(Article from Insurance Law Alert, February 2025)
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Holding
The Delaware Supreme Court ruled that a trial court erred in holding that a Securities and Exchange Commission (“SEC”) subpoena and a subsequent securities action were not “meaningfully linked” for purposes of applying an Interrelated Wrongful Acts provision and a Prior Notice Exclusion in D&O policies. In re Alexion Pharmaceuticals, Inc., 2025 Del. LEXIS 52 (Del. Feb. 4, 2025).
Background
In March 2015, Alexion, a pharmaceutical company, received a formal investigation order from the SEC notifying the company of an investigation relating to, among other things, allegedly improper accounting practices, bribes to foreign officials, and matters relating to the recall of a drug called Soliris. In a May 2015 subpoena, the SEC sought documents related to Alexion’s foreign and domestic grant-related activities, its compliance with the Foreign Corrupt Practices Act (“FCPA”) and the recall of Soliris. In June 2015, Alexion sent notice of the subpoena to its tower of insurers for the 2014-2015 period (“Tower 1 insurers”).
In December 2016, a class of stockholders filed a securities suit against Alexion and its executives, alleging that the defendants misled investors and violated ethical standards and federal securities law through a host of improper conduct including the following: deploying fear tactics to gain patients, obtaining data from partner labs to identify patients, and funding foreign organizations.
In January 2017, Alexion sent notice of the securities class action to its tower of insurers for the 2015-2017 period (“Tower 2 insurers”). Chubb, the primary insurer for both towers, initially accepted coverage for the securities class action under Tower 2, but later reassigned coverage to Tower 1. Chubb argued that the securities class action arose from the same wrongful acts as reported during the Tower 1 period.
In July 2020, Alexion settled with the SEC and agreed to pay over $21 million in penalties. In September 2023, Alexion settled the securities class action suit for $125 million. The securities class action settlement exceeded the coverage limits of both towers, but Tower 2 provided $20 million more coverage than Tower 1.
Alexion filed suit against its insurers and moved for summary judgment on the issue of “relatedness,” arguing that the SEC subpoena and the securities action were not related as a matter of law, and therefore that the securities suit was properly placed in Tower 2’s coverage. As discussed in our March 2024 Alert, the trial court granted the motion, finding that the two actions were “only loosely connected.” This month, the Delaware Supreme Court reversed.
Decision
The operative primary policy in the Tower 2 program provided that all claims arising out of “Interrelated Wrongful Acts” are deemed to be one claim—first made on the date the earliest of such claims were made. Additionally, a “Prior Notice Exclusion” barred coverage for any claim attributable to any wrongful act that was the subject of any written prior notice under that policy or any previous policy for which the instant policy was a renewal or replacement.
The Delaware Supreme Court agreed with the trial court that the question of relatedness for purposes of applying the Prior Notice Exclusion and the Interrelated Wrongful Acts provision is governed by a “meaningful linkage” analysis. However, the Delaware Supreme Court ruled that the trial court erred in concluding that the link between the two actions was “tangential” rather than meaningful.
The court emphasized that the two suits involved the same alleged wrongdoing relating to Alexion’s global grantmaking activities and that the securities action explicitly referred to the SEC subpoena and investigation. It rejected Alexion’s assertion that the “focus” of each action was different, emphasizing the common acts of alleged misconduct in both actions. Further, the court deemed it irrelevant that the allegations in each action did not involve identical time periods, stating that “while not perfectly identical, they do meaningfully overlap.”
Comments
The decision illustrates that under Delaware’s meaningful linkage test, the existence of different parties, different theories of liabilities and different relief sought in the two actions is not necessarily outcome determinative. Instead, as the court emphasized, the central inquiry is whether the suits arise out of the same alleged wrongful acts, facts or circumstances.