Lynda A. Bennett comments in Law360 on a trend in recent Delaware Supreme Court decisions toward limiting the reach of directors and officers insurance, as demonstrated by the court’s recent holding that denied Solera Holdings Inc.’s claim for $39 million in coverage for costs incurred during its buyout by Vista Equity Partners. The court held that an appraisal action is a “neutral proceeding” and thus did not trigger coverage for securities-related claims in Solera’s excess D&O policies. This is the second time in a year that the Delaware court has narrowly interpreted the scope of a securities claim under a D&O policy.

Bennett says the decision goes against “numerous fundamental principles of insurance law. … Usually in the context of policy language interpretation, when there are two reasonable definitions offered for a term, that should lead to a finding of ambiguity and a ruling in favor of coverage.” She adds, “This decision is disappointing to policyholders because they buy D&O coverage to protect them when a claim is brought against them seeking relief for something connected to the purchase or sale of securities. … This is what this was. From a reasonable expectations perspective, it is surprising that a company being sued by its shareholders would find itself without coverage.”