How insurance coverage fares under a D&O policy 

On October 23, 2020, the Delaware Supreme Court dealt a blow to a policyholder that had prevailed in a lower court in its action against an insurer for coverage in connection with an appraisal action. In July 2019, the trial court (Delaware Superior Court) found in favor of the insured, in what was a significant coverage case.1 In Solera Holdings, Inc. v. XL Specialty Insurance Co.,2 the court examined Section 262 of the Delaware General Corporation Code.3 The provision states that, subject to certain conditions and qualifications, any shareholder voting against a merger on the grounds that the consideration is inadequate “shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder’s shares of stock.”

After Solera was acquired by a private company in March 2016, several of its shareholders filed an appraisal action in the Delaware Court of Chancery. Solera notified its Directors’ and Officers’ (D&O) insurers of the appraisal action in January 2018, after a substantial portion of the litigation was complete. The insurance carriers denied coverage for expenses incurred defending the appraisal action. In response, Solera initiated this breach of contract and declaratory judgment action against its D&O insurers seeking coverage for pre-judgment interest and defense expenses incurred in the appraisal action. The insurance carriers moved for summary judgment on all claims.

The Superior Court found for Solera, holding that an appraisal action constituted a “securities claim” under the policies. The Superior Court rejected the insurers’ assertion that an appraisal action is not a securities claim, finding that the policy only required an allegation of a violation, which simply means a breach of the law or the contravention of a right or duty. The court also found there was insurance coverage for the pre-judgment interest and defense costs incurred prior to notification of the carriers.

The Delaware Supreme Court reversed,4 finding that an appraisal action under Section 262 does not require the allegation of a wrongful act. Contrary to the lower court’s holding, without such an allegation, insurance coverage would not be triggered under the D&O policy. Because the court found there was no coverage, it did not decide the other two issues — insurance coverage for pre-judgment interest and pre-tender defense costs.

What does this mean for our clients? 

As a trial court ruling, the Superior Court’s opinion in this case had little precedential weight. Still, the court could be seen as having substantially expanded the rights of insureds under Delaware law, albeit for a brief time.

While the Delaware Supreme Court’s ruling was quite clear on one issue—that an action for appraisal under Section 262 did not trigger coverage under a D&O policy—it passed on the other two coverage issues. Insureds are certain to continue to seek coverage for prejudgment interest and pre-tender defense costs.

In addition, Delaware corporate law contains other provisions that may trigger coverage that were not reviewed by the court. For example, Section 220 gives shareholders the right to demand a review of the books and records of the corporation. Several commentators have discussed whether such a demand may constitute a claim under a D&O policy5 and the issue remains open under Delaware law. The D&O insurance market responded, however, by offering coverage specifically for Section 220 demands, known as “Books and Records” coverage with policy language that does not require allegations of Wrongful Acts. It remains to be seen whether the D&O insurance marketplace will offer similar coverage for appraisal actions.


Delaware Court Finds D&O Coverage for Shareholder Appraisal Action and Prejudgment Interest 
2 Solera Holdings, Inc. v. XL Specialty Ins. Co., 213 A.3d 1249, 2019 Del. Super. LEXIS 361, 2019 WL 3453232. 
3 Delaware Code Title 8. Corporations § 262. 
4 In re: Solera Insurance Coverage Appeals, N18C-08-315, Del. Supreme Court, October 23, 2020
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