On July 31, 2019, the Superior Court of the State of Delaware issued a decision addressing coverage under directors and officers liability insurance for an appraisal action. In Solera Holdings, Inc. v. XL Specialty Insurance Co., 2019 WL 3453232 (Del. Super. Ct. July 31, 2019), the court addressed the specific question of whether a D&O policy “covers attorneys’ fees and pre-judgment interest the insured company incurred defending an appraisal action.

The appraisal action was filed under 8 Del. C. § 262 by several shareholders seeking the fair value of their shares. The Court of Chancery ordered the insured to pay the petitioners the fair value of their shares, plus pre-judgment interest of more than $30 million. The insured also incurred more than $13 million in attorneys’ fees and costs defending the appraisal action.

The insurers denied coverage, arguing that an appraisal action is not a “Securities Claim” as defined in the policy because it was not an action for the “violation” of any statute, rule, or law regulating securities. The insurers pointed out that allegations of wrongdoing are not required in an appraisal action. They also argued that there was no coverage for the pre-judgment interest award because the underlying fair value award was not covered and that there was no coverage for any defense expenses incurred before they were notified because they were incurred without their consent.

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