Title: Endurance Risk Solutions Assurance Co. v. Clover Health Investments, Corp

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
ENDURANCE RISK SOLUTIONS 
ASSURANCE CO. and HUDSON 
INSURANCE COMPANY,  
 
Defendants Below, 
Appellants, 
 
v. 
 
CLOVER HEALTH 
INVESTMENTS, CORP. f/k/a 
SOCIAL CAPITAL HEDOSOPHIA 
HOLDINGS CORP. III, 
 
Plaintiff Below, 
Appellee. 
§ 
§  No. 87, 2023 
§ 
§  Court Below–Superior Court 
§  of the State of Delaware 
§   
§  C.A. No. N22C-06-004 (CCLD) 
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§   
§ 
§   
§ 
§ 
§ 
§ 
§ 
 
 
 
 
 
 
Submitted: March 15, 2023 
 
 
 
 
Decided: 
April 6, 2023 
 
Before SEITZ, Chief Justice; VALIHURA and TRAYNOR, Justices. 
 
ORDER 
 
 
After consideration of the notice of interlocutory appeal, the supplemental 
notice of appeal, and their exhibits, it appears to the Court that: 
 
(1) 
This appeal arises out of an insurance dispute regarding directors and 
officers (“D&O”) liability coverage.  On January 7, 2021, Social Capital Hedosophia 
Holdings Corp. III (“Social Capital”), a publicly traded special purpose acquisition 
company, and Clover Health Investments, Corp. (“Legacy Clover”) merged as part 
of an effort to take Legacy Clover public (the “Merger”).  The surviving public entity 
2 
 
is Social Capital, which operates as “Clover Health.”  Before the Merger, Social 
Capital purchased a tower of D&O insurance policies from Endurance Risk 
Solutions Assurance Co., Hudson Insurance Company, and another insurer1 
(together, the “Tail Insurers”) (the “Policies”).  
(2) 
Clover Health notified the Tail Insurers of its claims for coverage of its 
costs defending certain underlying suits, including  (i) a securities class action suit 
(the “Securities Action”), (ii) various shareholder derivative suits (the “Derivative 
Actions”), and (iii) a Securities and Exchange Commission investigation (the “SEC 
Investigation”).  The Securities Action and the Derivative Actions are based on 
claims that, in an effort to facilitate the Merger, certain current and former officers 
and directors of Clover Health made false statements, failed to disclose negative 
facts about Clover Health, and engaged in a scheme to defraud.  The Tail Insurers 
denied coverage for the Securities Action and the Derivative Actions for certain 
individual defendants on the basis that they are not insureds as defined by the 
Policies.  The Tail Insurers denied coverage in connection with the SEC 
Investigation on the basis that the investigation does not qualify as a claim under the 
Policies.  On June 7, 2022, Clover Health filed a complaint in the Superior Court 
seeking, among other things, a declaration that the Tail Insurers were obligated to 
 
1 The other insurer is not a party to this interlocutory appeal, and this Order therefore does not 
further address its role or posture in the underlying litigation. 
3 
 
pay Clover Health for the defense costs it incurred in connection with the Securities 
Action, the Derivative Actions, and the SEC Investigation, as well as demands made 
and a complaint filed under 8 Del. C. § 220.2  In August 2022, the Tail Insurers 
moved to dismiss the complaint, and Clover Health moved for summary judgment 
against the Tail Insurers.  
 
(3) 
On February 6, 2023, the Superior Court granted Clover Health’s 
motion for summary judgment against the Tail Insurers and denied in part the Tail 
Insurers’ motion to dismiss (the “Decision”).3  The Superior Court found, in relevant 
part, that (i) the plain language of the definition of “insured person” in the Policies 
includes individuals who were the functional equivalent of directors and officers of 
Social Capital; (ii) the definition of “claim” in the Policies is ambiguous because one 
subpart of the definition does not contemplate investigatory proceedings (including 
in the definition of a claim “a formal administrative or regulatory proceeding, other 
than an investigatory proceeding”), while another subpart includes “formal 
investigations” (defining a formal investigation as “a civil, criminal, administrative 
or regulatory investigation”); and (iii) the so-called “Larger Settlement Rule”—
which requires that the insurer pay all costs associated with a settlement or defense, 
without allocation to uninsured parties or matters—applies.  The Tail Insurers asked 
 
2 The complaint also sought declaratory relief related to a tower of D&O insurance policies that 
Clover Health purchased effective as of the date of the merger.  
3 Clover Health Invs., Corp. v. Berkley Ins. Co., 2023 WL 1978227 (Del. Super. Ct. Feb. 6, 2023). 
4 
 
the Superior Court to certify an interlocutory appeal.  Clover Health opposed the 
application. 
 
(4) 
On March 9, 2023, the Superior Court denied the application.  As a 
preliminary matter, the Superior Court agreed with the Tail Insurers that the 
Decision determined substantial issues of material importance as required by Rule 
42(b)(i).4  But the Superior Court did not find that the Rule 42(b)(iii) factors cited 
by the Tail Insurers weighed in favor of certification.  The Superior Court disagreed 
with the Tail Insurers’ characterization of the Decision as resolving issues of first 
impression5 as to the definitions of “insured person” and “claim” in the Policies.  To 
the contrary, the Superior Court found that it had merely applied the plain language 
of the Policies to the facts before it.  The Superior Court also concluded that its 
application of the Larger Settlement Rule to defense costs was not an issue of first 
impression because the Superior Court explicitly cited the applicability of the Larger 
Settlement Rule to defense costs in Arch Insurance Co. v. Murdock.6  Implicit in its 
rejection of the Tail Insurers’ argument that the Decision decided issues of first 
impression was the court’s rejection of the Tail Insurers’ claim that interlocutory 
review would serve the considerations of justice7 because the Decision implicated 
 
4 Supr. Ct. R. 42(b)(i). 
5 Supr. Ct. R. 42(b)(iii)(A). 
6 2020 WL 1865752, at *7 (Del. Super. Ct. Jan. 17, 2020) (adopting the Larger Settlement Rule), 
aff’d sub nom. RSUI Indem. Co. v. Murdock, 248 A.3d 887 (Del. 2021). 
7 Del. Supr. Ct. R. 42(b)(iii)(H). 
5 
 
the insurance industry in general.  And the Superior Court observed that 
interlocutory review would not terminate the litigation8 even as to the Tail Insurers 
because discovery would inevitably continue with respect to the Tail Insurers’ 
allocation disputes.  Finally, the Superior Court concluded that the likely benefits of 
interlocutory review did not outweigh the inefficiency, disruption, and probable 
costs of an interlocutory appeal.9  We agree with the Superior Court that 
interlocutory review is not warranted in this case.    
  
(5) 
Applications for interlocutory review are addressed to the sound 
discretion of the Court.10  In the exercise of its discretion and giving due weight to 
the Superior Court’s analysis, the Court has concluded that the application for 
interlocutory review does not meet the strict standards for certification under Rule 
42(b).  Exceptional circumstances that would merit interlocutory review of the 
Superior Court’s decision do not exist in this case,11 and the potential benefits of 
interlocutory review do not outweigh the inefficiency, disruption, and probable costs 
caused by an interlocutory appeal.12 
 
 
8 Del. Supr. Ct. R. 42(b)(iii)(G). 
9 Del. Supr. Ct. R. 42(b)(iii). 
10 Del. Supr. Ct. R. 42(d)(v). 
11 Del. Supr. Ct. R. 42(b)(ii). 
12 Del. Supr. Ct. R. 42(b)(iii). 
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NOW, THEREFORE, IT IS ORDERED that the interlocutory appeal is 
REFUSED.   
 
 
 
 
 
 
BY THE COURT: 
 
 
 
 
 
 
 
/s/ Gary F. Traynor   
 
 
 
 
 
 
Justice