Units of Zurich Insurance Group Ltd. and Axa SA , who were excess insurers for a now bankrupt investment advisory firm, are not obligated to pay $7.7 million in unreimbursed defense costs based on the terms of their claims-made policies, a federal appeals court said in reaffirming a lower court ruling.

Wellesley, Massachusetts-based investment firm F-Squared Investments Inc. had obtained a primary $5 million insurance policy from CNA Financial Corp. unit Columbia Casualty Co. and an excess policy for an additional $5 million from Chubb Ltd. unit Federal Insurance Co. for the period Oct. 3, 2012, to Oct. 3, 2013, according to Friday’s ruling by the 1st U.S. Circuit Court of Appeals in Boston in Craig R. Jalbert, In his capacity as Trustee of the F2 Liquidating Trust. V. Zurich Services Corp. et al.

For the subsequent policy period of Oct. 3, 2013, to Oct. 3, 2014, the company renewed both policies, but also obtained a $5 million second excess policy from Zurich unit Zurich Services and a $5 million third excess policy from Axa unit XL Global Services Inc.

On Sept. 23, 2013, the SEC began a private investigation of F-Squared, by issuing a formal order, over the issue of whether the company and some of its affiliates had distributed false and misleading advertisements to  clients or prospective clients in violation of federal securities law. The company eventually amassed millions of dollars in defense costs as a result of the investigation, according to the ruling.

After Zurich and XL refused to pay for the company’s defense, Mr. Jalbert, as trustee of F2 Liquidating Trust, a trust established during F-Square’s bankruptcy, filed suit in U.S. District Court in Boston, charging their refusal to pay the defense costs was a breach of their insurance contracts.

Zurich and XL argued the company was not entitled to coverage because the underlying claim issue “should be deemed to have been ‘first made’ before their respective policies took effect on Oct. 3, 2013,” according to the ruling.

The district court ruled in the insurers’ favor and was upheld by a unanimous three-judge appeals court panel. A claim “relating to a formal investigation will be deemed first made when an insured is identified by name in one of the qualifying documents (here, an order of investigation) as someone against whom there is a possibility that a proceeding will be brought.