D&O Insurance: Notifying Circumstances When Changing Insurer - Forte Biosciences, Inc. v. Wesco Insurance Company, Beazley Insurance Company, Inc., and Palms Insurance Company, Limited

Brief Facts:

·       Forte Biosciences, Inc. purchased D&O coverage from Wesco Insurance Company (primary) and Palms Insurance Company, Limited (excess) for June 2022–June 2023 (Year 1), and later from Beazley Insurance Company, Inc. for June 2023–June 2024. (Year 2).

·       Beginning August 2022, “activist investor” Camac began a series of actions challenging Forte’s corporate governance demanding certain actions. Forte notified this demand to Wesco. Wesco denied coverage but accepted it as a notice of circumstance.

·       In August 2023, Camac filed a lawsuit to claim against Forte’s Board members and the company for breach of fiduciary duty and a derivative claim for wrongful dilution Essentially this triggered the events leading to the D&O claim.

·       The Year 1 insurers refused, claiming the 2023 lawsuit was not a “Claim” made during their policy period. The Year 2 insurer (Beazley) also refused to pay, arguing the lawsuit was “related” to the complaints Forte reported back in Year 1, which triggered an exclusion in the Year 2 policy.

·       The Delaware Superior Court held that the 2023 lawsuit and the 2022 circumstance involved the same underlying course of conduct, establishing a “meaningful link” and thus constituting a related wrongful act first reported under the Wesco/Palms policy year.

·       The court ordered Wesco and Palms to provide D&O coverage for the 2023 lawsuit, and granted Beazley’s motion that its policy was not triggered, as that policy specifically excluded matters already reported to previous carriers

Takeaways:

* When changing D&O insurers, know that anything related to previously reported matters is usually excluded by the new policy. Always review “related acts” and “prior notice” clauses to avoid coverage gaps.

* Always comply with notification requirements – on claims and circumstances. Notify all threats, demands, or allegations promptly as a Notice of Circumstances. This is to ensure that that the claims do not fall in no man’s land.

* Verify the reason behind refusal. Pursue the claim professionally based on facts and proper interpretation of the policy conditions.

Link to the judgement:
https://courts.delaware.gov/Opinions/Download.aspx?id=389860

Disclaimer: The information contained and ideas expressed in this article represent only a general overview of subjects covered. It is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insurance buyers should consult their insurance and legal advisors regarding specific coverage and/or legal issues.