Just as this issue of Coverage Opinions was wrapping up, the Delaware Supreme Court handed down its decision in In re: Verizon Insurance Coverage Appeals, No. 558 (Del. Oct. 31, 2019).  By the way, how does a court hand down an opinion involving a phone company?  It tells the president of the company to be home between 10 and 4 and the clerk will drop it off.

The decision is of significant importance for companies seeking coverage under D&O policies.  However, for reasons of timing surrounding the production of this issue, I am not able to address it in detail here and why it is so significant.  However, the decision -- given its many implications, and coming from the Delaware Supreme Court on a corporate-related issue -- will definitely be included as one of the “Top 10 Coverage Cases of the Year” in my 19th annual review.  Since that’s right around the corner I’ll save it for then.

In general, in the Verizon decision, the high court of the first state defined the term “securities claim” for purposes of coverage.  Hanging on the court’s definition was $48 million in defense costs for which Verizon was seeking recovery.  Verizon had been sued by a bankruptcy trustee, on behalf of creditors of a bankrupt public company, that had been a Verizon spin-off.  It was alleged that Verizon saddled the spun-off company with excessive debt.

For Verizon to be covered for its defense costs, under certain Executive and Organizational Liability policies, the trustee’s claim needed to be a “securities claim,” defined under the policies as a “Claim” against an “Insured Person” “[a]lleging a violation of any federal, state, local or foreign regulation, rule or statute regulating securities (including, but not limited to, the purchase or sale or offer or solicitation of an offer to purchase or sell securities).”

The competing positions were as follows:

“The Insurers claim that the trustee in the U.S. Bank complaint did not raise a violation of any ‘regulation, rule or statute regulating securities’ because the words ‘regulating securities’ limits coverage to specific securities activities, as opposed to matters of general applicability. . . .  As the Insurers argue, under the Superior Court’s interpretation, ‘regulations, rules or statutes’ would encompass a variety of non-security related claims.”

“Verizon argues that the plain language of the Securities Claim definition includes claims alleging a violation of ‘any . . . regulation, rule or statute regulating securities (including but not limited to, the purchase or sale . . . [of] securities.’  According to Verizon, the use of the word ‘any’ shows the parties did not intend to exclude common law ‘rules’ or claims that do not ‘specifically’ or ‘principally’ regulate securities.”
           
Following pages and pages, and more pages, of analysis, the court held that the trustee’s suit did not involve a “securities claim.”  Thus, Verizon could not recover its defense costs.
 
Verizon will be fine.  $48 million is what my monthly wireless bill from them feels like.

Again, more about In re: Verizon Insurance Coverage Appeals in the annual Top 10 Coverage-palooza.