(Article from Insurance Law Alert, July/August 2025)
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Holding
A California district court granted an insured’s summary judgment motion, ruling that a Dilution Claims Exception in an Insured v. Insured Exclusion restored D&O coverage. Scottsdale Ins. Co. v. Hamerslag, 2025 U.S. Dist. LEXIS 118805 (S.D. Cal. June 23, 2025).
Background
David Loo was the founder and CEO of Perspectium, a data analytics company. Steven Hamerslag, through his venture capital firm, TVC Capital, invested $16 million in Perspectium and became a director alongside Loo.
In the underlying litigation, David Loo, his wife Sarah Loo, and the Loo Family Trust (collectively, the “Loo Plaintiffs”) sued Hamerslag, alleging that he exploited his position in Perspectium for his own personal profit and to the detriment of the Loo Plaintiffs. More specifically, the complaint alleged that Hamerslag negotiated a contractual arrangement with BitTitan, another company in which he served as director, to position himself to financially benefit at the expense of the Loo Plaintiffs in an all-cash sale that immediately followed the transaction. The complaint further alleged that Hamerslag artificially inflated the value of BitTitan. The suit, which included breach of fiduciary duty claims and negligent misrepresentation, was ultimately resolved.
Hamerslag sought coverage, which Scottsdale denied pursuant to an Insured v. Insured Exclusion that applied to claims “brought or maintained by, on behalf of, in the right of, or at the direction of any Insured in any capacity . . .” Scottsdale then filed suit, seeking a declaration of no coverage. Scottsdale moved for judgment on the pleadings and Hamerslag moved for summary judgment. The court denied Scottsdale’s motion and granted Hamerslag’s motion.
Decision
The court ruled that judgment as a matter of law as to application of the Insured v. Insured Exclusion was not warranted because issues of fact existed as to the identity of the trustees in the Loo Family Trust.
However, the court held that even if the exclusion applied, coverage would be restored by the Dilution Claims Exception, which applied to claims brought by a director or officer “solely in their capacity as a securities holder of the Company and where such Claim is solely based upon and arising out of any actual or alleged unfair dilution of such securities holder’s securities interest . . .” For the exception to apply, the court held that the following elements must be satisfied: (1) the Loo Plaintiffs filed the underlying suit “solely” in their capacity as Perspectium securities holders; and (2) the underlying suit was “solely” based upon and arising out of alleged unfair dilution of the Perspectium shares.
The court found that both prongs were met, rejecting Scottsdale’s assertion that the Loo Plaintiffs were also suing in their capacity as BitTitan employees and shareholders. The court stated:
The Loo Complaint sets forth one continuous chain of events allegedly resulting in harm to the Loo Plaintiffs, all of which emanated directly from the Loos’ stake in Perspectium shares . . . The mere fact that Hamerslag’s alleged scheme persisted beyond the closing of the Perspectium-BitTitan merger, thereby incidentally implicating David Loo’s newfound status as a BitTitan equities holder . . . does not negate the reality that the underlying suit is all about one thing: how the Loos retained less money from their Perspectium shares than the shares were otherwise worth absent Hamerslag’s alleged wrongdoing.
Comments
The ruling rejects what it termed an overly “strict” reading of the term “solely” to mean exclusively or entirely. The court noted that while the allegations in the underlying complaint “may incidentally bump up against David Loo’s dual status as a BitTitan shareholder,” Loo’s dual status arose exclusively because of Hamerslag’s alleged wrongdoing—which allegedly resulted in the diminution of share value.
On July 21, 2025, Scottsdale noticed its appeal to the Ninth Circuit Court of Appeals, where it remains pending.