A court determined alleged failure to provide timely notice of a claim and a D&O policy’s prior acts exclusion were not a valid justification for denying defense. A company marketing "timeshare exit" services to customers (the “Insured”) was sued in a class action alleging deceptive practices and fraud, including false advertising that induced clients to pay for services that the Insured could not provide. The class action followed two prior lawsuits with similar allegations.

The D&O carrier denied coverage for the two prior lawsuits because the Insured failed to provide timely notice of the claim and the prior acts exclusion precluded coverage. The carrier determined the class action arose "from the same or interrelated wrongful acts alleged in" the prior matters, constituted a single claim, and therefore denied coverage for the class action on the same basis. That policy stated that "if any Claim first made after the Policy Period expires is nonetheless deemed to be made during the Policy Period pursuant to [the related claims provision], then it is a condition precedent to coverage for such Claim that the Insured report it to the Insurer as soon as practicable."

The Insured argued that although the class action was filed after the policy period, it was part of the same "claim" as the two prior lawsuits and should thus be deemed "made" during the policy period, and the Insured only had to provide notice of the class action "as soon as practicable." The Insured also argued that any delay in notice did not prejudice the carrier. Washington state’s "late tender rule" provides "an insurer must perform under the insurance contract even where an insured breaches the timely notice provision of the contract unless the insurer can show actual and substantial prejudice due to the late notice." There was no evidence that the carrier was prejudiced by the delay.

Regarding the prior acts exclusion, the court determined “it is at least conceivable that the exclusion did not apply to some of the conduct alleged in the class action complaint” because the lawsuit alleged that wrongful acts were "ongoing" as of the prior acts date and, therefore, could straddle that date. The court found that because there was no showing of prejudice and the prior acts exclusion did not apply to all allegations, the carrier breached its duty to defend.

A court held that a professional liability carrier (the “Carrier”) owed no duty to defend or indemnify because the underlying lawsuit sought only excluded damages arising from an unauthorized transfer of client funds. According to the court, no alleged theory could result in covered damages under the professional liability policy.

In the underlying matter, the insured law firm (the “Firm”) was sued by a client after disbursing funds intended for a casino purchase to unrelated purposes without authorization. After discovering the unauthorized transfers, the client sent a demand letter alleging malpractice and improper distribution of funds. The Firm submitted this matter to its Carrier, who initially agreed to defend the matter under a reservation of rights before ultimately denying coverage. Eventually the client filed a lawsuit against the Firm, alleging malpractice, breach of fiduciary duty, and fraud. The Firm again sought defense and indemnification. The Carrier maintained its denial which prompted the Firm to file this coverage action asserting breach of contract and breach of the implied covenant of good faith and fair dealing.

The policy provided coverage for legal services rendered in an attorney‑client relationship and contained separate provisions for “Damages” and “Defense.” The Carrier agreed to pay all sums the Firm became legally obligated to pay as Damages for claims first made during the policy period, provided the Firm had no prior knowledge of facts that could reasonably give rise to a claim. The duty to defend extended only to claims seeking Damages “to which this insurance applie[d],” even if allegations were groundless or fraudulent. The definition of “Damages” excluded “the amount of funds, money, securities, or property that an Insured transferred or failed to transfer as a result of false, fraudulent, or unauthorized instructions.” The policy also contained an exclusion eliminating any duty to defend or indemnify claims “based upon or arising out of” improper transfers of funds caused or induced by false, fraudulent, or unauthorized instructions.

The Carrier argued that the underlying lawsuit sought recovery solely for the improperly transferred funds, which was expressly excluded from the definition of Damages thus eliminating the Carrier’s duty to defend obligation. The Firm countered that the duty to defend was triggered by the existence of a “Claim,” independent of whether the relief sought qualified as Damages, and further argued that consequential damages such as interest, attorney’s fees, and costs were potentially covered.

Applying New Jersey law, the court explained that the duty to defend arises only if the allegations present a theory that could result in covered damages. Because the underlying complaint sought direct damages equal to the unauthorized transfer and because the claimed consequential damages stemmed directly for the excluded or unauthorized transfer, they too fell within the exclusion. Additionally, there was no separate theory of liability or damages existed. Although the lawsuit qualified as a “Claim,” coverage extended only to claims seeking covered Damages, and none were alleged.

A federal court determined that where two insurers both claim to be excess, the carrier with policy language expressing contribution as excess to all other policies takes priority, requiring the insurer whose policy lacks such language to exhaust its coverage first.

In the underlying matter, a hotel management company (the “Company”) was indirectly tied to a major financial institution through a joint venture. When the financial institution filed for bankruptcy, a restructuring firm took over management of its assets, including interests in the joint venture. The Company’s owner initiated a criminal proceeding against the Company’s manager alleging misappropriated funds, fraud, and mismanagement of the Company’s property. The D&O insurer for the Company defended the matter and ultimately paid out millions. The Company’s D&O insurer then sued the financial institution and restructuring firm’s management liability insurance programs (“ML insurers”) for contribution.

The D&O insurer argued that the “other insurance” provision in its policy was written “only as specific excess insurance” over the ML insurers’ policies, which would trigger the ML insurers’ obligation to first contribute to the loss. The D&O insurer added that the significantly higher premiums paid to purchase the ML policies were evidence that those policies were to take on more insurance risk.

The ML insurers argued their policies explicitly stated they were excess over all other insurance, including “primary, excess, [or] contingent” policies, and that the D&O policy had no such language. The ML insurers further argued that the premium gaps simply reflected the broader scope of risks covered under their policies.

The court ultimately sided with the ML insurers determining that their policies expressly negated contribution with other excess policies while the D&O policy has no similar language. Thus, the D&O policy had to first be exhausted before the ML policies would kick in. The court also rejected the premium argument, noting that policies cover different range of risks at different levels of corporate structure. 

We previously reported on this matter and the application of the D&O policy’s Arbitration Provision, where the court found the provision applied only to the “policyholder,” and other parties including directors, officers, and their assignees were not bound, and the excess carrier could not compel arbitration.

The court now determined that the Excess Policy provided coverage for the D&O Action, the carrier breached the Excess Policy by denying coverage, and the Policy was triggered by the exhaustion of the Primary Policy's limits through the primary carrier’s payment towards the Settlement Agreement. The excess carrier denied coverage, citing the Prior Acts Exclusion and Pending or Prior Litigation Exclusion as the basis of their denial. However, the excess carrier participated in the mediation and was aware of the settlement.

Pursuant to the Prior Acts Exclusion (the “PA Exclusion”), the policy excluded coverage for any claim "arising out of, based upon, or attributed to any wrongful act(s) committed, attempted, or allegedly committed or attempted prior to [prior acts date]." The carrier argued the D&O action was “tied to” or “could not exist absent wrongful acts alleged to have occurred before [the prior acts date],” while the Insured argued that at least some of the allegations stemmed from wrongful acts occurring after that date, including ongoing issues with oversight. The court agreed that the PA Exclusion could not bar coverage because some allegations “may not ‘aris[e] out of, [be] based upon, or [be] attributable to’ events that occurred before [the date].”

Pursuant to the Pending or Prior Litigation Exclusion (the “PPL Exclusion,”) the policy excluded coverage for any claim "arising out of, based upon or attributable to . . . any pending or prior litigation as of [the pending and prior date], or alleging or deriving from the same or essentially the same facts alleged in the pending or prior litigation.” The Insured argued the PPL Exclusion was ambiguous and must be construed in their favor. The court agreed that “the terms 'same,' 'essentially the same,' and 'related' are so elastic, so lacking in concrete content, that they import into the contract . . . substantial ambiguities.” The Insured also argued that PPL Exclusion did not apply because the D&O action concerned different individuals and different conduct, while the carrier argued the actions shared the same “factual nexus.” The court determined that although the wrongful acts alleged concerned the same transaction the specific conduct was distinct, and the PPL Exclusion did not apply.

Last year, the global merger and acquisition (M&A) market saw a significant increase in activity which is expected to continue in 2026. This increase is driven by the evolution of AI, less government regulations, and having access to new capital. With increased activity comes increased gaps following deals, specifically in directors and officers (D&O) insurance. Although it is standard for sellers to purchase D&O tail coverage for buyers to purchase go‑forward coverage for the buyer, this in itself does not provide complete protection.

D&O insurance operates on a claims-made basis, meaning coverage depends on the timing of the first reporting of a claim. In the M&A context, this timing interacts with change-in-control provisions and the cut off of coverage for post-closing conduct, thus requiring the seller to purchase tail coverage for pre-closing acts. The buyer’s go-forward policy then applies to any post-closing conduction. While the structure is fairly straightforward, it breaks down when a claim alleges wrongful acts that staddle both period, a straddle claim.

Straddle claims are uniquely problematic because exclusionary language in both policies can operate at the same time. Tail policies frequently contain broad exclusions for any claim “arising out of” post-closing conduct, which if the core misconduct occurred prior to the transaction. Go-forward policies typically exclude pre-closing acts to avoid assuming legacy liabilities. As a result, a single allegation tied to the wrong side of the closing date can trigger dueling denials, leaving the insured without insurance.

To avoid these gaps, deal teams must scrutinize the exclusionary language, negotiate tailored tail and go-forward policies and ensure they operate cohesively to avoid straddle claims from becoming uninsurable. 

We previously reported on changes to Delaware’s corporate law in reaction to the perceived “DExit,” companies potentially seeking to reincorporate outside of the state. Delaware's highest court has now unanimously approved those changes. The legislation created safe-harbor procedures and extended liability shields for certain corporate actions that involve controlling shareholders or possibly conflicted directors or officers, as well as placed some limits books and records demands. Essentially, the amendments reduced the amount of internal due diligence companies must do to review deals between executives and their companies, who could otherwise be considered interested parties. The result was to limit controlling stockholders and control groups from being held liable for monetary damages for “breach of the duty of care” or previously required internal due diligence.

The underlying case concerned a stockholder challenging the fairness of a company’s asset purchase by questioning the deal’s fairness and approval without a majority of the stockholder minority vote. The company successfully defended against the challenge by utilizing the new safe-harbor procedures created by the Delaware legislature. The court ultimately determined that the company had the right to invoke the protections for the alleged conflicted acts based on the new legislation.