Public company D&O insurance policies provide entity coverage (that is, insurance for the benefit of the insured organization) only for “Securities Claims.” But what is a “Securities Claim”? That is the question that Delaware’s courts have grappled with in a long-running dispute between the telecommunications company Verizon and its insurers.
The Delaware Superior Court had
In the latest development a long-running D&O insurance coverage dispute, a Delaware Court has held that Verizon’s D&O insurance program covers the company’s $95 million settlement of a bankruptcy Trustee’s fraudulent transfer claim. In reaching this conclusion, the Court held, among other things, that the fraudulent transfer claim was a “Securities Claim” within the meaning of Verizon’s primary D&O insurance policy. The specifics of the court’s analysis of this issue underscores how complicated the question of what constitutes a “Securities Claim” can be. A copy of Delaware Superior Court Judge Eric Davis’s October 20, 2022 opinion can be found here.
Continue Reading Delaware Court Holds D&O Insurance Covers Fraudulent Transfer Claim Settlement
A recurring D&O insurance coverage issue is the availability under a D&O insurance policy of coverage for a Delaware appraisal action. As discussed here, in October 2020, the Delaware Supreme Court held in the Solera action that an appraisal action was not a “Securities Claim” within the meaning of the policy at issue and therefore was not a covered claim under the policy. As discussed below, a Delaware Superior Court judge has more recently held in an insurance coverage dispute that because an appraisal action is not “for” a “Wrongful Act,” there was no coverage under the policy at issue. A copy of the Delaware Superior Court’s July 30, 2021 decision in the case can be found here.
Continue Reading Appraisal Action is Not a Claim “for” a Wrongful Act
One of the perennial D&O insurance issues is the question of coverage for costs incurred by the corporate organization in connection with responding to an SEC investigation – what is often referred to as entity investigative cost coverage. These coverage questions are so fraught because of the sheer magnitude of the expense that entities often incur when they find themselves subject to an SEC investigation. In the latest example of this recurring insurance coverage issue, a federal district court has held that the costs the auto rental firm Hertz Global Holdings incurred in connection with an SEC investigation are not covered under its applicable D&O insurance program. The court’s decision illustrates many of the recurring aspects of this frequent insurance coverage issue. Southern District of New York Judge Alison J. Nathan’s March 30, 2021 opinion in the case can be found here.
Continue Reading Formal SEC Investigation not a “Securities Claim” Under D&O Insurance Policy
As I noted in a recent post (here), a recurring public company D&O insurance coverage issue is whether a claim in which a company is involved qualifies as a “Securities Claim.” This question matters because D&O insurance provides coverage for the corporate entity (as opposed to the insured directors and officers) only for “Securities Claims” as that term is defined in the policy. In a recent decision, a Delaware Superior Court judge concluded that a bankruptcy trustee’s fraudulent transfer claim against Verizon Communications and related entities came within the applicable D&O insurance policy definition of “Securities Claim.” The coverage dispute illustrates the intricate issues that can arise in determining whether a claim qualifies as a “Securities Claim.” A copy of the Court’s February 23, 2021 Opinion can be found here.
Continue Reading D&O Insurance: Bankruptcy Trustee’s Fraudulent Transfer Claim is a “Securities Claim”
Coverage for the corporate entity under public company D&O insurance policies is limited to claims that constitute “Securities Claims” as that term is defined in the policy. A coverage dispute between Calamos Asset Management and its D&O insurer involved the question of whether an underlying breach of fiduciary duty claims alleged in connection with the company’s take-private tender offer meet the policy’s “Securities Claim” definition.
In a February 19, 2021 opinion (here), District of Delaware Judge Maryellen Noreika, applying Delaware law, ruled that the breach of fiduciary duty claims do not fall with the policy’s definition of “Securities Claim” and granted summary judgment for the insurer, largely in reliance on the Delaware Supreme Court’s 2019 decision in the Verizon case, notwithstanding the fact that the definition of the term “Securities Claim” in the Calamos dispute express referred to the “common law,” while the definition in the Verizon dispute did not.
Continue Reading Breach of Fiduciary Duty Claim Not a “Securities Claim” Under D&O Policy
In a closely watched insurance coverage dispute, the Delaware Supreme Court reversed a lower court rulings and held that an appraisal proceeding is not a “Securities Claim” within the meaning of the defendant company’s D&O insurance policy and therefore that the proceeding is not a covered claim under the policy. Because it ruled there is no coverage, the Court did not address the other more controversial aspects of the lower court’s ruling. The Supreme Court’s October 23, 2020 opinion in In re Solera Insurance Coverage Appeals can be found here.
Continue Reading Delaware Supreme Court: Appraisal Action Not a “Securities Claim” and Therefore Not Covered by D&O Insurance
Most public company D&O insurance policies provide coverage for the corporate entity only for “Securities Claims.” But what constitutes a “Securities Claim”? That is the question the Delaware Supreme Court addressed in a recent appeal of an insurance coverage dispute in which a bankruptcy trustee had sued Verizon for breach of fiduciary duty, unlawful payment of a dividend, and violation of the uniform fraudulent transfer act. The trial court had entered summary judgment for Verizon, ruling that the bankruptcy trustee’s claims represented “Securities Claims” within the meaning of the policy. In an October 31, 2019 decision (here), the Delaware Supreme Court reversed the lower court, ruling that the bankruptcy trustee’s claims were not Securities Claims within the meaning of the policy. As discussed below, the decision raises some interesting issues.
Continue Reading Delaware Supreme Court: What is a “Securities Claim”?
Public company D&O insurance policies typically provide coverage for the corporate entity only for “Securities Claims.” A recent case in the Delaware Superior Court involved the question of whether a bankruptcy trustee’s claim related to Verizon’s multi-billion dollar spinoff of its electronic directories business was a “Securities Claim.” In an interesting and detailed opinion dated March 2, 2017 and released March 15, 2017 (here), Judge William C. Carpenter, Jr. ruled that the bankruptcy trustee’s claim was a “Securities Claim” within the meaning of the Verizon’s D&O insurance policy and therefore that Verizon’s insurers were liable of the costs incurred in defending against the trustee’s claim. The opinion makes for interesting reading for anyone interested in how these kinds of disputes can arise, and also has some important practical lessons.
Continue Reading D&O Insurance: When Is a Claim a “Securities Claim”?
Public company D&O insurance provides coverage for “Securities Claims.” But whose securities must be involved in a claim in order for coverage to be triggered? Must the claim involve the securities of the corporate policyholder itself? Or can coverage be triggered by a claim involving mortgage-backed securities the corporate policyholder issued as part of its financial operations?
Continue Reading D&O Insurance: Whose “Securities” Must a Claim Involve to Trigger Securities Claim Coverage?