Delaware D&O ruling determines liability of insurers

A Delaware judge Wednesday said coverage for a 2016 securities class action against a pharmaceutical company falls under policies issued by excess directors and officers liability insurers from 2016 to 2017 rather than earlier coverage because the suit is unrelated to a 2015 subpoena issued by the U.S. Securities and Exchange Commission.

A Delaware Superior Court judge said in Alexion Pharmaceuticals Inc. v. Endurance Assurance Corp. et al., that the information sought by the SEC subpoena was not “meaningfully linked” to the allegations in the securities class action, thus not triggering an excess D&O policy issued by Hudson Insurance Co., a unit of Fairfax Financial Holdings Ltd.

“At bottom, the factual connection between the SEC subpoena and the securities action is insufficient to make them related,” New Castle Superior Court Judge Paul Wallace wrote. “They have different parties; focus on overlapping, but not identical, time periods; raise entirely different theories of liability; rely on different evidence; and seek different relief.”

As a result, coverage for the suit falls under excess D&O policies issued Swiss Re Corporate Solutions American Insurance Co., Navigators Insurance Co., and Endurance Assurance Corp. 

Delaware-based Alexion developed and sells Soliris, an expensive so-called “orphan drug” that treats rare diseases.

Alexion allegedly used extreme sales tactics to obtain customers, including funding foreign patient advocacy groups to obtain government funding for Soliris prescriptions.

In May 2015, the SEC subpoenaed Alexion seeking documents regarding its domestic and foreign grantmaking activities and its compliance with the Foreign Corrupt Practices Act. After its investigation, the agency concluded that from 2011 to 2015 Alexion subsidiaries in Turkey and Russia made inappropriate payments to government officials to get preferential treatment for Soliris, the decision says.

Alexion resolved these and other allegations for $21 million.

Shareholders sued Alexion in a proposed class action in Connecticut federal court in 2016, accusing the company of misleading investors about the source of the company’s success, among other things.

Alexion sued its insurers seeking coverage under a 2014-2015 excess D&O policy issued by Hudson and excess D&O policies issued by Swiss Re, Navigators and Endurance from 2015 until 2017.

The parties filed competing summary judgment motions on the issue of which policies were triggered.

Judge Wallace agreed with Hudson that the securities class action did not fall under its ninth-level excess D&O policy since the 2015 subpoena was not directly inter-related with the lawsuit.

“The court recognizes that the securities action plaintiffs considered the SEC’s findings that resulted from the SEC subpoena to be useful evidence in their case,” the judge wrote. “But that’s of little moment.”

Representatives for the insurers did not respond to requests for comment.