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Insurers win partial victory in SPAC D&O case


A Delaware Court has issued a partial victory to insurers in one of the first directors and officers liability insurance coverage cases related to special purpose acquisition companies to reach a ruling.

Social Capital Hedosophia Holdings Corp. III was a publicly traded SPAC that merged with privately held Clover Health Investments Co. in January 2021, according to the Feb. 6 ruling by the Delaware Superior Court in Wilmington in Clover Health Investments Corp. et al. v. Berkley Insurance Co. et. al.

Before the merger, Social Capital purchased D&O coverage from Sompo Holdings Inc. unit Endurance Risk Solutions Assurance Co.,  Lloyd’s underwriters and Fairfax Financial Holdings Ltd. unit Hudson Insurance Co., with Sompo unit Endurance issuing the primary tail policy.

The tail policies went into run-off with the merger, but an endorsement adjusted the policy period to end on Jan. 7, 2017.

The new company, Franklin, Tennessee-based Clover Health, obtained D&O coverage from units of W.R. Berkley Corp., Axa XL and Fairfax Financial unit Allied World Specialty Insurance Co., with Berkley issuing the primary “go-forward” policy.

The amount of the coverages provided was blacked out in the ruling.

Clover Health is seeking coverage for a securities class action, various shareholder derivative suits, a shareholder demand complaint filed under Delaware law, and a Securities and Exchange Commission investigation. 

Endurance acknowledged coverage for directors in some of these instances and denied coverage for others, as well as for the SEC investigation.

Go-forward insurer Berkley denied coverage for certain former directors and officers of Social Capital named among the individual defendants.

Clover Health filed suit in June 2022, seeking various coverages from both the tail and go-forward insurers. The tail insurers filed a motion to dismiss in August 2022.

The court held that tail insurers are required to advance all defense costs for the securities actions and derivative actions, subject to their respective retentions and limits.

The ruling denied insurers’ motion to dismiss with respect to coverage for the SEC investigation, citing contradictory policy language, and said it would permit discovery on the issue.

It granted defendants’ motion to dismiss the claim for breach of the implied covenant of good faith and fair dealing. 

Attorneys in the case had no comment or did not respond to a request for comment.