Applying Pennsylvania law, the United States District Court for the Eastern District of Pennsylvania has held that a shareholder demand letter, a derivative action and a shareholder lawsuit against the insured were not “related” because the alleged conduct took place at different times and involved different individuals.  Vito v. RSUI Indem. Co., 2020 WL 424592 (E.D. Pa. Jan. 27, 2020).

In 2015, the insured technology company faced a shareholder demand accusing the insured’s CEO of blocking a shareholder from serving on the company’s board.  Later, in 2016, the shareholder filed a derivative action against the insureds alleging that the CEO was committing fraud by misrepresenting the company’s finances to investors, and that he refused to allow one of the shareholders to join the board.

In 2018, the shareholder in the derivative action filed another suit, claiming that he was deprived of an elected seat on the company’s board and that the company’s CEO had committed fraud.  When the insured sought coverage for the latest shareholder action under the most recent policy, the insurer denied coverage, citing the policy’s related claims provision and prior acts exclusion.  The related claims provision aggregated “[a]ll Claims based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving the same to related facts, circumstances, situations, transactions or events, or the same or related series of facts, circumstances, situations, transactions or events.”  The insurer argued that the 2018 action was related to the 2015 demand and the 2016 derivative action, and that all three constituted one interrelated claim made before the most recent policy period began, and thus that coverage was barred.  The insurer also invoked the policy’s prior acts exclusion, which stated that “the Insurer shall not be liable to make any payment for Loss in connection with any Claim made against any Insured that alleges, arises out of, is based upon or attributable to, directly or indirectly, in whole or in part, any actual or alleged Wrongful Acts which first occurred prior to November 19, 2013.”  The insurer argued that the 2018 action was based in part on wrongful acts that occurred before the policy was first issued in 2013.

In subsequent coverage litigation, the court sided with the insured company.  First, the court determined that the three claims were not related.  Although the three claims were predicated on some of the same contextual fraud allegations, the heart of the 2018 action was that the specific underlying claimant (rather than the earlier claimants in 2015 and 2016) was denied a seat on the company’s board—an event which did not occur until after the 2017 action was resolved.  Thus, the court concluded, the policy’s related claims provision did not bar coverage for the 2018 action.  Second, the court determined that the policy’s prior acts exclusion did not apply to bar coverage for the 2018 action.  Because the underlying claimant was denied a seat on the board in 2017 and the suit was filed in 2018—all during the latest policy period—there were, in the court’s view, no “prior wrongful acts” to preclude coverage.