With 2025 well underway, it is an opportune time to reflect on several key insurance coverage decisions of 2024—because, as they say, those who ignore precedent are doomed to relitigate it. This article examines significant rulings from 2024 and their impact on directors and officers (D&O) liability insurers and their policyholders.
What is a “Claim”?
D&O and other professional liability policies are typically written on a “claims-made” basis, meaning the date a claim was first made is a crucial component of an insurer’s coverage analysis. Thus, a policy’s definition of “claim” is often the first policy term reviewed. Below, we highlight several 2024 decisions addressing the perennial issue: what is a “Claim?”
In Fed. Home Loan Mortgage Corp. v. Twin City Fire Ins. Co., a coverage action concerning an underlying investigation by the SEC, the D.C. District Court’s decision denying recovery focused the D&O policy’s definition of a “claim.”[i] There, the SEC notified the policyholder, Federal Home Loan Mortgage Corporation (Freddie Mac), that it was “conducting an inquiry to determine whether there has been any violation of the federal securities laws in connection with the accuracy of [Freddie Mac’s] financial statements and public disclosures.”[ii] During the course of its inquiry, the SEC subpoenaed 36 Freddie Mac executives and employees. Freddie Mac turned to its D&O program for reimbursement of the fees and costs incurred in the SEC investigation.[iii]
Freddie Mac’s D&O insurers denied coverage for the investigation, arguing that it did not meet the policy’s definition of a “claim.” The policy defined “claim,” in relevant part, to mean “a civil, criminal, administrative or regulatory investigation of an Insured Person . . . by the SEC or a similar authority, after service of a subpoena upon [an] Insured Person.”[iv] According to the insurance carriers, the SEC was investigating Freddie Mac the entity, and not any individual employees or officers of the company, so the investigation and associated costs were not covered.
Freddie Mac responded that an SEC investigation automatically qualifies as an “investigation of an insured person” if the SEC directs a subpoena to an insured person. In support of its position, Freddie Mac pointed out that the SEC has the ability to issue corporate subpoenas to the company itself, so its decision to subpoena Freddie Mac employees suggests that it was investigating them individually.[v] Freddie Mac also pointed out that “service of a subpoena upon such Insured Person” marked the inception date for investigation coverage under the policy, from which it inferred that any SEC subpoena served upon an insured person should automatically qualify as a “claim.”[vi]
In its November 8, 2024 ruling, the D.C. District Court, applying Virginia law, sided with Freddie Mac’s Insurers. In its decision, the court emphasized that the primary D&O policy drew a clear distinction between SEC investigations of Freddie Mac’s employees (which are covered) and investigations of the corporate entity (which are not covered unless the SEC is simultaneously investigating a Freddie Mac employee). The court explained that this distinction would be erased under Freddie Mac’s interpretation. To illustrate its point, the court seized on a hypothetical scenario from the Insurers’ opposition brief:
The Defendant Insurers sharpen the point by positing a hypothetical subpoena served on an employee that states: “The SEC is not investigating you personally; rather, it is investigating Freddie Mac and requests any relevant documents in connection with its investigation of Freddie Mac.” This subpoena would trigger coverage under Freddie’s interpretation of the Policies.[vii]
For the court, this was a bridge too far. Accordingly, it rejected the argument that a subpoena served upon an insured person automatically qualifies as an “investigation of an insured person,” and hence a “claim” under the policy at issue.
The Second Circuit Court of Appeals examined similar disputes involving the definition of “claim” in the 2024 cases styled Match Group, LLC v. Beazley Underwriting Ltd. and Pine Management v. Colony Insurance Co. In Match Group, the policyholder’s subsidiary, Tinder, received a pre-suit letter on February 16, 2016 from an individual claimant (Mellesmoen), which alleged that Tinder stole his idea for a “super like” feature without paying him the promised compensation.[viii] The letter threatened suit against Tinder if the company did not contact Mr. Mellesmoen to resolve his allegations. However, the letter did not make an explicit demand for money, and it closed with an invitation for Tinder to contact Mr. Mellesmoen’s counsel to discuss an amicable resolution.[ix] Match did not report Mr. Mellesmoen’s February 2016 letter to its D&O insurer.
Mr. Mellesmoen subsequently filed suit against Match in connection with the misconduct described in his February 2016 letter. Match submitted the lawsuit for coverage under its D&O policy on August 22, 2016, but its insurer denied coverage on the grounds that Match failed to timely report the February 2016 letter, which the insurer treated as a related “claim” (i.e., “a written demand received by any Insured for money or services” or “the threat . . . of a suit seeking injunctive relief”). Match then filed suit against its D&O carrier, disputing the insurer’s characterization of the February 2016 letter as a “claim.”
The district court agreed with Match that the February 2016 letter was not a “claim,” and therefore rejected the insurer’s late notice defense. On appeal, the Second Circuit reversed, holding that “an assertion of possible liability, no matter how baseless, is all that is needed to trigger a notice of claim provision.” The court pointed to the letter’s explicit allegations of wrongful conduct and entitlement to compensation, concluding it sought monetary relief. The court further explained that:
Even though Mellesmoen did not outright demand a certain sum from Match Group, his letter stated that he had legal claims against Match Group, that he believed he was entitled to compensation and damages, and that he would sue if Match Group did not contact him to resolve his claims. Mellesmoen clearly sought money; he wrote that “Tinder’s malicious and bad faith refusal to compensate Mr. Mellesmoen for his valuable idea is unlawful, wrong, and entitles Mr. Mellesmoen to substantial recovery.”[x]
Similarly, in Pine Mgmt. v. Colony Ins. Co., the policyholder (Pine Management) received an attorney letter outlining potential claims against it for breach of fiduciary duty, nondisclosure of material facts, and violations of operating agreements.[xi] While the letter invited negotiation, it also explicitly demanded document production and alleged unauthorized payments by Pine.
Pine’s D&O insurer took the position that the pre-suit letter was a demand for relief and therefore a “claim.” The Second Circuit Court of Appeals agreed, explaining that the letter demanded document production and implied legal consequences for noncompliance. According to the court, a demand for documents or nonmonetary relief—even if couched in language of potential amicable resolution—constitutes a “claim” under the policy. Moreover, the court noted that the letter’s closing offer to “negotiate a mutually satisfactory resolution . . . [without] costly and unnecessary litigation” did not support the policyholders position. Just the opposite. According to the court, the reference to potential litigation underscored the legal consequences that would likely result from noncompliance with the letter’s demands.[xii]
Interrelated Claims
Interrelated claims provisions within D&O policies treat multiple claims arising from the same or related wrongful acts as a single claim, deemed made on the date of the earliest such related claim. Last year, Delaware courts analyzed interrelation issues in two instructive decisions.
In Ferrellgas Partners, L.P. v. Zurich American Insurance Co., the policyholder, Ferrellgas, sought coverage for an underlying lawsuit alleging fraudulent transfer, breach of fiduciary duty, and related misconduct.[xiii] Its D&O insurer, Zurich, took the position that coverage was barred by a run-off exclusion, which applied to “any Claim made against any Insured based upon, arising out of, or attributable to any Wrongful Acts including any Interrelated Wrongful Acts, taking place in whole or in part subsequent to 06/24/2015 [the run-off date].”[xiv]
The Superior Court agreed with Zurich. On appeal, Ferrellgas argued that Zurich’s interpretation of the run-off exclusion was overly broad, creating a coverage gap “inconsistent with the policyholder’s reasonable expectations.” Specifically, Ferrellgas contended that the Runoff Exclusion “puts the Runoff Coverage at odds with the expectations of the insured because it is an additional expense which actually reduces coverage instead of expanding it.”[xv]
On appeal, the Delaware Supreme Court noted that the reasonable expectations doctrine only applies in the context of ambiguous or conflicting policy language. The court found Zurich’s run-off exclusion to be unambiguous: “[The] Run-Off Exclusion’s meaning is clear. If a claim arises from Wrongful Acts that take place either partially or completely after June 24, 2015, then the claim is excluded from coverage.”[xvi] Additionally, because the Run-Off Exclusion only applied to claims made during the run-off period, which would not be covered in the absence of run-off coverage, the court rejected Ferrellgas’s argument that the exclusion transformed an affirmative coverage extension (i.e., runoff coverage) into a net reduction in coverage.[xvii]
In another 2024 Delaware case, Alexion Pharms., Inc. v. Endurance Assur. Corp., the Delaware Superior Court examined whether an SEC investigation and a subsequent shareholder class action constituted “interrelated claims.”[xviii] Alexion first noticed an SEC investigation concerning the company’s compliance with the Foreign Corrupt Practices Act (FCPA). The following year, Alexion shareholders filed a securities class action, alleging that Alexion and its executives misled investors about the true source of the company’s financial success, including sales practices that violated applicable industry ethical standards and federal law. As one example of Alexion’s undisclosed wrongdoing, the class action plaintiffs alleged that the company unlawfully manipulated Brazil’s government-sponsored health insurance into paying full price for one of its drugs.
An interrelation dispute then arose between Alexion and several insurers participating in its 2015-17 D&O program. The insurers took the position that the securities class action and the earlier SEC investigation should be aggregated under 2014-15 D&O program, which was in effect when the SEC investigation was launched. They relied on the policy’s “interrelated claims” provision, which applied to claims “arising out all Wrongful Acts that have as a common nexus any fact, circumstance, situation, event, transaction, cause or series of related facts, circumstances, situations, events, transactions or causes.” Alexion argued that the earlier SEC investigation was only tangentially related to the subsequent securities class action, and that the latter proceeding should therefore be handled under the 2015-17 D&O program.
In the coverage action that followed, the court found that the SEC investigation and the securities class action were “only loosely connected by Alexion’s activities in Brazil.”[xix] At the culmination of the investigation, the SEC released its findings, which focused primarily on the company’s activities in Turkey and Russia—not its activities in Brazil.[xx] The shareholder plaintiffs, in contrast, complained that Alexion misled investors about the sources of Alexion’s financial success, which incidentally included alleged illegal activities in Brazil.[xxi]
Update: In a February 4, 2025 decision, the Delaware Supreme Court reversed the Superior Court’s determination that the SEC investigation and the subsequent shareholder lawsuit should be handled under different policy years, finding: “Both the SEC investigation and the Securities Class Action involve the same underlying wrongful act—Alexion’s improper sales tactics worldwide, including its grantmaking efforts in Brazil and elsewhere. Because both the SEC investigation and the Securities Class Action involve the same conduct, it does not matter whether the SEC and the stockholder plaintiffs are different parties, asserted different theories of liabilities, or sought different relief. It is the common underlying wrongful acts that control.”[xxii]
Contract Exclusion
Contractual liability exclusions in D&O policies reflect the general principle that coverage under the policy applies to wrongful acts, not contractual obligations voluntarily undertaken by an insured. In 2024, several courts addressed the circumstances in which broad-form contractual liability exclusions would apply to non-contractual theories of liability asserted in an underlying claim.
In MRFranchise, Inc. v. Stratford Ins. Co., a federal court in New Hampshire, applying California law, considered whether a broadly worded contract exclusion barred coverage for statutory claim alleging a violation of the California Franchise Investment Law (CFIL).[xxiii] The policyholder executed a franchise agreement with several individuals who wished to franchise a panini restaurant. The franchise deal ultimately fell apart, MRFranchise terminated the franchise agreement, and the company later commenced arbitration against the would-be franchisees. The franchisees responded by filing an arbitral counter-complaint, which asserted several causes of action sounding in contract and one statutory cause of action for MRFranchise’s failure to make certain disclosures mandated by CFIL.
MRFranchise submitted the counter-complaint to its D&O insurer, which denied coverage based on the policy’s contractual liability exclusion, barring coverage for claims:
[B]ased upon or attributable to liability under any oral or written contract or agreement, including but not limited to any express warranties or guarantees, or liability assumed under any oral or written contract or agreement; provided, however, that this exclusion shall not be applicable to an Insured’s alleged liability that exists in the absence of such contract or agreement; or to any Securities Claim[.][xxiv]
The arbitrator ultimately ruled in favor of MRFranchise on all counts except one—the statutory cause of action under CFIL. On that count, the arbitrator ruled that MRFranchise failed to make certain disclosures required by CFIL. Accordingly, the arbitrator rescinded the franchise agreement and awarded damages to the franchisees.
In the ensuing coverage action brought by MRFranchise, the district court recognized that the contract exclusion’s prefatory language (“based on or attributable to”) was narrower than the terminology used in neighboring exclusionary clauses (“arising from” or “in any way involving”). On this basis, the court distinguished a raft of California decisions broadly applying contract exclusions to non-contractual causes of action.[xxv]
Having found the scope of the contract exclusion to be an issue of first impression, the court held that the CFIL claim lacked the causal connection to the franchise agreement necessary to implicate the exclusion. The court reasoned that the existence of a franchise agreement is not an essential element of a CFIL claim. And while the court acknowledged that CFIL’s disclosure requirements are expressly tied to the execution of a franchise agreement—the statutory disclosures are due “at least 14 days prior to the execution by the prospective franchisee of any binding franchise . . . agreement”—the court nevertheless found that MRFranchise’s CFIL liability did not flow from the franchise agreement.[xxvi] Because the underlying franchise agreement was neither a necessary element of the CFIL claim nor the immediate source of the policyholder’s liability, the court ruled that the contract exclusion did not apply to the underlying arbitration award.
Similarly, the Fifth Circuit addressed the scope of a contract exclusion in SXSW, L.L.C. v. Fed. Ins. Co.[xxvii] The policyholder was the organizer of the annual South by Southwest music festival. The festival was canceled in 2020 due to the COVID-19 pandemic, and SXSW declined to refund patrons’ tickets, citing a no-refund clause within the ticket purchase agreements.[xxviii] Several ticket holders brought a class action against SXSW, asserting claims for breach of contract, unjust enrichment, and conversion. The case ultimately settled, with SXSW agreeing to pay $30.00 to each class member. SXWS then turned to its D&O insurer, seeking reimbursement for the settlement. The carrier denied coverage, citing a broad-form contract exclusion
In the ensuing coverage litigation, SXSW took the position that the contract exclusion did not apply because the underlying lawsuit asserted causes of action for unjust enrichment and conversion counts, which could theoretically be established without the existence of a contract. In response, the D&O insurer pointed out that the ticket purchase contracts were a “but-for” cause of SXSW’s liability, since “without the ticket purchase contracts, no purchaser litigation would have ever occurred.”[xxix]
The district court agreed with the D&O insurer, but SXSW appealed to the Fifth Circuit, which reversed the lower court. The Fifth Circuit explained that the underlying plaintiffs “could have asserted their claims of unjust enrichment and conversion even absent a contract between them and SXSW,” since those causes of action “could theoretically arise even absent a contract.”[xxx]
Contrarily, the Delaware District Court in S. Afr. Enter. Dev. Fund v. Ironshore Specialty Ins. Co. held that a contract exclusion barred coverage for causes of action that, while non-contractual in theory, were inextricably tied to the insured’s contractual obligations.[xxxi] The facts underlying that case are as follows: the U.S. Agency for International Development (USAID) awarded a large grant to the policyholder, South African Enterprise Development Fund (SAEDF), pursuant to the terms of a Grant Agreement. The Grant Agreement permitted USAID to audit SAEDF and gave it the ability to claw back grant funds used for disallowed purposes. After one such audit, USAID initiated an administrative proceeding to recoup funds that it alleged SAEDF spent on lobbying and other improper purposes. SAEDF tendered the claw-back proceeding to its D&O carrier, which denied coverage pursuant to a broad-form contract exclusion.
In the subsequent coverage action, the court applied Delaware’s “meaningful linkage” test to determine whether the underlying administrative proceeding “arose from” SAEDF’s actual or alleged contractual liability under the Grant Agreement. The court found that it did, reasoning that the Grant Agreement was the source of USAID’s authority to conduct its audit of SAEDF and claw back disallowed expenses.[xxxii] In response to SAEDF’s argument that “the gravamen of USAID’s final decision is that SAEDF failed to exercise sufficient oversight of funds in violation of its fiduciary duties,” the court observed that the fiduciary duties highlighted by USAID were also created by and pursuant to the Grant Agreement and therefore fell within the scope of the contact exclusion.[xxxiii] Accordingly, the court held that the underlying proceeding was barred in its entirety by the policy’s contractual liability exclusion.
Insurable Versus Uninsurable Loss
Finally, in a case of first impression, the Sixth Circuit Court of Appeals parsed the distinction between insurable and uninsurable loss in Huntington Nat’l Bank v. AIG Specialty Ins. Co. addressed.[xxxiv] Specifically, the federal appellate court analyzed whether fraudulent transfer is deemed uninsurable under Ohio law.
The policy at issue in Huntington defined “loss” to exclude “civil or criminal fines or penalties imposed by law, punitive or exemplary damages, . . . or matters that may be deemed uninsurable under the law pursuant to which this policy shall be construed.”[xxxv] The Sixth Circuit recognized that “for insurance coverage to be uninsurable under the law, the damages claimed must be based on an intent to injure, malice, ill will, or other similar culpability.” The court then found that liability under the fraudulent conveyance statutes is not akin to the kinds of culpable conduct that Ohio courts have found to bar insurance recovery on public policy grounds. Rather, the fraudulent conveyance statutes create a strict liability scheme, in which the intent of the transferee—Huntington, in this case—is irrelevant to liability.[xxxvi] As such, the court determined that “Ohio courts . . . would not hold that the liability of a transferee for a fraudulent transfer is uninsurable under the law.”[xxxvii]
Conclusion
The above decisions interpreting base D&O insurance policy language will likely shape the landscape of D&O insurance coverage disputes moving forward.