 2019 delisting constituted a ‘Wrongful Act’ as that term is defined in the policy.” The insurer, Judge Rakoff said, “simply assumes that the delisting qualifies, but neither the Martinek plaintiffs nor any court in that litigation characterized the delisting itself as wrongful conduct.”

The definition of Wrongful Act, Judge Rakoff said, requires that an action is unlawful. But the delisting itself was “not unlawful.” To the contrary, the court said, the Martinek complaint refers to the January 2019 delisting announcement as “the public disclosure of the true facts.” The underlying court’s denial of the motion to dismiss in the Martinek action was “grounded in its analysis of AmTrust’s pre-transaction representations” about how it will maintain the preferred securities.

The insurer tried to rely on the exclusion’s very broad lead-in language (that is, “based upon, arising out of, in any way relating to…”) Judge Rakoff said this broad language does not cure the “foundational defect.” That is, the broad language “amplifies the reach of the exclusion once a Wrongful Act after the cut-off is established, but it does not substitute for one.” Judge Rakoff said, “The predicate for triggering the lead-in language is absent because [the insurer] has not shown that the delisting was a Wrongful Act.” The exclusion “never activates, regardless of how broadly the lead-in language is read.”

Moreover, Judge Rakoff said, even if it were ambiguous whether the delisting announcement or event was a Wrongful Act, the insurer’s motion to dismiss would still have to be denied, as under New York law insurers bear a “heavy burden” in demonstrating that an exclusion applies. Since, as Judge Rakoff, there are “at the very least,” two “reasonable, alternative interpretations of ‘Wrongful Act,’” the insurer’s motion to dismiss must be denied.

Discussion

This decision is interesting because it explores an issue that arguably is not frequently examined, which is how the subsequent acts exclusion in a run-off insurance policy operates. Judge Rakoff’s opinion firmly establishes that it is not enough for an insurer seeking to deny coverage in reliance on the cut-off date in a runoff policy to show that there were acts after the cut-off date; the subsequent acts exclusion only operates to preclude coverage if the later acts were “wrongful” – or as Judge Rakoff said, “unlawful.” Because the delisting itself was a lawful act, the exclusion did not apply.

Judge Rakoff’s decision is interesting given that he reached his conclusion notwithstanding the extreme breadth of the definition of the term “Wrongful Act.” The key to his analysis is that it in order to constitute a Wrongful Act, the action must be “unlawful” – a not inapposite view, given that the phrase under discussion is a Wrongful Act.

The events involved here provide a good thought problem on which to consider what is required in order for the subsequent events exclusion in a run-off policy to apply. Mere acts after the cut-off date alone are not enough to trigger the exclusion. This part of Judge Rakoff’s opinion is worth noting, as run-off policies are virtually universal feature of insurance programs put in place in the M&A context, or – these days – in the de-SPAC context. The important point is that even with the run-off date cutoff date, the run-off policy still provides coverage for Wrongful Acts taking place prior to the cut-off date, which is what Judge Rakoff said was the case here, and that acts that are not wrongful that take place afte the cut-off date do not alter the analysis.

Judge Rakoff’s observation at the end of the opinion should also be duly noted — that is, his statement that under New York law, insurance policy exclusions are to be strictly construed and that insurers who seek to rely on exclusions as a defense to coverage bear a “heavy burden” to show that the exclusion applies.

One final note here. The motion to dismiss has been denied, but this case is not over. The proceedings in the case will now go forward, with the parties continuing to assert their remaining respective positions.