A Delaware court has ruled that D&O insurers remain on the hook for later claims if they share underlying conduct with properly noticed circumstances.
The January 8 decision in Forte Biosciences, Inc. v. Wesco Insurance Company, Beazley Insurance Company, Inc., and Palms Insurance Company, Limited involves a biotech company and three insurers locked in a dispute over which policy should cover a 2023 shareholder lawsuit. Superior Court Judge Patricia A. Winston sided with Forte Biosciences, finding that Wesco Insurance Company and Palms Insurance Company, Limited must cover the suit under their Year 1 policies running from June 2022 to June 2023, even though the complaint was filed after those policies expired.
The fight started when activist investor Camac Fund began challenging Forte's board in 2022. On August 26, 2022, Camac filed a demand to inspect the company's books and records, claiming the board had executed a value-destructive transaction that diluted shareholders while benefiting company insiders. The demand pointed to an at-the-market offering that occurred after four activist shareholders began questioning the company's direction.
Forte forwarded the demand to Wesco, which accepted it as a notice of circumstances that might lead to a future claim. The acceptance letter specifically referenced a potential action related to the ATM offering. That detail would later prove crucial to the coverage dispute.
Things escalated from there. Camac filed a books and records lawsuit in Delaware's Court of Chancery in November 2022, then issued a proxy solicitation in May 2023 seeking board seats. By August 2023, after Forte's policy had switched to Beazley Insurance Company for Year 2 coverage running from June 2023 to June 2024, Camac filed a lawsuit alleging the board breached its fiduciary duties through a series of decisions designed to entrench management, primarily focusing on a 2023 private investment in public equity transaction that allegedly diluted shares to influence an upcoming director election.
When Forte sought coverage, all three insurers denied the claim. Wesco and Palms argued the 2023 lawsuit did not meaningfully connect to the 2022 demand they had accepted. Beazley took the opposite position, agreeing the two were linked but arguing that very connection triggered an exclusion in its policy for matters previously noticed under other coverage.
The resolution hinged on policy language that treats subsequently filed claims as if they were made during an earlier policy period when they arise out of circumstances properly noticed during that period. The Wesco policy stated that claims "alleging, arising out of, based upon or attributable to" noticed circumstances should be considered made when the notice was originally reported.
Judge Winston cut through competing arguments by focusing on conduct rather than transactions. The court found both the 2022 demand and 2023 lawsuit involved the same underlying behavior: the board using dilutive stock transactions to fend off shareholder activism and entrench itself.
Wesco had argued that Forte failed to provide enough detail in its notice, contending the company never explained what prompted the demand, what wrongful acts might be alleged, or why it anticipated a claim. The insurer maintained it had only accepted notice regarding the specific ATM offering, not any future claim that might mention it.
The court disagreed, finding that reading the notice so narrowly would ignore both its actual content and recent Delaware Supreme Court guidance on applying the meaningful linkage test. In In re Alexion Pharm., Inc. Ins. Appeals, decided in February 2025, the state's highest court clarified that when comparing a notice of circumstances to a later claim, courts should use a broader scope of inquiry than when comparing two claims. The key question is whether they involve the same conduct.
Judge Winston found the connection clear. The 2022 demand sought to investigate board independence following a transaction that raised concerns about insider benefits and shareholder dilution amid activist pressure. The 2023 lawsuit challenged another dilutive transaction allegedly designed to maintain board control against activist nominees. Both centered on what the court characterized as board-manufactured defensive measures using value-destructive stock sales to neutralize outside scrutiny.
The decision noted that the 2023 complaint specifically referenced the ATM offering in explaining the broader dispute, alleging it was intended to neutralize unaffiliated voting power. The circumstances described in the original demand were not mere background but integral to Camac's later arguments. The court observed that without the 2022 demand, Camac would not have issued the proxy solicitation that triggered the PIPE sale at the center of the 2023 lawsuit.
Because the Year 1 policies covered the dispute, Beazley's Year 2 policy provided no coverage. The Beazley policy contained language excluding coverage for wrongful acts that had been the subject of notice given under prior policies.
Forte also alleged all three insurers acted in bad faith by denying coverage, but the court dismissed those claims. Judge Winston found the coverage question presented a legitimate dispute, noting that even though the court ultimately sided with Forte's position, Wesco's denial was based on a genuine belief that its policy did not apply. The court pointed out that recent caselaw clarifying the meaningful linkage standard emerged during the litigation itself, supporting the conclusion that the insurers had reasonable justification for their positions.
The ruling offers several takeaways for insurers handling D&O claims. First, accepted notices of circumstances carry significant weight, potentially binding insurers to cover later claims that share common conduct with noticed events, even when those claims focus on different transactions or time periods. Second, courts will look beyond specific transactions to identify underlying patterns of behavior when evaluating meaningful linkage. Third, the scope of inquiry for linking notices to later claims is deliberately broad, favoring coverage where possible.
The decision also highlights the strategic complexity of activist investor campaigns for insurance purposes. What begins as a books and records demand can evolve through proxy contests into full litigation, with each stage potentially falling under different policy periods. How insurers handle initial notices in such situations can determine coverage obligations for years.
