Analysis of “relatedness” in directors and officers liability insurance claims has shifted over time in Delaware. In last week’s decision in Alexion Pharmaceuticals, Inc. Insurance Appeals, Case Nos. 154, 2024 and 157, 2024 (Del. Feb. 4, 2025), the Delaware Supreme Court adopted a “meaningful linkage” standard for relatedness analysis in overturning the trial court’s holding on relatedness. Related claims is an inherently unpredictable and fact-specific issue, and the Alexion decision provides further guidance to Delaware policyholders on how to navigate those disputes in the future.

Background

In Alexion, a pharmaceutical company sought coverage under its D&O liability insurance policies. The company had a 2014-2015 D&O policy program, which consisted of a primary policy and a series of excess policies. The company also had a 2015-2017 D&O policy program, which consisted of a primary policy and a series of excess policies. The primary insurers were the same for both policy programs, and the line of excess insurers were nearly identical.

The 2014-2015 D&O policy program included a related claim provision which stated that “any Claim which arises out of such Wrongful Act shall be deemed to have been first made at the time such written notice was received by the Insurer.” The related claim provision in the 2015-2017 D&O policy program used similar language to the earlier policy program, such as “alleging,” “based upon,” “arising out of,” and “attributable.”

The company first contacted the primary insurer in June 2015 to report, via a notice of circumstances, an SEC subpoena served on the insured in 2015. At that time, the primary insurer did not consider the company’s communication to be a claim and stated it needed additional information. The company later provided notice in January 2017 of a securities class action filed against the company in 2016.

The primary insurer ultimately decided that the SEC subpoena and the securities class action were related, and thus took the position that “the Securities Action, among other actions, was a single ‘Claim’ first made in the 2014-2015 policy period.” But one of the excess insurers under the 2014-2015 D&O policy program took a contrary position that the securities class action was not covered under the program because the SEC subpoena and the securities class action did not sufficiently overlap. And the second level, third-level, and ninth-level excess insurers under the 2015-2017 D&O policy program denied coverage for the securities class action under the program based on their position that the SEC subpoena and the securities class action were related and were, therefore, deemed to have been first made during the early 2014-2015 policy period before the excess insurers’ policies incepted.

The company then filed suit and the issue before both the trial court and the appellate court in Alexion was whether the SEC subpoena and the securities class action were related claims.

The Appellate Decision

In the appeal of the earlier Alexion decision, the insurers argued that the trial court erred by treating the 2015 notice of the SEC subpoena from the company to the insurers as a claim rather than a disclosure of facts or circumstances that may give rise to a future claim. The trial court erred, the insurers asserted, by analyzing whether the SEC subpoena and securities class action were meaningfully linked, instead of analyzing whether the securities class action arose from any wrongful act, fact, or circumstance that was the subject of the notice. In contrast, the company argued that the trial court correctly held that the SEC subpoena and the securities class action were not related because they had different focuses. 

The Delaware Supreme Court agreed with the insurers. It first considered the language of the related claims provisions in the policies. Because terms used in those provisions were undefined, and there was no other textual evidence of the parties’ intent about those terms, the court interpreted the “arises out of” language in the related claim provisions as requiring a “meaningful linkage” between two conditions for them to be related. The linkage must be meaningful and not merely tangential.

The court then clarified that the appropriate “objects of comparison” in assessing meaningful linkage is whether the securities class action is materially linked to any alleged wrongful acts that were disclosed in the notice of the SEC subpoena. Based on this analysis, the court held that the SEC subpoena and the securities class action were related claims because they involved the same underlying wrongful acts. The common underlying wrongful acts were the company’s alleged improper sales tactics worldwide, including its grantmaking activities.

If claims are related, an exclusion may be triggered that limits or bars coverage under a later policy. Because the appellate court held that an SEC subpoena and a later-filed securities class action at issue in Alexion were related, the insurance coverage for both was limited to the earlier of two D&O policy programs, and the company could recover only up to the one policy limit.

Takeaways

There are several aspects of the Alexion ruling that bear on future related-claim disputes in Delaware.

First, related claims analysis is inherently unpredictable because policy language concerning related claims is often broad and indefinite, and the related claims analysis used by courts is fact-specific. This case-by-case inquiry is compounded by the fact that insurers and policyholders can usually find support both for and against relatedness in any given dispute; and because the analysis is fact-specific, small changes in circumstances can materially impact the result in terms of whether claims are related.

Second, despite unpredictability in related claims analysis, the Delaware Supreme Court confirmed that “meaningful linkage” is the appropriate related-claim standard, at least where insurance policies include the same “arises out of” causation language. The court also provided guidance on what must be compared to determine whether there is a meaningful linkage.

Third, even though the Delaware Supreme Court previously ruled that Delaware law applies to D&O coverage disputes involving Delaware corporations, policyholders should not assume that Delaware law controls in all case. That is because some policies include choice-of-law provisions stating that another state’s laws governs interpretation of the policy. And those variations in applicable law can result in different outcomes based on how other states have interpreted related-claim provisions. In the recent related-claim dispute in Benefytt Tech., Inc. v. Capitol Specialty Ins. Corp., Case No. N21C-02-143 PRW CCLD (Del. Super. Ct. Jan. 2, 2025), for example, the Delaware Superior Court applied New York law to a Delaware dispute because that’s what the policy required. Choice of law provisions matter and can depart from what the venue court would otherwise do.

Finally, while the Alexion court reversed and ruled in favor of the insurers, the ruling does not uniformly inure to the benefit of D&O insurers because they may take contrary positions against relatedness depending on the circumstances. Stated differently, related claims analysis is not an issue where policyholders or insurers uniformly argue in favor or against relatedness. For example, a policyholder may argue in favor or relatedness to avoid multiple retentions across multiple policy years, while in another case the policyholder may argue against relatedness to recover under greater policy limits across multiple policy years. The specific facts of the case are important when determining whether to argue in favor or against relatedness, and the analysis on how to proceed can be complicated.