NOT PRECEDENTIAL 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

____________ 

No. 22-2242 

____________ 

LIBERTY INSURANCE UNDERWRITERS, INC. 

v. 

COCRYSTAL PHARMA, INC., 

 Appellant

 

Appeal from the United States District Court 

for the District of Delaware 

(D.C. Civil Action No. 1-19-cv-02281) 

District Judge: Honorable Joshua D. Wolson 

 

Argued on March 8, 2023 

Before: SHWARTZ, BIBAS, and AMBRO, Circuit Judges 

(Opinion filed: March 29, 2023) 

Tamara D. Bruno (Argued) 

Pillsbury Winthrop Shaw & Pittman 

909 Fannin 

Suite 2000, Two Houston Center 

Houston, TX 77010 

Peter M. Gillon 

Jesse N. Vazquez 

Pillsbury Winthrop Shaw & Pittman 

1200 17th Street, NW 

Washington, DC 20036 
2 

Brandon R. Harper 

Carla M. Jones 

Jennifer C. Wasson 

Potter Anderson & Corroon 

1313 North Market Street 

Hercules Plaza, 6th Floor 

P. O. Box 951 

Wilmington, DE 19801 

 Counsel for Appellant 

Robert L. Ebby 

Ronald P. Schiller (Argued) 

Hangley Aronchick Segal Pudlin & Schiller 

One Logan Square 

18th & Cherry Streets, 27th Floor 

Philadelphia, PA 19103 

 Counsel for Appellee 

 

OPINION*

 

AMBRO, Circuit Judge 

Cocrystal Pharma Inc. (“Cocrystal”) appeals the District Court’s grant of summary 

judgment for its insurer, Liberty Insurance Underwriters, Inc. (“Liberty”). Because we part 

from its holding that the insurance policy here does not require Liberty to pay Cocrystal’s 

defense costs associated with an investigation by the Securities and Exchange Commission 

(“SEC”), we vacate the Court’s order and remand for further proceedings. There is a 

* This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not 

constitute binding precedent. 
3

genuine issue of material fact whether the SEC was investigating Cocrystal’s wrongful acts 

(and thus whether Liberty must pay the defense costs under the policy), so the case must 

proceed to trial.

I.

Cocrystal is a publicly traded biotechnology company. It was formed following a 

merger of Biozone Pharmaceutical, Inc. (“Biozone”) and Cocrystal Discovery, Inc. in 

January 2014. After the merger, Biozone ceased to exist.

The Insurance Policy

Cocrystal then purchased director and officer liability insurance from Liberty to 

cover claims made between January 2, 2015, and May 21, 2018 (the “Policy”). Under the 

Policy, Cocrystal is the “Insured Organization,” and its directors and officers are “Insured 

Persons.” App. 88, 97. Its coverage focuses mostly on claims made against the Insured 

Persons but also includes certain claims against Cocrystal. Relevant here, “[t]he Insurer 

shall pay on behalf of the Insured Organization all Loss which it shall become legally 

obligated to pay as a result of a Securities Action first made during the Policy Period . . . 

against the Insured Organization for a Wrongful Act which takes place before or during 

the Policy Period.” App. 90.

The Policy defines the bolded terms as follows:

• Loss includes “Defense Costs,” meaning the reasonable and necessary attorneys’ 

fees incurred defending a Claim. App. 96-97.

• Securities Action “means any Claim, under federal, state, or common law, against

the . . . Insured Organization, if such Claim [a]rises from the purchase or sale of, or 

offer to purchase or sell, any securities issued by the Insured Organization.” App. 

125.
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• Claim includes “a written demand for . . . non-monetary relief” and “a formal . . . 

regulatory investigation against” the Insured Organization. App. 128.

• Wrongful Act means “any actual or alleged error, misstatement, misleading 

statement, act, omission, neglect, or breach of duty, actually or alleged[ly] 

committed or attempted by the Insured Persons in their capacities as such.” App.

107.

The Policy also provides that the “Insurer shall . . . advance covered Defense Costs 

incurred by the Insureds.” App. 91. But “[i]f it is determined by negotiation, litigation, or 

arbitration that any such Defense Costs are not covered under this Policy, the Insureds 

agree to repay the Insurer the amount of such Defense Costs not covered.” Id.

The last relevant provision in the Policy is its “batching clause,” which says that 

“[a]ll Claims arising from . . . Interrelated Wrongful Acts shall be deemed one Claim.” 

App. 93. Interrelated Wrongful Acts are those that “have as a common nexus any fact, 

circumstance, situation, event, transaction, cause or series of causally connected facts, 

circumstances, situations, events, transactions or causes.” App. 97. When multiple claims 

are batched together, Liberty considers all the claims to have been made on the date the 

earliest claim was made.

The SEC Subpoena

On October 2, 2015, the SEC subpoenaed Cocrystal, requesting documents about it

and its predecessor Biozone from the relevant period of January 1, 2011, to October 2, 

2015. The SEC did not state which entity was the target of the investigation. It could have 

been Biozone, Cocrystal, both, or neither. Based on the requested documents, it appeared 

the SEC was mainly interested in Biozone. See, e.g., App. 511 (Request 9: “All Documents 

concerning any relationship or communications between Biozone and any individual or 
5

entity engaged in the promotion of Biozone’s common stock during the time period that 

Cocrystal was known as Biozone.”); id. at 512 (Request 12: “All Documents and 

Communications concerning the trading of Biozone stock with broker-dealers.”); id.

(Requests 13-16, 19-20: seeking documents concerning statements made in Biozone’s 

Form 8-K filings).

That said, some requests sought documents about Cocrystal, suggesting the SEC may 

have thought it participated in Biozone’s bad acts or in a coverup of those acts after the 

merger. For example, the SEC asked for the following:

• Request No. 1: Documents sufficient to identify all principals, officers, directors, 

shareholders and other persons with a direct or indirect beneficial ownership interest 

in, or who have exercised direct or indirect control over, Biozone, including but not 

limited to after Biozone became known as Cocrystal. App. 511 (emphasis added).

• Request No. 5: Documents sufficient to identify by last known home address and 

telephone number, all members of Cocrystal’s Board of Directors, including, but 

not limited to, the time period that Cocrystal was known as Biozone. Id. (emphasis 

added).

• Request No. 23: All Documents and Communications concerning the merger 

between Biozone and Cocrystal, as disclosed in a November 27, 2013 press release 

titled “Biozone Pharmaceuticals Announces Executed Letter of Intent to Merge with 

Cocrystal Discovery Inc.” Id. at 513 (emphasis added).

• Request No. 24: All Documents and Communications concerning the merger 

between Biozone and Cocrystal, as disclosed in a January 3, 2014 press release titled 

“Biozone Completes Acquisition of Cocrystal Discovery and Begins 

Transformation to High Growth Biotech Company.” Id. (emphasis added).

• Request No. 25: Copies of all statements for all bank accounts in the name of 

Biozone or Cocrystal or over which Biozone or Cocrystal had any control at any 

time during the Relevant Period. Id. (emphasis added).
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And other requests sought post-merger documents that necessarily involved Cocrystal even 

if they did not mention the company by name:

• Request No. 6: Documents Concerning the Board of Directors’ meetings, including 

but not limited to meeting minutes (including drafts), notes, agendas, and lists of 

attendees. Id. at 511.

• Request No. 28: All Documents and Communications concerning any complaints 

(formal or informal) from clients, investors or others received during the period 

from January 1, 2012 through the present. Id. at 513 (emphasis added).

Cocrystal hired defense counsel, launched its own investigation, and provided 

notice of the subpoena to Liberty. It denied coverage in April 2016 asserting that the 

subpoena did not satisfy the Policy’s definition of a “Claim.” It reiterated this denial in a 

December 2016 letter.

In January 2017, however, Cocrystal’s counsel gave Liberty more information about 

the investigation based on further conversations with the SEC. In an email dated January 

25, 2017 (“January 2017 Email”), counsel wrote:

In subsequent conversations between the SEC attorneys handling the 

investigation and Cocrystal’s outside counsel, the SEC attorneys indicated 

that [they] had concerns regarding representations [Cocrystal] had been 

making and its relationships with certain individuals, and that these concerns 

go to the bona fides of the company and the legitimacy of its operations and 

the possibility that the company’s stock was being used for manipulative 

purposes.

App. 293. Apparently satisfied that the SEC’s investigation was a claim related to 

Wrongful Acts committed by Cocrystal, Liberty agreed to cover subpoena-related defense 

costs. Liberty said it would send a “supplemental reservation of rights letter,” but never 

did so. App. 832. It paid Cocrystal $1.1 million for defense costs incurred in responding 

to the SEC’s subpoena.
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The Post-Policy Lawsuits

In September 2018, after the Policy expired, the SEC filed an enforcement action 

against former Biozone directors and officers. The complaint alleged the defendants had 

perpetrated a “pump and dump” stock manipulation scheme. App. 296. But the SEC did 

not sue Cocrystal or its directors or officers.

Prompted by the enforcement action, private plaintiffs filed three lawsuits—one 

securities class action against Cocrystal and two derivative actions on Cocrystal’s behalf 

against its officers and directors. The complaints in the lawsuits alleged not only that 

Biozone engaged in pre-merger stock manipulation but also that Cocrystal and its officers 

failed to alert its stockholders of the manipulated value and made false and misleading 

statements to the SEC for years after the merger.

The enforcement action and the three private lawsuits were filed after the Policy 

ended. Still, Cocrystal provided Liberty notice of the claims and sought coverage because 

it argued they stemmed from the same “Interrelated Wrongful Acts” investigated by the 

SEC in the subpoena. App. 393-97; 878-84. Per the Policy’s batching clause, Cocrystal 

argued the post-Policy actions should merge into one claim deemed made on the date of 

the subpoena (which was within the policy period).

Liberty denied coverage. And the revelation that the SEC brought an enforcement 

action against Biozone directors and officers also made Liberty rethink its decision to cover 

Cocrystal’s defense costs for the earlier subpoena. It wrote: “Based upon new information 

received by Liberty, . . . it is clear that the SEC Investigation relates to alleged Wrongful 

Acts regarding certain individual directors and officers, investors and outside individuals 
8

and [Biozone], commencing in 2010 and continuing through the end of 2013. . . . [I]t has 

become clear that the SEC Investigation, in light of the timing of the Wrongful Acts at 

issue, falls outside the coverage of the Policy.” App. 404-06; 886-89; 891-93. It requested 

that Cocrystal pay back the $1.1 million already paid because the policy provides for 

repayment “[i]f it is determined by negotiation, litigation[,] or arbitration that any such

Defense Costs are not covered under this Policy.” App. 405 (quoting id. at 91). Cocrystal 

refused to refund the defense costs Liberty paid and instead demanded it cover the defense 

costs for the post-Policy lawsuits.

Procedural History

Liberty sued Cocrystal in the District Court for the District of Delaware seeking a 

declaration of no coverage and recoupment of the $1.1 million paid to cover Cocrystal’s 

defense costs. Cocrystal counterclaimed for a declaration of coverage and bad-faith denial 

of coverage, as well as to prevent Liberty’s recoupment of defense costs paid. Both parties 

filed motions for summary judgment. The Court granted summary judgment for Liberty, 

deciding the costs were not covered by the Policy and ordering Cocrystal to return the $1.1 

million. Cocrystal timely appealed.

The District Court had diversity jurisdiction under 28 U.S.C. § 1332. We have 

appellate jurisdiction under 28 U.S.C. § 1291.

II.

The parties first dispute whether the Policy covers the defense costs associated with 

the SEC’s 2015 subpoena, which turns on whether the SEC was investigating Cocrystal’s
9

Wrongful Acts as well as Biozone’s. We afford a fresh review to the District Court’s grant 

of summary judgment in Liberty’s favor. See Sec’y U.S. Dep’t of Labor v. Kwasny, 853 

F.3d 87, 90 (3d Cir. 2017). “Summary judgment is appropriate where, construing all 

evidence in the light most favorable to the nonmoving party, ‘there is no genuine dispute 

as to any material fact and the movant is entitled to judgment as a matter of law.’” Id.

(quoting Fed. R. Civ. P. 56(a) and Daniels v. Sch. Dist. of Phila., 776 F.3d 181, 192 (3d 

Cir. 2015)).

Under Delaware law, 1 the “obligation to advance defense costs arises when the 

underlying action states a claim covered by the insurance policy.” Guaranteed Rate, Inc. 

v. ACE Am. Ins. Co., 2021 WL 3662269, at *2 (Del. Super. Ct. Aug. 18, 2021) (citing

Ferrellgas Partners L.P. v. Zurich Am. Ins. Co., 2020 WL 363677, at *9 (Del. Super. Ct. 

Jan. 21, 2020)). Applying this standard, the insurance company must advance defense 

costs if “the facts alleged and the reasonable inferences to be drawn from them . . ., when 

read as a whole, assert a risk within the policy’s coverage.” Legion Partners Asset Mgmt., 

LLC v. Underwriters at Lloyds London, 2020 WL 5757341, at *7 (Del. Super. Ct. Sept. 25, 

2020) (citation omitted). This determination is made from the perspective of the outset of 

the case, not the outcome. Id. at *6 (“How the [decisionmaker] ultimately resolved the 

[claim] is not relevant to this analysis.”). The insured bears the burden of proving that the

claim is covered. Id. at *7. Delaware courts construe the duty to advance defense costs 

“broadly in favor of the policyholder.” Id. at *6 (citation omitted).

1 At the District Court, Cocrystal argued Washington law should apply. The Court 

explained why Delaware law applies, and neither party challenges that decision on appeal.
10

When the claim is a subpoena or other investigative demand (rather than a complaint 

in a civil litigation), we consider whether the government is investigating the insured for a

legal violation that falls within the policy’s coverage instead of whether the complaint 

states a claim that does the same. Conduent State Healthcare, LLC v. AIG Specialty Ins. 

Co., 2019 WL 2612829, at *4-6 (Del. Super. Ct. June 24, 2019) (“[T]he Court is not 

persuaded that investigating an alleged unlawful act by the insured[] is different from 

actually alleging an unlawful act.”); see also Guaranteed Rate, 2021 WL 3662269, at *2

(“For purposes of determining coverage, there is no distinction between the investigation 

of, or actually alleging, an unlawful act.”).

Here, there are factual disputes regarding whether the SEC was investigating 

Cocrystal’s wrongful acts that preclude summary judgment for either party. Some of the 

document requests indicate that the SEC was investigating Cocrystal. For example, the 

SEC sought information about Cocrystal from the period “after Biozone became known as 

Cocrystal.” App 511-13. It asked about the principals, officers, directors, and shareholders 

who exercised control over Cocrystal (Request 1); the contact information for “all members 

of Cocrystal’s Board of Directors” (Request 5); Cocrystal’s Board meeting minutes 

(Request 6); purchases and sales of stock by Cocrystal’s directors or officers (Request 8); 

documents about the merger between Biozone and Cocrystal (Requests 23-24); bank 

accounts in Cocrystal’s control during the relevant period (Request 25); and complaints 

Cocrystal received from clients and investors (Request 28). App. 511-13. From these 
11

requests, a reasonable jury could decide that the SEC’s investigation was one that falls 

within the policy’s coverage. 2

The District Court held that the SEC was not investigating a possible Wrongful Act 

by Cocrystal. It decided the SEC investigation was limited to the Wrongful Acts of 

Biozone, not Cocrystal. The decision had two justifications: (1) the subpoena requested 

documents that predated the merger; and (2) the resulting SEC Enforcement Action only 

charged former Biozone directors and officers with securities fraud and did not charge 

Cocrystal or its directors and officers. Id. Neither reason supports that decision.

First, that the subpoena requested some pre-merger documents means little because 

it also requested post-merger documents from after Biozone no longer existed. See, e.g., 

App. 513 (Request No. 28: “All Documents and Communications concerning any 

2 Cocrystal also relies on the January 2017 Email to show that the SEC was investigating 

its own Wrongful Acts because the email said the SEC “had concerns regarding 

representations [Cocrystal] had been making” and thought there was a “possibility that the 

company’s stock was being used for manipulative purposes.” App. 293. Although 

Cocrystal relied on this email in its appellate briefs and at oral argument, it cited the January 

2017 Email only for separate propositions in its briefing to the District Court. See 

Cocrystal’s Brief in Support of Its Motion for Summary Judgment at 8, 20, Liberty Ins. 

Underwriters, Inc. v. Cocrystal Pharma, Inc., No. 1:19-2281 (D. Del. Feb. 8, 2022), ECF 

No. 87 (citing the January 2017 Email as contained in Exhibits G and I to show that 

Cocrystal “made the SEC investigator available to Liberty for an interview about the 

substance of the claim, but Liberty declined”). The District Court did not need to consider 

the email if Cocrystal did not cite it properly. See Fed. R. Civ. P. 56(c)(3). Given the weak 

citations, there is a question whether Cocrystal waived this use of the January 2017 Email. 

But we need not rely on the email because the subpoena’s requests alone create a factual 

dispute, and Cocrystal cited the requests throughout its briefing. See, e.g., Cocrystal’s Brief 

in Support of Its Motion for Summary Judgment at 7, Liberty Ins. Underwriters, Inc. v. 

Cocrystal Pharma, Inc., No. 1:19-2281 (D. Del. Feb. 8, 2022), ECF No. 87 (explaining the 

subpoena sought information about “actions taken by Cocrystal and its D&Os after the 

reverse merger . . . up through the date of the subpoena (in 2015)”).
12

complaints (formal or informal) from clients, investors or others received during the period 

from January 1, 2012 through the present.” (emphasis added)). If anything, the requests 

for both pre- and post-merger documents suggest the SEC thought Biozone and Cocrystal 

had violated securities laws.

Second, and more importantly, the resulting SEC enforcement action was not 

decisive under Delaware law. We determine the duty to defend based on the possibility of 

liability at the beginning of the case, not based on its outcome. Legion, 2020 WL 5757341, 

at *6. Hindsight does not color that call. The subpoena issued in 2015, so the District 

Court should not have relied heavily on this extrinsic evidence from three years after the 

SEC served it.

Viewing the evidence in the light most favorable to the nonmovant Cocrystal, there 

is a genuine dispute of material fact whether the SEC was investigating its Wrongful Acts. 

We thus vacate the District Court’s grant of summary judgment for Liberty on this 

coverage issue and remand for the case to proceed to trial.

III.

The parties’ remaining two disputes turn on whether the claim for the subpoena is 

covered, so they should be resolved on remand as well.

As for the first, Cocrystal challenges the District Court’s decision awarding Liberty 

$1.1 recoupment of defense costs already paid. Because the Court determined that the 

costs of defending the subpoena were not covered by the Policy, it followed logically that 

Liberty was entitled to recoupment. But now that we have vacated the Court’s judgment 
13

on coverage, it is unclear whether Liberty should be paid back. If the SEC was 

investigating Cocrystal for a Wrongful Act at the outset, then Liberty had a duty to pay 

defense costs and is not entitled to recoupment. If the SEC was not investigating Cocrystal 

for such an act, then Liberty may be able to recoup the defense costs paid.

Next, Cocrystal urges that Liberty pay the costs of defending the three private 

lawsuits even though the Policy ended before they were filed. The basis for coverage, it 

argues, is that the lawsuits stem from the same Wrongful Acts that the SEC investigated in 

2015, such that they batch together and are all deemed filed within the policy period. If it 

is found that the SEC investigated a Wrongful Act by Cocrystal—making the subpoena a 

proper claim under the policy—then the 2018 Lawsuits may relate back and be covered. 

If the subpoena is not a proper claim, there is no claim to which the 2018 Lawsuits can 

relate back.

Because these two questions depend on the outcome of the coverage issue, they 

must proceed to trial as well.

* * *

We thus vacate the District Court’s grant of summary judgment and remand for 

further proceedings consistent with this opinion.