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Delaware Supreme Court Finds an Insurance Policy Covering “Securities Claims” Did Not Apply to Claims for Violations of Common Law or Statutes Not Specific to the Regulation of Securities

In re Verizon Ins. Coverage Appeals, Nos. 558, 560, 561 (Del. Oct. 31, 2019).

The Delaware Supreme Court, applying principles of contract interpretation under Delaware law, held that claims of breach of fiduciary duty, unlawful dividends and fraudulent transfer were not Securities Claims reflecting a violation of any “regulation, rule or statute regulating securities” and hence the defendant’s director and officer insurance policy that covered such claims did not apply. The Supreme Court thus reversed a holding of the Delaware Superior Court that the insurance coverage applied because the claims “pertain[ed] to laws one must follow when engaging in securities transactions.”  The Supreme Court held that the unambiguous plain meaning of the policy language was that the parties intended coverage only for claims arising under regulations, rules or statutes that “regulate securities.” Using that definition, the Supreme Court held that claims of breach of fiduciary duty, aiding and abetting fiduciary duty breaches, and promoter liability were not Securities Claims because they do not involve regulations, rules and statutes regulating securities.  Likewise, the claim for unlawful dividends arose under statutes that regulated dividends, not securities, and the fraudulent transfer claims arose under statutes that were not “specific to transfers involving securities.”  The Supreme Court rejected as overly broad Verizon’s interpretation that the phrase “regulating securities” included any “laws one must follow when engaging in securities transactions,” holding that that interpretation would encompass claims unrelated to securities and would render meaningless the limitation that coverage applied only to violations of rules or statutes “regulating securities.”  The Supreme Court thus remanded the case to the Superior Court to enter judgment for the insurer-defendants.