A Delaware court held that an appraisal action, which includes $39 million in attorneys’ fees, prejudgment interest, and costs incurred in defending litigation that arose out of Solera Holdings Inc.’s acquisition by Vista Equity Partners LP, constitutes a covered “securities claim” under Solera’s directors and officers liability insurance policy.

In September 2015, Solera, a software company, announced a deal whereby it would be acquired by Vista and go private. As a result, a number of its shareholders filed an appraisal action in March 2016 in Delaware Chancery Court, contending that the company’s valuation was too low. At the time, Solera had primary and excess D&O liability insurance policies issued by a group of insurers, including Chubb Ltd. units, Ace American Insurance Co. and Federal Insurance Co. Solera presented the appraisal claim to its D&O insurers to recover the attorneys’ fees and costs incurred in defending the appraisal proceeding. The insurers denied coverage. Solera filed suit, alleging breach of contract and seeking a declaratory judgment that the insurers were obligated to cover Solera’s defense expenses and prejudgment interest awarded in the appraisal action.

On Wednesday, the Court denied the insurers’ motion for summary judgment and held that an appraisal action is a “securities claim” within the meaning of that term, which is defined in the D&O policies as “any claim for an alleged violation of law or rule regulating securities.” The insurers argued that an appraisal action is not a “securities claim” since the violation must involve wrongdoing, and the appraisal action did not allege any wrongdoing by Solera. The Court disagreed, reasoning that the policies are unambiguous and do not require that suit must allege wrongdoing to constitute a “securities claim” under the policies; rather, the term “violation” can encompass an appraisal action. The Court stated that “[b]y its very nature, a demand for appraisal is an allegation that the company contravened that right by not paying shareholders the fair value to which they are entitled.”

While the Court rejected the insurers’ summary judgment motion, the Court also found that factual issues preclude summary judgment on whether there is coverage for a prejudgment interest award, and whether Soleras’ late notice in the case bars coverage for defense expenses.

The Solera decision demonstrates the breadth of coverage available under traditional D&O insurance policies and, therefore, should serve as a reminder that policyholders consider the availability of coverage under their D&O policies for all claims and lawsuits against the company. Experienced coverage counsel can help determine whether coverage should be pursued, as well as assist in broadening otherwise narrow policies through endorsement or revision upon renewal.