With Unclear Merger Timeline, D&O Insurers Are on the Hook 

A California federal court has ruled that D&O insurers AmTrust and Freedom Specialty must reimburse biotechnology company
180 Life for subpoena-related defense costs stemming from an SEC investigation into two former officials’ conduct.

The SEC has been investigating the conduct of the two former 180 Life officials in relation to the company’s merger in a SPAC deal.

The officials have been subpoenaed as part of this investigation, and 180 Life advanced money to them in response to these subpoenas. 180 Life then sought coverage for these expenses under a pre-merger D&O and company liability policy with AmTrust and an excess policy with Freedom.

AmTrust asserted that 180 Life was not insured under a policy issued prior to the merger, and that expenses related to the SEC’s subpoenas were subject to exclusions.

The judge’s ruling stipulated that if the potential misconduct occurred after the company changed hands, the insurers would be exempt from covering legal costs.

But because a subpoena is a request for information and not a complaint, the court ruled, the insurers were required to advance defense costs related to the investigation until further action from the SEC helped to determine whether the applicable policies were in effect.

Subpoenas alone, United States District Judge Beth Freeman wrote in her decision, “are something of a black box.” She further clarified that “it is the insurers’ burden to show conclusively that the change in control exclusion applies to bar coverage for the SEC subpoenas and related defense costs.”

The case has been closely watched, as it may set a new precedent for how D&O insurance providers handle situations where
former officials are investigated for potential misconduct related to company mergers, especially when the timing of that misconduct is unclear.

Ultimately, insurers may be on the hook for defense costs until it can be definitively determined when the misconduct occurred relative to the completion of the merger or acquisition.

Yet Another Insurer Halts New Homeowners Policies in California

California’s home insurance landscape further narrowed following The Hartford’s February announcement of its decision to
halt the issuance of new homeowner policies in the state.

This pause includes the company’s collaboration with AARP on homeowner’s insurance, although renewal will still be available for existing policies that align with The Hartford’s underwriting criteria.

The move comes as a response to the unique challenges in California, which have led insurers to reassess the feasibility of writing new homeowners’ business in the state.

A spokesperson for The Hartford emphasized the need for rate adequacy and regulatory reform to restore stability to the market, citing California Proposition 103, which mandates government approval for insurance rate increases.

Existing policyholders who meet the company’s underwriting guidelines will continue to have their policies renewed.

The company will also continue to offer all other existing insurance products in the state, including business insurance and personal auto policies.

The Hartford’s decision adds to the growing list of insurance companies restricting home insurance coverage in California,
often citing wildfire risk. Since 2022, seven of the top 12 insurers in the state’s homeowner’s market — including State Farm and Allstate — have also paused or limited new business.

The dwindling number of insurers and rising policy prices have left homeowners struggling to find coverage for their homes. The ongoing insurance crisis has led California Insurance Commissioner Ricardo Lara to develop the Sustainable Insurance
Strategy, which mandates insurance companies write at least 85% of their statewide market share in high-wildfire-risk areas.

This strategy is slated for implementation by December. The Hartford has indicated that it will closely monitor Lara’s efforts. &

The post News + Notes: D&O Insurers on the Hook for SEC Investigation, Insurer Halts Homeowners Policies in California and More appeared first on Risk & Insurance.

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