A Delaware court, applying New York law, found coverage for a securities class action while denying coverage for a consumer class action on the grounds of insufficient/untimely notice of the latter to the Insurers. 

At issue were two claims: one stemming from a securities class action lawsuit (the “Securities Action”) filed against the insured, a health insurance technology company (the “Company”) and certain individuals. The second claim arose from a consumer class action lawsuit (the “Consumer Action”) against the Company only, alleging RICO violations. 

The Company sought coverage from its Insurers for both claims under its current policy term (the “Current Term”). Acknowledging coverage for the Securities Action, the Insurers determined the matter was interrelated to an earlier Notice of Circumstances tendered under the prior policy term (the “Prior Term”). Interpreting the specific policy language, the Insurers determined that the Securities Action and other actions submitted in connection with the Notice of Circumstances all involved the same or similar wrongful conduct. Thus, the Securities Action and the Notice of Circumstances shared a “common nexus” of facts. The Insured, in its pursuit of intact policy limits of the Current Term, disagreed.

The Insurers also denied coverage for the Consumer Action because it did not contain a nexus connecting it to the Notice of Circumstances. Therefore, because the stand-alone notice was sent to the Insurer only after the applicable policy expired, the Consumer Action was a claim made under an expired policy period. 

Multi-million-dollar settlements followed and when the Insurers refused to pay for all Loss incurred, coverage litigation ensued. The Insured argued that the Securities Action was a standalone claim filed during the Current Term and not interrelated with the prior actions. In addition, the Company argued that the Consumer Action was “related to” the Securities Action and should have been covered under the Current Term (vitiating any issues of late notice).

The court agreed with the Insured and ruled that the Securities Action was covered under the Current Term and not interrelated with the earlier Notice of Circumstances. In applying New York law, the court employed a “side-by-side” review of other actions submitted as part of the Notice of Circumstances. The court reasoned that they required “numerous logically connected facts and circumstances” to be interrelated. In its detailed comparison between the earlier actions, the court reasoned that mere allegations of the Company’s misconduct under Securities laws in both actions were not a “sufficient factual nexus” to trigger the interrelated wrongful act definition under the policy.

In contrast, the court found that the Consumer Action was not covered under either policy because the initial complaint against the Company was excluded from coverage. The court declined to extend coverage to the amended complaint entity only, which added an individual defendant because the amended Consumer Action lacked a sufficient nexus of facts to conclude an interrelation with the Securities Claim.

The North Carolina Supreme Court ruled that “direct physical loss" within a property insurance policy encompasses the loss of the use of property due to COVID-19 public health orders. 

Several bars and restaurants had materially similar commercial property insurance policies issued by the same carrier. The policies were "all-risk" policies protecting the restaurants’ buildings, personal property, as well as business income from any “direct physical loss” to property not excluded by the policy. The businesses sought coverage under those policies for loss sustained when they suspended business operations because of COVID-19 related orders. The issue was whether “direct physical loss,” which was not defined in the policies, occurred when government orders forced temporary restrictions on the use of and access to the restaurants’ physical property. 

The carrier argued that the restaurants failed to establish that their businesses had to suspend operations because of a direct physical loss or damage to property. According to the carrier, the public health orders regulated the activity of people, while the restaurants' properties experienced no physical change. In turn, the restaurants argued that the orders resulted in a material deprivation of property by affecting how the property could be used, including whether and under what conditions the business premises could be open. The court found that the “loss” and “use” of property overlapped and there was a common-sense expectation that insurance would protect from threats to property that make it unusable for its intended purpose.

Ultimately, the court found that a reasonable policyholder in the restaurants’ shoes could expect “direct physical loss” to the property to include the results of the COVID-19-era orders which affected the restaurants’ ability to use their physical property. 

A federal court held that a professional liability carrier did not have the duty to defend an insured in a class action lawsuit (the “Lawsuit”). The Lawsuit stemmed from a “nationwide conspiracy to fix and inflate the price of multifamily rental housing across the country,” in violation of federal and state antitrust laws, as the Lawsuit did not trigger coverage under the policy. 

A property management company (the “Company”) purchased a Real Estate Developer Professional Liability policy from the insurance carrier (the “Carrier”), which provided that the Carrier would agree to pay for defense costs resulting from a “Claim first made against [the Company] during the policy period for a Wrongful Act . . . .” The Company timely tendered the Lawsuit to its Carrier, who subsequently denied coverage and defense obligations. Following the denial, the Company brought this action against the Carrier seeking damages and a declaration that the Carrier owed the Company a defense. 

The Company argued that the policy defined “Wrongful Act” to include “Personal Injury” which was defined as “any actual or alleged: 1. False arrest, detention, imprisonment or malicious prosecution; 2. Wrongful entry or eviction; 3. Invasion of the right of privacy or 4. Libel, slander or other defamatory or disparaging material . . . .” Specifically, the Company argued that the underlying Lawsuit alleged intentional conduct—namely, deliberately fraudulent or criminal acts or omissions, willful violations of law, and illegal advantage—which fell within the definition of Wrongful Act. Thus, triggering the Carrier’s duty to defend.

 
The court disagreed with the Company and relied on the plain language in the policy. The court concluded that the policy’s coverage provision was only triggered by Claims that alleged either the negligent conduct specifically referenced in the Wrongful Act definition or the specific negligent and intentional conduct enumerated in the Personal Injury definition. The court held that the underlying Lawsuit did not allege conduct that potentially fell within the scope of the Policy’s coverage, and, thus, the Carrier did not owe a defense for the Lawsuit.

A Delaware court ruled that inadequate consideration was not a viable remedy for the claims brought by an audio electronics company (the “Company”), and that the settlement did not represent an increase in consideration.

In this matter, the insurers issued a D&O policy to the Company that was later involved in a “merger” with another company. Subsequently, a class action complaint was filed against the Company alleging violations of Sections 14(a) and 20 of the Securities Exchange Act of 1934. The shareholders alleged that the Company issued materially false and misleading statements to gain shareholder support for an “undervalued acquisition.” The shareholders further alleged that the Company was aware of and/or had access to the true facts indicating that the Company was more valuable than the amount received by shareholders in the acquisition. The shareholders sought “compensatory and/rescissory damages” against the Company.

The primary insurer denied coverage for any judgment or settlement based upon a “Bump-Up Provision” which stated:

In the event of a Claim alleging that the price or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or substantially all the ownership interest in or assets of an entity is inadequate, Loss with respect to such Claim shall not include any amount of any judgment or settlement representing the amount by which such price or consideration is effectively increased; provided, however, that this paragraph shall not apply to Defense Costs or to any Non-Indemnifiable Loss in connection therewith.

Eventually, the class action settled for several million dollars. The Company then sued the insurers seeking coverage for the settlement amount.

The court divided the Bump Up Provision into prongs, all of which must be satisfied for the exclusionary language to apply: “(1) the settlement must be related to an underlying acquisition; (2) the inadequate price must be a viable remedy that was sought for at least one claim in the [underlying litigation]; and (3) the settlement, or a portion of the settlement, must represent an effective increase in consideration.” 

The court agreed with the insurers that neither waiver nor estoppel was available to the Company. More specifically, the court noted that, as a general rule, a party cannot invoke estoppel to create coverage where none existed under the insurance contract. Additionally, the court ruled that based upon the facts of this case, the underlying transaction was an acquisition as required by the first prong of the Bump-Up Provision and not merely a merger.

However, the court ruled against the insurers with respect to the last two prongs of the Bump-Up Provision. First, the court ruled that damages for inadequate deal price is not a viable remedy under Section 14(a) and Section 20. While the relief sought by the shareholders—the difference between the price shareholders received and the Company’s true value at the time of the acquisition—may sound like a request for inadequate consideration, the court noted that the claim was not based upon a failure to negotiate a better deal. Instead, the shareholders claims were based upon alleged misrepresentations concerning the value of the Company.

Second, the court ruled that the settlement did not represent an effective increase in consideration. The court stated that it “could not find that any part of the [settlement] represents an amount by which the transaction price or consideration is effectively increased.” The settlement amount was within the estimated range of defense costs. Finally, the court noted that the class included shareholders that sold their shares prior to receiving any deal consideration and, thus, were only indirectly impacted by the alleged inadequate consideration.