(Article from Insurance Law Alert, July/August 2025)
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Holding
A Delaware trial court denied a policyholder’s summary judgment motion, ruling that a tolling agreement with the Securities and Exchange Commission (“SEC”) was not a “Securities Claim” alleging a “Wrongful Act” as required by the policy. Clear Channel Outdoor Holdings, Inc. v. Ill. Nat’l Ins. Co., 2025 Del. Super. LEXIS 328 (Del. Super. Ct. June 30, 2025).
Background
When Clear Channel discovered that an employee had misappropriated funds, it initiated an internal investigation and notified the SEC. The SEC then initiated its own investigation and requested that Clear Channel toll the statute of limitations for any enforcement action. Clear Channel agreed and the parties entered into a tolling agreement.
Clear Channel notified AIG of the tolling agreement and sought coverage under the D&O policy for all response costs incurred after and as a result of the SEC’s tolling request. AIG denied coverage, arguing that the matter was “only an investigation,” not a covered “Securities Claim.” The court agreed with AIG.
Decision
The policy provided two types of coverage: coverage for individual insureds and coverage for Clear Channel, as an organization. The organizational coverage provisions applied to loss arising out of any “Securities Claim” made against the organization for any “Wrongful Act.” The policy further stated that a “Securities Claim” is “a Claim, other than an investigation of an Organization . . . alleging a violation of any federal, state, local or foreign regulation, rule, regulating securities.” A “Claim” was defined to include any written request to toll or waive the applicable statute of limitations.
Based on this language, the court concluded that the SEC’s tolling request was not a Securities Claim. The court reasoned that the tolling request was part of an investigation of Clear Channel, an organization, which is expressly excluded from coverage.
In so ruling, the court rejected Clear Channel’s assertion that this interpretation of “Securities Claim” rendered coverage for tolling requests “meaningless or illusory.” The court explained that coverage for tolling requests was provided for individual insureds because the applicable policy language provided coverage for “Claims.” However, as to the organization, the policy provided coverage only for “Securities Claims.”
The court further held that coverage was unavailable for the following independent reasons: (1) the tolling request did not allege any violation of law regulating securities, as required by the “Securities Claim” definition; and (2) the tolling request did not seek relief for any “Wrongful Act.”
Comments
The decision highlights an important concept relating to “Claims” versus “Securities Claims” for purposes of organizational coverage under a D&O policy. Here, the policy defined “Securities Claim” to include a “Claim.” Further, the policy defined “Claim” to include any written request to toll or waive an applicable statute of limitations. Notwithstanding those definitions, the policy stated that a “Securities Claim” does not include an investigation of an organization.
In light of this language, the court observed: “[A]lthough an insured must have a Claim . . . to have a Securities Claim, not every Claim qualifies as a Securities Claim . . . This means, Securities Claims are limited to a subset of Claims—ones that are not investigations.”