The costs companies incur in responding to an SEC investigation can be substantial. Companies incurring these kinds of costs are sometimes surprised to learn that their D&O insurance policies may not, and likely will not, cover these kinds of costs, at least under most insurer’s base policy forms.

A recent Delaware Superior Court decision involved a company’s attempt to secure coverage for the costs it incurred in responding to an SEC investigation after the company had agreed to toll the statute of limitations. The Court found that while the tolling request was a Claim within the meaning of the company’s policy, it was not a Securities Claim, as would be required in order for the policy’s entity coverage to be triggered. As discussed below, the Court’s decision provides an opportunity to think about the optional entity investigative cost coverage extension. A copy of the Delaware Superior Court’s June 30, 2025, opinion can be found here.

Background

In January 2018, Clear Channel discovered that an employee at one of its subsidiaries had misappropriated funds. The company initiated an internal investigation. In March 2018, Clear Channel notified the SEC that its annual report would be delayed owing to the investigation. In August 2018, the SEC initiated a formal investigation into the company’s alleged failure to prevent suspected wrongdoing. The SEC requested that the company agree to toll the statute of limitations for any enforcement action, to which the company agreed.

In September 2023, the SEC investigation resulted in the company’s settlement of the SEC’s claims with no admission of wrongdoing. Over the course of the investigation, Clear Channel incurred legal fees and expenses, and ultimately paid over $26 million in the SEC settlement.

In November 2018, Clear Channel notified its D&O insurer of its entry into the tolling agreement. Clear Channel sought coverage for all response costs incurred after the Tolling Request. The insurer denied coverage, contending that the matter was “only an investigation” and not a Securities Claim, as would be required in order for there to be coverage under the policy for the company’s costs.

Clear Channel initiated litigation in Delaware Superior Court against the insurer seeking coverage under the policy for its costs. The parties dispute whether the SEC’s tolling request qualifies as a Securities Claim under the policy. Clear Channel filed a motion for partial summary judgment.  

Relevant Policy Language

The policy’s definition of Claim includes “any written request to toll or waive an applicable statute of limitations.” However, the corporate entity is an insured under the policy “only with respect to a Securities Claim.” The policy’s definition of Securities Claim provides in pertinent part that a Securities Claim is “a Claim, other than an investigation of an Organization … alleging a violation of any federal, state, local or foreign regulation, rule, regulating securities” (emphasis added). The policy defines Wrongful Act as “any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act.”

The June 30, 2025, Opinion

In a June 30, 2025, Opinion, Delaware Superior Court Judge Patricia A. Winston denied Clear Channel’s motion, ruling, first, that the SEC’s tolling request is not a Securities Claim, and, second, that even if the tolling request is a Securities Claim, it does not seek redress in response to any corporate act.

In summarizing the policy language relevant to the question whether the tolling request is a Securities Claim, Judge Wallace noted that under the policy Securities Claims are limited to a subset of Claims – that is, “ones that are not investigations.” Even if, as Judge Wallace found, a tolling request is a Claim under the policy, affording coverage for individual insureds, a tolling request cannot be a Securities Claim under the policy, affording coverage for the corporate entity, if the claim involves an “investigation of the Organization.”

The policy is, Judge Wallace said, “unambiguous,” and the “only reasonable construction is that it excludes coverage for investigations of Organizations, including any written request to toll or waive an applicable statute of limitations.”

Judge Wallace found further that in order for a matter to constitute a Securities Claim, it must also allege a violation of any law regarding securities. The Tolling Agreement, Judge Wallace found, “fails to allege any violation of securities law.”

Finally, Judge Wallace found that the policy provides coverage for Securities Claims only if that Securities Claim is for any Wrongful Act of Clear Channel. Judge Wallace said that “not only are there no allegations of wrongdoing, but the Tolling Request does also not seek redress or relief for any corporate act.” Therefore, even if the SEC’s tolling request otherwise qualifies as a Securities Claim, because the tolling request does not seek relief for any Wrongful Act, the tolling request does not trigger the insurer’s duty to pay Clear Channel’s response costs.

Discussion

At one level, the outcome of this insurance coverage dispute arguably is not surprising. In order for the corporate entity to have coverage under the policy, the corporate entity must show that there has been a Securities Claim. The policy’s definition of Securities Claim expressly states that a Securities Claim is a “Claim, other than an investigation of an Organization.” The reason that the SEC made the toll request was in order to complete its ongoing investigation. Because the tolling request was made in connection with the investigation, the matter is not a Securities Claim within the meaning of the policy, and therefore there is no coverage. And, besides, the tolling request didn’t allege a Wrongful Act.

While the policy does define a Claim to include any written request to toll or waive an applicable statute of limitations, a Claim cannot be a Securities Claim if it is an investigation.

Perhaps the only surprising thing here is that the Court’s opinion is a rather straightforward ruling in favor of the insurer and against the insured. Readers of this blog know that Delaware’s courts have a long-standing and well-deserved reputation for being policyholder friendly. It is in that context that the Court’s straightforward ruling in the insurer’s favor is arguably attention-getting.

There is a larger context here within which to think about the Court’s ruling, and that is the long-standing issue about whether and to what extent D&O insurance policies should provide coverage for entity investigative costs. (That is in fact what Clear Channel was seeking here – that is, coverage for its entity investigative costs.)

Most carriers under most policies take the position that there is no coverage for entity investigative costs. The problem is that in the circumstances where these questions arise and are relevant, the insured companies are surprised (and, in my experience, sometimes outraged) to discover that there is no coverage available under the policy for the companies’ costs incurred in responding to an SEC investigation. There can be coverage for an individual for investigative costs, but most often these costs are borne by the companies.

To be sure, some carriers are willing to provide – at the cost of additional premium, which can be substantial – a policy extension providing coverage for entity investigative costs. This extension may not always be available, and many insurance buyers are unwilling to incur the sometimes substantial additional costs that may be associated with entity investigative cost coverage. With most insurers taking the position that their policies without the express extension to these kinds of costs do not cover entity investigative costs, the opportunity for this substantial expense exposure to be uninsured is considerable.

I have long thought that this topic – that is, coverage for entity investigative costs – could benefit from much more extensive consideration within the D&O insurance industry. It is a topic that rightly should be considered as of public company D&O insurance placement process. This is also a topic that would benefit from much greater policyholder appreciation of the importance of this kind of coverage.

While the outcome of this case spurred me to think more about the optional entity investigative cost coverage, it probably should be noted that even if Clear Channel had the entity investigative cost coverage extension on its policy, the coverage extension would not necessarily have been triggered here. Many of the entity investigative cost coverage extensions available on the market place have a requirement that the investigation be “in conjunction with” a parallel securities class action lawsuit or derivative lawsuit arising out of the same circumstances as the investigation. I am not aware whether the circumstances that were the subject of the SEC investigation here were also the subject of a separate lawsuit. In addition, under the wording of at least some of the entity investigative cost extensions available in the marketplace, a request to toll or waive the applicable statute of limitations may or may not trigger the coverage (if, for example, the request is not pursuant to a formal order of investigation).

Thinking about these questions and conditions in the context of this particular case merely reinforces my view that entity investigative cost coverage is a topic that would benefit from a thorough review and discussion within the D&O insurance market.

Special thanks to a loyal reader for providing me a copy of the Court’s Clear Channel opinion.