Will a brand new Delaware Supreme Court docket ruling relating to administrators and officers legal responsibility insurance coverage make it harder on your firm to get future claims coated? A current ruling by the Delaware Supreme Court docket decoding a associated claims provision in a D&O coverage refused to endorse a bright-line check that may allow policyholders to higher perceive when a number of claims made in several coverage intervals could also be deemed a single declare made in a single coverage interval.
A bright-line check would supply some wanted consistency to making use of associated claims provisions. Within the absence of such a check, insurance coverage firms typically take no matter place will reduce their payouts. When treating two claims as one would cut protection to the bounds of a single coverage, insurance coverage firms broadly interpret what makes claims associated. Nevertheless, when the relevant self-insured retention is bigger than the worth of any of single declare, the insurance coverage firm will narrowly interpret these similar provisions within the hopes that a number of claims will end in a number of retentions – putting any risk of protection out of attain.
The Delaware case at concern is First Solar v. National Union First Insurance Co., which was selected March 16, 2022. It arose out of a protection dispute by which the insurance coverage firm denied protection of a brand new securities lawsuit in opposition to the insured. The insurance coverage firm asserted that the brand new declare was associated to an earlier class motion lawsuit and utilized a associated claims provision to the brand new declare. The associated claims provision within the coverage aggregated all claims “alleging, arising out of, based upon or attributable to” the “same or related” wrongful acts. As a result of the bounds of the coverage in impact when the prior lawsuit had been exhausted by the fee of protection and settlement prices within the class motion, the insurance coverage firm’s place successfully left no remaining protection for the newer securities lawsuit.
Within the ensuing protection litigation, the trial court docket addressed this dispute by making use of what it known as the “fundamentally identical” customary to the associated claims provision. Below this customary, claims are associated if the “subject” of the claims is “the exact same” – it was not sufficient for the claims to share “thematic similarities.” The trial court docket granted the insurance coverage firm’s movement to dismiss on grounds that the claims have been associated as a result of each lawsuits alleged “the same fraudulent scheme – artificially raising stock prices by misrepresenting First Solar’s ability to produce solar electricity at costs comparable to the costs of conventional energy production.”
On enchantment, the Delaware Supreme Court docket affirmed the trial court docket’s ruling, however rejected its reasoning. It noticed “[w]hether a claim relates back to an earlier claim is decided by the language of the policy, not a generic ‘fundamentally identical’ standard.” Utilizing the “same or related” wrongful acts language within the coverage’s associated claims provision, the appellate court docket concluded that the lawsuits have been associated as a result of the “thrust of the Wrongful Acts alleged in the two Actions is the same” even when there have been minor variations within the particular allegations or the damages sought.
What does this imply for D&O policyholders?
First, the First Photo voltaic case highlights the truth that, in the long run, insurance coverage insurance policies are contracts, the place the principles of contract interpretation are utilized to the actual phrases of the contract as offered to the policyholder. Following that logic, the court docket reasoned that the difficulty as as to if two claims are deemed associated may rely upon the exact wording of the associated claims provision: For instance, does the availability require a thematic or merely a causal relationship?
Second, a finest observe is to think about the impression of this choice when shopping for a D&O coverage. Are there situations by which the corporate would like to separate previous claims and new claims as clearly as doable? Or vice versa? A finest observe could be to guage the phrases and circumstances in new insurance policies, together with different elements that may impact how a associated claims provision may impression the policyholder.
Third, whether or not out there for a brand new D&O coverage or concerned in a protection dispute over an current coverage, policyholders are well-served to think about the arguments that an insurance coverage firm may assert to attempt to restrict or eradicate protection. It is at all times a finest observe to be higher ready to discover options that maximize protection choices and reply to insurance coverage firm efforts to wriggle out of protection.