Evaluation of “relatedness” in administrators and officers legal responsibility insurance coverage claims has shifted over time in Delaware. In final week’s resolution in Alexion Prescription drugs, Inc. Insurance coverage Appeals, Case Nos. 154, 2024 and 157, 2024 (Del. Feb. 4, 2025), the Delaware Supreme Court docket adopted a “significant linkage” customary for relatedness evaluation in overturning the trial courtroom’s holding on relatedness. Associated claims is an inherently unpredictable and fact-specific situation, and the Alexion resolution offers additional steering to Delaware policyholders on the right way to navigate these disputes sooner or later.
Background
In Alexion, a pharmaceutical firm sought protection beneath its D&O legal responsibility insurance coverage insurance policies. The corporate had a 2014-2015 D&O coverage program, which consisted of a main coverage and a sequence of extra insurance policies. The corporate additionally had a 2015-2017 D&O coverage program, which consisted of a main coverage and a sequence of extra insurance policies. The first insurers had been the identical for each coverage applications, and the road of extra insurers had been practically equivalent.
The 2014-2015 D&O coverage program included a associated declare provision which acknowledged that “any Declare which arises out of such Wrongful Act shall be deemed to have been first made on the time such written discover was acquired by the Insurer.” The associated declare provision within the 2015-2017 D&O coverage program used comparable language to the sooner coverage program, equivalent to “alleging,” “based mostly upon,” “arising out of,” and “attributable.”
The corporate first contacted the first insurer in June 2015 to report, through a discover of circumstances, an SEC subpoena served on the insured in 2015. At the moment, the first insurer didn’t take into account the corporate’s communication to be a declare and acknowledged it wanted further data. The corporate later supplied discover in January 2017 of a securities class motion filed towards the corporate in 2016.
The first insurer finally determined that the SEC subpoena and the securities class motion had been associated, and thus took the place that “the Securities Motion, amongst different actions, was a single ‘Declare’ first made within the 2014-2015 coverage interval.” However one of many extra insurers beneath the 2014-2015 D&O coverage program took a opposite place that the securities class motion was not lined beneath this system as a result of the SEC subpoena and the securities class motion didn’t sufficiently overlap. And the second degree, third-level, and ninth-level extra insurers beneath the 2015-2017 D&O coverage program denied protection for the securities class motion beneath this system based mostly on their place that the SEC subpoena and the securities class motion had been associated and had been, subsequently, deemed to have been first made throughout the early 2014-2015 coverage interval earlier than the surplus insurers’ insurance policies incepted.
The corporate then filed swimsuit and the problem earlier than each the trial courtroom and the appellate courtroom in Alexion was whether or not the SEC subpoena and the securities class motion had been associated claims.
The Appellate Determination
Within the attraction of the sooner Alexion resolution, the insurers argued that the trial courtroom erred by treating the 2015 discover of the SEC subpoena from the corporate to the insurers as a declare fairly than a disclosure of information or circumstances which will give rise to a future declare. The trial courtroom erred, the insurers asserted, by analyzing whether or not the SEC subpoena and securities class motion had been meaningfully linked, as an alternative of analyzing whether or not the securities class motion arose from any wrongful act, truth, or circumstance that was the topic of the discover. In distinction, the corporate argued that the trial courtroom appropriately held that the SEC subpoena and the securities class motion weren’t associated as a result of they’d completely different focuses.
The Delaware Supreme Court docket agreed with the insurers. It first thought-about the language of the associated claims provisions within the insurance policies. As a result of phrases utilized in these provisions had been undefined, and there was no different textual proof of the events’ intent about these phrases, the courtroom interpreted the “arises out of” language within the associated declare provisions as requiring a “significant linkage” between two circumstances for them to be associated. The linkage have to be significant and never merely tangential.
The courtroom then clarified that the suitable “objects of comparability” in assessing significant linkage is whether or not the securities class motion is materially linked to any alleged wrongful acts that had been disclosed within the discover of the SEC subpoena. Based mostly on this evaluation, the courtroom held that the SEC subpoena and the securities class motion had been associated claims as a result of they concerned the identical underlying wrongful acts. The frequent underlying wrongful acts had been the corporate’s alleged improper gross sales techniques worldwide, together with its grantmaking actions.
If claims are associated, an exclusion could also be triggered that limits or bars protection beneath a later coverage. As a result of the appellate courtroom held that an SEC subpoena and a later-filed securities class motion at situation in Alexion had been associated, the insurance coverage protection for each was restricted to the sooner of two D&O coverage applications, and the corporate may get better solely as much as the one coverage restrict.
Takeaways
There are a number of elements of the Alexion ruling that bear on future related-claim disputes in Delaware.
First, associated claims evaluation is inherently unpredictable as a result of coverage language regarding associated claims is usually broad and indefinite, and the associated claims evaluation utilized by courts is fact-specific. This case-by-case inquiry is compounded by the truth that insurers and policyholders can often discover help each for and towards relatedness in any given dispute; and since the evaluation is fact-specific, small adjustments in circumstances can materially impression the end result by way of whether or not claims are associated.
Second, regardless of unpredictability in associated claims evaluation, the Delaware Supreme Court docket confirmed that “significant linkage” is the suitable related-claim customary, not less than the place insurance coverage insurance policies embrace the identical “arises out of” causation language. The courtroom additionally supplied steering on what have to be in comparison with decide whether or not there’s a significant linkage.
Third, regardless that the Delaware Supreme Court docket beforehand dominated that Delaware legislation applies to D&O protection disputes involving Delaware companies, policyholders mustn’t assume that Delaware legislation controls in all case. That’s as a result of some insurance policies embrace choice-of-law provisions stating that one other state’s legal guidelines governs interpretation of the coverage. And people variations in relevant legislation may end up in completely different outcomes based mostly on how different states have interpreted related-claim provisions. Within the latest related-claim dispute in Benefytt Tech., Inc. v. Capitol Specialty Ins. Corp., Case No. N21C-02-143 PRW CCLD (Del. Tremendous. Ct. Jan. 2, 2025), for instance, the Delaware Superior Court docket utilized New York legislation to a Delaware dispute as a result of that’s what the coverage required. Selection of legislation provisions matter and might depart from what the venue courtroom would in any other case do.
Lastly, whereas the Alexion courtroom reversed and dominated in favor of the insurers, the ruling doesn’t uniformly inure to the advantage of D&O insurers as a result of they might take opposite positions towards relatedness relying on the circumstances. Said in a different way, associated claims evaluation is just not a difficulty the place policyholders or insurers uniformly argue in favor or towards relatedness. For instance, a policyholder might argue in favor or relatedness to keep away from a number of retentions throughout a number of coverage years, whereas in one other case the policyholder might argue towards relatedness to get better beneath higher coverage limits throughout a number of coverage years. The particular information of the case are essential when figuring out whether or not to argue in favor or towards relatedness, and the evaluation on the right way to proceed may be difficult.
