In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, Anne Ray, Lead Counsel of D&O and EPL Claims, Bowhead Specialty Underwriters, Inc., Elan Kandel, Member, Bailey Cavalieri LLC, and James Talbert, Associate, Bailey Cavalieri LLC, take a look at the top professional liability insurance coverage decisions from 2024. I would like to thank the authors for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ article.
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With 2025 well underway, it is an opportune time to reflect on several key insurance coverage decisions of 2024—because, as they say, those who ignore precedent are doomed to relitigate it. This article examines significant rulings from 2024 and their impact on directors and officers (D&O) liability insurers and their policyholders.
What is a “Claim”?
D&O and other professional liability policies are typically written on a “claims-made” basis, meaning the date a claim was first made is a crucial component of an insurer’s coverage analysis. Thus, a policy’s definition of “claim” is often the first policy term reviewed. Below, we highlight several 2024 decisions addressing the perennial issue: what is a “Claim?”
In Fed. Home Loan Mortgage Corp. v. Twin City Fire Ins. Co., a coverage action concerning an underlying investigation by the SEC, the D.C. District Court’s decision denying recovery focused the D&O policy’s definition of a “claim.”[i] There, the SEC notified the policyholder, Federal Home Loan Mortgage Corporation (Freddie Mac), that it was “conducting an inquiry to determine whether there has been any violation of the federal securities laws in connection with the accuracy of [Freddie Mac’s] financial statements and public disclosures.”[ii] During the course of its inquiry, the SEC subpoenaed 36 Freddie Mac executives and employees. Freddie Mac turned to its D&O program for reimbursement of the fees and costs incurred in the SEC investigation.[iii]
Freddie Mac’s D&O insurers denied coverage for the investigation, arguing that it did not meet the policy’s definition of a “claim.” The policy defined “claim,” in relevant part, to mean “a civil, criminal, administrative or regulatory investigation of an Insured Person . . . by the SEC or a similar authority, after service of a subpoena upon [an] Insured Person.”[iv] According to the insurance carriers, the SEC was investigating Freddie Mac the entity, and not any individual employees or officers of the company, so the investigation and associated costs were not covered.
Freddie Mac responded that an SEC investigation automatically qualifies as an “investigation of an insured person” if the SEC directs a subpoena to an insured person. In support of its position, Freddie Mac pointed out that the SEC has the ability to issue corporate subpoenas to the company itself, so its decision to subpoena Freddie Mac employees suggests that it was investigating them individually.[v] Freddie Mac also pointed out that “service of a subpoena upon such Insured Person” marked the inception date for investigation coverage under the policy, from which it inferred that any SEC subpoena served upon an insured person should automatically qualify as a “claim.”[vi]
In its November 8, 2024 ruling, the D.C. District Court, applying Virginia law, sided with Freddie Mac’s Insurers. In its decision, the court emphasized that the primary D&O policy drew a clear distinction between SEC investigations of Freddie Mac’s employees (which are covered) and investigations of the corporate entity (which are not covered unless the SEC is simultaneously investigating a Freddie Mac employee). The court explained that this distinction would be erased under Freddie Mac’s interpretation. To illustrate its point, the court seized on a hypothetical scenario from the Insurers’ opposition brief:
The Defendant Insurers sharpen the point by positing a hypothetical subpoena served on an employee that states: “The SEC is not investigating you personally; rather, it is investigating Freddie Mac and requests any relevant documents in connection with its investigation of Freddie Mac.” This subpoena would trigger coverage under Freddie’s interpretation of the Policies.[vii]
For the court, this was a bridge too far. Accordingly, it rejected the argument that a subpoena served upon an insured person automatically qualifies as an “investigation of an insured person,” and hence a “claim” under the policy at issue.
The Second Circuit Court of Appeals examined similar disputes involving the definition of “claim” in the 2024 cases styled Match Group, LLC v. Beazley Underwriting Ltd. and Pine Management v. Colony Insurance Co. In Match Group, the policyholder’s subsidiary, Tinder, received a pre-suit letter on February 16, 2016 from an individual claimant (Mellesmoen), which alleged that Tinder stole his idea for a “super like” feature without paying him the promised compensation.[viii] The letter threatened suit against Tinder if the company did not contact Mr. Mellesmoen to resolve his allegations. However, the letter did not make an explicit demand for money, and it closed with an invitation for Tinder to contact Mr. Mellesmoen’s counsel to discuss an amicable resolution.[ix] Match did not report Mr. Mellesmoen’s February 2016 letter to its D&O insurer.
Mr. Mellesmoen subsequently filed suit against Match in connection with the misconduct described in his February 2016 letter. Match submitted the lawsuit for coverage under its D&O policy on August 22, 2016, but its insurer denied coverage on the grounds that Match failed to timely report the February 2016 letter, which the insurer treated as a related “claim” (i.e., “a written demand received by any Insured for money or services” or “the threat . . . of a suit seeking injunctive relief”). Match then filed suit against its D&O carrier, disputing the insurer’s characterization of the February 2016 letter as a “claim.”
The district court agreed with Match that the February 2016 letter was not a “claim,” and therefore rejected the insurer’s late notice defense. On appeal, the Second Circuit reversed, holding that “an assertion of possible liability, no matter how baseless, is all that is needed to trigger a notice of claim provision.” The court pointed to the letter’s explicit allegations of wrongful conduct and entitlement to compensation, concluding it sought monetary...
