In a series of decisions regarding a matter of first impression under Delaware law, the Superior Court of Delaware held that the “Investigation Costs” for two related shareholder derivative demands made by Robert Ammerman (“Ammerman”) were covered under Defendant and Counterclaim Plaintiff XL Specialty Insurance Company’s (“XL”) Management Liability and Company Reimbursement Insurance Policy (the “XL Policy”) that XL issued to Ameritrans Capital Corporation (“Ameritrans”). See Ameritrans Capital Corp. v. XL Specialty Ins. Co., C.A. No. N14C-10-019 (EMD) (Nov. 30, 2015) (granting Ameritrans’ Motion for Judgment on the Pleadings); (June 15, 2016) (granting XL’s Motion for Reargument but upholding November 30, 2015 decision).

Ammerman made two related shareholder derivative demands in November 2012 and December 2013 (respectively, the “November 2012 Demand” and the “December 2013 Demand”) in order to investigate wrongdoing and potential breaches of fiduciary duty by Ameritrans’ board as it existed in 2012. When Ammerman made the November 2012 Demand, he was just a preferred stockholder of Ameritrans; however, when Ammerman made the December 2013 Demand, he was a director and officer of Ameritrans, along with being a preferred stockholder. XL argued that the XL Policy did not cover the December 2013 Demand because Ammerman was an officer and director at the time, and therefore the Insured vs. Insured Exception found in Section III (as amended by Endorsement Number 8) of the XL Policy applied. After XL denied coverage, Ameritrans filed an action in the Superior Court of Delaware.

The Court first held that the XL Policy was unambiguous and therefore the Court could interpret the policy as a matter of law. Moreover, the Court held that the XL Policy provided coverage for Investigation Costs – the reasonable fees Ameritrans incurred when investigating a Shareholder Derivative Demand. The November 2012 and December 2013 Demands fit the definition of Shareholder Derivative Demands because they were written demands that Ammerman, a stockholder, made to cause Ameritrans to take certain actions or to bring a civil proceeding against board members.

The Court also agreed with Ameritrans’ interpretation of the XL Policy that the November 2012 and December 2013 Demands were sufficiently interrelated to treat them as one demand under the XL Policy. Therefore, the Court treated the December 2013 Demand as if it had been filed in November 2012 when Ammerman was not an Insured Person. Moreover, because multiple claims that arose from Interrelated Wrongful Acts could be treated as one claim under the XL Policy, and a single claim would be treated as if it were made at the time when the claim was first made, the Court treated the two demands as one claim that arose at the time of the November 2012 Demand. In addition, the Court held that the “brought and maintained” language in the Insured vs. Insured exception did not apply because both requirements of “brought and maintained” were not satisfied as Ammerman was not an Insured Person at the time o;f the November 2012 Demand.

XL subsequently moved for reargument, arguing that the Court incorrectly attributed the language “brought and maintained” to a policy exclusion, when in fact the language was found in an exception to the exclusion. According to XL, that error resulted in a finding for coverage, when in fact the exclusion to coverage remained in effect where the exception did not apply.

After considering XL’s motion for reargument, the Court held that while its ultimate conclusion – that Ameritrans was entitled to judgment on the pleadings – did not change, it needed to clarify part of its ruling. The Court held that Section III of the XL Policy – the Insured vs. Insured Exception – was not implicated under the facts of this action. Specifically, the Court held that Section III did not apply because Ammerman did not make his first demand on Ameritrans when he was an Insured Person. As the Court previously held, the November 2012 and December 2013 Demands were to be treated as one claim under the XL Policy, and because Ammerman was not an Insured Person at the time of the November 2012 Demand, the November 2012 Demand “was not a claim made against Insured Persons (the directors on Ameritrans’ board in November 2012) by, on behalf of or, at the direction of an Insured Person.” Because the Insured vs. Insured Exclusion did not even apply, the Court did not need to determine whether the exception to the exclusion applied. Nonetheless, the Court held that the exception to the exclusion could serve as an alternate ground for granting Ameritrans’ motion for judgment on the pleadings.