Delaware Court Holds De-Spac Transaction Does Not Trigger Public Offering Exclusion
The Delaware Superior Court, applying Delaware law, held that a public offering exclusion does not bar coverage for a de-SPAC merger because the transaction did not constitute a public offering of the insured company’s securities. View Operating Corp. v. Starstone Specialty Insurance Co., 2026 WL 895939 (Del. Super. Ct. Mar. 30, 2026). The court further held that the insurer was required to advance defense costs on behalf of a former officer upon the accrual of liability, not the act of payment by the insured company.
This dispute arose from a 2021 de-SPAC transaction in which the plaintiff insured, a private company, merged with a special purpose acquisition company (“SPAC”) and became a wholly owned subsidiary of the resulting public parent. As part of the merger, the insured’s shares were cancelled and converted into interests in the parent entity, whose shares were thereafter publicly traded. After the merger closed, the public parent company disclosed accounting irregularities concerning warranty liabilities, leading to an SEC investigation, securities litigation, derivative litigation, and an SEC enforcement action against a former officer of the parent and the subsidiary insured.
In the ensuing coverage litigation, the insured sought coverage for defense and settlement costs, and the insurer denied coverage based on the policy’s public offering exclusion. The exclusion stated that the Insurer shall not pay Loss “on account of any Claim alleging, based upon, arising out of, or attributable to any public offering of equity securities of the Company.” The insured and insurer filed cross-motions for summary judgement. The insured argued that the public offering exclusion was inapplicable because it applied only to the equity securities of the insured, not to the value of its business sold as shares of a separate parent company. The insurer argued that the insured’s stock was the functional equivalent of the parent company’s stock. The insurer also argued that the SEC filings and public statements from the insured demonstrated that the parties intended the de-SPAC transaction to function as the public debut of the insured, albeit through the issuance of parent company shares.
The Delaware Superior Court rejected the insurer’s interpretation of the public offering exclusion and granted summary judgment in favor of the insured. The court held that the exclusion applied only to a public offering of the insured’s own equity securities, not to the offering of shares issued by its parent company following the merger. The court noted that only the public parent company registered and issued securities to the public, while the insured’s shares were cancelled at closing and the insured remained a private subsidiary. The court declined to adopt the insurer’s “substance over form” argument, underscoring that “by blurring the distinction between parent and subsidiary, the [insurer] would undermine the narrow function of insurance exclusions.”
The court further held that the insurer was obligated to pay defense costs incurred on behalf of the former officer even though the insured had not yet actually paid those costs. The policy provided that the insurer would “pay on behalf of” the insured for loss arising from claims against insured persons “when and to the extent” the insured “has indemnified” the insured person. Rejecting the insurer’s argument that “has indemnified” requires actual payment, the court concluded that indemnification also encompasses a legal obligation or promise to reimburse. The court determined that the insured retained indemnification obligations to former officers under its bylaws and merger agreement and that the policy’s “pay on behalf of” language supported immediate advancement of covered defense costs.
Finally, the court denied the insurer’s request for summary judgment on the insured’s bad faith claim, finding that genuine issues of material fact remained regarding the insurer’s position and conduct.
