HNRK Coverage Corner

On September 24, 2025, Judge Jennifer L. Hall from the United States District Court for the District of Delaware issued a decision in Amtrust Fin. Servs., Inc. v. Liberty Ins. Underwriters Inc., C.A. No. 21-347-JLH, holding that securities and derivative litigation against AmTrust were not covered by an excess D&O policy because the lawsuits arose out of alleged accounting improprieties that were the subject of a “Notice of Circumstances” the company reported to its insurers during an earlier policy period.

As we have previously discussed on this blog, D&O policies are typically claims-made—meaning they cover claims made against the insured during the policy period, even though the underlying conduct may have occurred during an earlier period.  But sometimes a lawsuit filed during the policy period may, in fact, be covered by an earlier policy.  This is because a standard policy term (the related claims provision) groups together claims arising from the same underlying conduct and deems all such claims to have been made at the time of the earliest such related claim.  Sometimes the effect of such a provision benefits the insured (if, for example, the earlier policy has a higher limit or more favorable coverage terms), and other times it may benefit the insurer (if, for example, the limits of the earlier policy have been exhausted).

Some policies, such as the AmTrust policies at issue here, also give the insured the right to issue a “Notice of Circumstances” advising the insurer of facts that have not yet ripened into a claim.  If a claim is later asserted that arises out of the same facts, the claim may be covered under the policy even if it is not brought until a later policy period. 

That’s what happened here: in 2015, AmTrust’s audit committee received a letter from an investor alleging certain accounting improprieties and suggesting that the company’s financial statements were likely materially misstated.  In 2017, AmTrust announced a restatement of its financial statements and litigation, including shareholder class actions and derivative lawsuits, ensured that year.  AmTrust’s primary insurer (AIG) and first-lawyer excess insurer acknowledged coverage, but the second-layer excess insurer, Liberty, demurred, arguing that the 2017 lawsuits related back to the 2015 notice of circumstances, and therefore related back to that policy period—when “Liberty was not on the risk.”

Coverage litigation ensued, and the Court granted summary judgment to Liberty.  In conducting the “relatedness” analysis, Judge Hall applied Delaware precedent construing related claims provisions to require “meaningful linkage” that is not merely “tangential.”  “In evaluating whether there is meaningful linkage between an earlier notice and a later claim, the primary factor is whether they involve the same conduct.”  As the Delaware Supreme Court has explained:  “It is the common underlying wrongful acts that control.”

Here, the “underlying wrongful acts” guided the Court’s analysis.  Judge Hall found that the notice of circumstances concerning the 2015 investor letter focused on “the same specific material weaknesses in AmTrust internal controls over financial reporting,” and “both the Letter and the Lawsuits rely on the same evidence.”  Therefore, the lawsuits related back to the 2015 policy period and were outside the scope of the Liberty’s 2017 policy.

A few takeaways here:

First, although excess policies frequently “follow the form” (i.e., incorporate the terms of the primary policy), each excess policy is a separate insurance contract.  And, as happened here, an excess insurer may not be bound by the coverage determination of the primary insurer (or of another excess insurer).         

Second, Judge Hall emphasized that the overlap between the investor letter and the lawsuits involved “specific material weaknesses regarding specific controls over specific accounts,” acknowledging that if “both merely alleged generally that AmTrust had material weaknesses in AmTrust internal controls over financial reporting, those generalities” might not suffice.  As one recent Delaware Superior Court decision put it (applying New York law): “Making mere allegations about a company’s general misconduct that may be related to another action isn’t enough.”  Benefytt Techs., Inc. v. Capitol Specialty Ins. Corp., 2025 84701, at *12 (Del. Super. Jan. 6. 2025) (“Here, Lloyd’s largely relies on the introduction and background of the various complaints to make bald allegations of interrelatedness; that’s insufficient.”).