August 27, 2019

D&O Insurance: Duty to Defend “Securities Claims” Includes Appraisal

This Morris James blog highlights the Delaware Superior Court’s recent decision in Solera Holdings v. XL Specialty Ins., (Del. Super.; 7/19), which held – among other things – that a D&O policy’s duty to defend “Securities” claims extended to appraisal proceedings. Here’s an excerpt:

The insurers argued that appraisal actions were not covered “Securities Claims” because a claim for a “violation” implies wrongdoing, which need not be proven in an appraisal action. The Court reasoned, however, that “‘[v]iolation’ simply means, among other things, a breach of the law and the contravention of a right or duty.” This usage in the securities context is “logical” given that “[s]everal laws regulating securities can be violated without any showing of scienter or wrongdoing.” Because § 262 appraisal actions are, by nature, allegations that the company contravened the stockholders’ statutory right to fair value, appraisal actions were covered under the policy language at issue.

The Court went on to hold that pre-judgment interest on an appraisal award may be a covered “Loss” under the policy & that breach of a “Consent to Defense” clause doesn’t bar coverage in the absence of prejudice to the insurer.

John Jenkins