Fourth Circuit Reverses: Under Armour Cannot Tap Additional $100 Million D&O Tower for Related Government Investigations and Securities Litigation
In a win for Wiley’s client, the United State Court of Appeals for the Fourth Circuit, applying Maryland law, reversed judgment on the pleadings in favor of the insured, holding that a securities class action, derivative matters, and government investigations arose out of the same fraudulent scheme and thus were deemed a single claim first made before the relevant policy period. Navigators Ins. Co. v. Under Armour, Inc., No. 25-1068 (4th Cir. Jan. 20, 2026).
For nearly a decade, Under Armour faced legal claims and government investigations regarding two types of conduct: its public statements forecasting strong revenue growth and certain accounting practices. In February 2017, after announcing the end of its 26-quarter streak of 20% revenue growth, Under Armour was named in a securities class action alleging false and misleading statements in its 2016 earnings reports, as well as multiple books and records and derivative demands. In November 2019, the Wall Street Journal reported that the Securities and Exchange Commission and Department of Justice were investigating whether Under Armour used accounting practices, including pull forward sales, to appear financially healthier. After the government investigations became public, plaintiffs in the securities class action amended their complaint to incorporate that new accounting evidence. Six months later, the SEC determined that Under Armour made materially false and misleading statements and omissions in its 2016 earnings reports by failing to disclose the impact of its pull forward sales on revenue growth.
Under Armour sought coverage for the initial demands and securities class action complaint under its D&O policies for the 2016-2017 policy period. The 2016-2017 insurers acknowledged coverage for the underlying claims and ultimately exhausted their policies.
Under Armour also sought coverage under a second $100 million tower of D&O insurance issued for the 2017-2018 policy period. According to Under Armour, the government investigations and the amended complaint in the securities class action involved separate accounting conduct and thus constituted separate claims first made during the 2017-2018 policy period. The 2017-2018 insurers disagreed, asserting that the underlying matters all arose out of the same fraudulent scheme to mislead investors about the company’s financial health and growth prospects and thus were deemed a single claim first made before the 2017-2018 policy period.
In the ensuing coverage litigation, the district court ruled for Under Armour on cross-motions for judgment on the pleadings, agreeing that the government investigations and the portions of the securities class action addressing accounting misconduct were separate claims first made during the 2017-2018 policy period.
On appeal, the Fourth Circuit reversed, finding “Under Armour’s pull forwards and its misleading statements were part of the same specific scheme to project financial strength in the face of negative economic developments.” The Fourth Circuit relied on another case in which Wiley represented the insurer, W.C. & A.N. Miller Dev. Co. v. Continental Cas. Co., 814 F.3d 171 (4th Cir. 2016), for the “proposition that conduct that is part of the same scheme is logically or causally related.” Here, “the pull forwards and the allegedly misleading public statements derive from the same cause—a desire to continue to hit its growth estimate—and resulted in the same effect—Under Armour giving the illusion it was growing in line with its earlier projections.” According to the Fourth Circuit, the accounting misconduct enabled the allegedly false and misleading statements, as “it would have been much harder to claim growth continued unabated if the books had shown that growth had already slowed.” In light of this common scheme, the Fourth Circuit held that the underlying matters were deemed a single claim first made before the 2017-2018 policy period.
The Fourth Circuit recognized that “this appeal involves high stakes—$100 million” but emphasized that “these financial implications do not allow us to disregard the plain meaning of the parties’ insurance policy.” Under that plain language, the court concluded that “Under Armour is not entitled to additional insurance coverage under its 2017-2018 directors and officers insurance policy.”
