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Alexion, which develops drug therapies for people living with rare disorders, was insured under two towers of D&O insurance: (1) for claims made between June 27, 2014 and June 27, 2015 (“Tower 1”), and (2) for claims made between June 27, 2015 and June 27, 2017 (“Tower 2”). On March 9, 2015, the SEC issued a formal order of investigation raising possible violations of federal securities laws, with Alexion receiving a subpoena from the SEC two months later. Alexion submitted the SEC subpoena to the Tower 1 insurers as a notice of circumstances. On December 29, 2016 – during the Tower 2 coverage period – Alexion stockholders commenced a federal securities class action, alleging that Alexion and its directors and officers violated Sections 10(b) and 20(a) of the Exchange Act, as well as SEC Rule 10b-5. Alexion then sought coverage for the securities class action under Tower 2. Because the class action “ar[o]se from the circumstances and anticipated Wrongful Acts reported during the 2014–2015 Policy Period, as well as many of the same Wrongful Acts and Interrelated Wrongful Acts,” the primary insurer for both Towers accepted coverage under Tower 1, a determination which was adopted by various excess insurers on Tower 2.
Subsequently, Alexion sued the Tower 2 insurers, seeking a declaration that the securities class action was a claim first made during the Tower 2 coverage period. In granting Alexion’s motion for partial summary judgment, the Superior Court determined there was no “meaningful linkage” between the SEC subpoena and securities class action. Citing ACE American Insurance Co. v. Guaranteed Rate, Inc., the Superior Court noted that the “linkage must be meaningful, not tangential.” The Superior Court acknowledged that the class action plaintiffs relied, in part, on evidence gleaned from the SEC investigation, but nevertheless determined that the SEC’s findings were not used to prove plaintiffs’ allegations. On appeal, the Tower 2 insurers argued that the Superior Court incorrectly framed the inquiry as whether the SEC subpoena and class action were meaningfully linked, rather than whether the class action arose from “any Wrongful Act, fact, or circumstance” that was the subject of Alexion's 2015 notice of the SEC subpoena.
The Delaware Supreme Court agreed, stating that the Superior Court incorrectly treated the 2015 notice of the subpoena as a claim, improperly narrowing the scope of inquiry. Instead, the Superior Court “should have asked whether the Securities Class Action is meaningfully linked to any of the alleged wrongful acts” disclosed in the 2015 notice. In so finding, the Supreme Court determined that the securities class action and 2015 notice “involve the same alleged wrongdoing” surrounding Alexion’s grantmaking activities worldwide. Importantly, the Supreme Court held that “it does not matter whether the SEC and the stockholder plaintiffs are different parties, asserted different theories of liabilities, or sought different relief,” but rather, “[i]t is the common underlying wrongful acts that control.” Accordingly, the Supreme Court held that no coverage was available under Tower 2 for the class action, reversing the judgment of the Superior Court.
The decision, In re Alexion Pharm., Inc. Ins. Appeals, confirms that a Delaware court undertaking a “meaningful linkage” inquiry for an “arises out of” interrelated claims provision may find two matters to be related due to overlapping wrongful conduct, despite key distinctions surrounding the parties, theories of liability, or relief sought.
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