Court Opinion

ID: 5130190
Source: CourtListenerOpinion
Date Created: 2021-11-30 19:03:06.000998+00
Date Added: 2024-06-11T08:23:16.072527
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

THE OPTIONS CLEARING                       )
CORPORATION,                               )
                                           )
                  Plaintiff,               ) C.A. No. N20C-11-001 AML CCLD
                                           )
            v.                             )
                                           )
U.S. SPECIALTY INSURANCE                   )
COMPANY, INDIAN HARBOR                     )
INSURANCE COMPANY, and                     )
EVANSTON INSURANCE COMPANY,                )
                                           )
                  Defendants.              )

                         Submitted: September 7, 2021
                          Decided: November 30, 2021

                         MEMORANDUM OPINION

    Upon Plaintiff’s Motion for Partial Summary Judgment: GRANTED

Miranda N. Gilbert, Esquire, Kenneth J. Nachbar, Esquire and John P. DiTomo,
Esquire of MORRIS NICHOLS ARSHT & TUNNELL LLP, Wilmington, Delaware
and Robin L. Cohen, Esquire, Adam S. Ziffer, Esquire and Michelle R. Migdon of
COHEN ZIFFER FRENCHMAN & MCKENNA, New York, New York, Attorneys
for Plaintiff The Options Clearing Corporation.

Robert J. Katzenstein, Esquire of SMITH, KATZENSTEIN & JENKINS LLP
Wilmington, Delaware, and Leslie S. Ahari, Esquire and Emily A. Golding, Esquire
of CLYDE & CO US LLP, Washington, D.C., Attorneys for Defendant U.S.
Specialty Insurance Company.

Robert J. Katzenstein, Esquire of SMITH, KATZENSTEIN & JENKINS LLP
Wilmington, Delaware, and Kimberly M. Melvin, Esquire and Elizabeth Jewell,
Esquire of WILEY REIN LLP, Washington, D.C., Attorneys for Defendant Indian
Harbor Insurance Company.

LEGROW, J.
      The plaintiff, a clearing agency subject to federal oversight and regulation,

seeks insurance coverage for defense costs the plaintiff incurred in connection with

two enforcement actions pursued by federal regulators. The defendant insurers

contend coverage is barred by policy provisions that exclude coverage for claims

arising out of, based upon, or attributable to previous investigations into the

plaintiff’s compliance with various federal regulations.

      The insurers seek to establish that the later actions are a continuation of

compliance errors identified and investigated years earlier and therefore are barred

by coverage exclusions for related claims. Although the insurers identify some

general similarities between the earlier investigations and the later enforcement

actions, the nature of the plaintiff’s business makes it likely that those similarities

would exist in any regulatory action directed toward the plaintiff. Significantly, the

enforcement actions for which the plaintiffs seek coverage relate to regulations

adopted after the previous investigation and - by extension - conduct allegedly

occurring after that date. Under the exclusions’ plain language, the enforcement

actions are not related to the earlier investigation because there is no meaningful

linkage between them. The insurers’ contention that they should be permitted

discovery into all aspects of the enforcement actions before the Court may determine

relatedness fails under Delaware law. Accordingly, the plaintiff is entitled to partial
summary judgment as to coverage exclusions based on relatedness. My reasoning

follows.

FACTUAL & PROCEDURAL HISTORY

    A. The Parties

       Unless otherwise noted, the following facts are not disputed. Plaintiff The

Options Clearing Corporation (“OCC”) is a registered United States clearing agency

and derivatives clearing organization.1              In March 2015, OCC first purchased

Directors, Officers, and Organization (“D&O”) Liability insurance from Defendants

U.S. Specialty Insurance Company (“U.S. Specialty”) and Indian Harbor Insurance

Company (“Indian Harbor”) (collectively, the “Insurers”).2 OCC renewed its policy

(the “Primary Policy”) with U.S. Specialty for the policy period March 15, 2017 to

March 15, 2018.3 That Primary Policy provides $5 million in coverage over a

$250,000 retention.4 Indian Harbor issued OCC the first excess policy with $5

million in coverage in excess of $5 million (the “Excess Policy”). The Excess Policy

“follows form” to the Primary Policy, meaning it incorporates and adopts the

Primary Policy’s terms, conditions, definitions, and, importantly for this case,

exclusions.5

1
  Plaintiff’s Mot. for Partial Summ. J., (hereinafter “Plf.’s Mot.”) at 1.
2
  Def.’s Mot. in Opp. of Plaintiff’s Mot. for Partial Summ. J. (hereinafter “Def.’s Mot.”). at 6.
3
  Plf.’s Mot. at 5.
4
  Id.
5
  Id.

                                                 2
      B. The Polices

        The Primary Policy and Excess Policy (collectively, the “Policies”) provide

OCC coverage for “Loss arising from Claims first made against [OCC] during the

Policy Period . . . for Wrongful Acts.”6 A “Claim” includes “any oral or written

demand, including any demand for non-monetary relief” and “any administrative or

regulatory proceeding commenced by the filing of a notice of charges, formal

investigative order or similar document.”7 “A Wrongful Act” means “any actual or

alleged act, error, misstatement, misleading statement, omission or breach of duty .

. . by OCC.8 “Loss” includes “Defense Costs and any damages, settlements,

judgments . . . that an Insured is legally obligated to pay as a result of any Claim . .

.”9    And “Defense Costs” are the “reasonable legal fees, costs and expenses

consented to by” OCC “resulting from the investigation, adjustment, defense or

appeal of a Claim against an Insured.10 The Policies provide coverage for all

OCC’s Defense Costs, even if a Claim only is partially covered.11

6
  Id.; see also Ex. 1, Insuring Agreement B.
7
  Id. at 6; see also Ex. 1, Definitions (B)(1), (4).
8
  Id.; see also Ex. 1, Definitions (U).
9
  Id.; see also Ex. 1, Definitions (J).
10
   Id.; see also Ex. 1, Definitions(C).
11
   Id.

                                                       3
       1. The Event Exclusion Provision

       The Policies contain exclusions (the “Exclusions”) that Defendants list among

their affirmative defenses but that OCC contends are not applicable to this case.12

The Exclusions were negotiated between OCC’s broker and U.S. Specialty’s

underwriter.13 The “Event Exclusion” relieves the Insurers from any obligation to

cover any Claim related to certain previous events involving a Security and

Exchange Commission (“SEC”) investigation into OCC’s compliance with

particular industry standards and regulations (the “Event Exclusion”). Specifically,

       The Insurers will not be liable to make any payment of Loss in
       connection with a Claim arising out of, based upon or attributable to:
        (a) any Event(s);
        (b) the prosecution, adjudication, settlement, disposition, resolution or
            defense of any Event(s) and/or any Claim(s) arising from any
            Event(s);
        (c) any Wrongful Act, underlying fact or circumstance in any way
            relating to any Event(s); or
        (d) any Interrelated Wrongful Act, regardless of whether or not such
            Claim involves the same or different Insureds or parties, the same
            or different legal causes of action or the same or different
            claimants, or is brought in the same or different venue or resolved
            in the same or different forum.14

       For the purposes of this provision, “Event” means:

       any of the following Claim(s), notice(s), event(s), investigation(s),
       litigation(s) and/or action(s):

12
   Id. at 7.
13
   Def.’s Mot. at 7.
14
   Plf.’s Mot. at 7. See Ex. 1, Specific Event(s) Exclusion- Absolute.

                                                 4
       detailed in the June 7, 2012, September 18, 2013 and September 18,
       2014 letters15 from the SEC and [OCC]’s subsequent response letters
       dated August 6, 2012, November 1, 2013 and November 3, 2014.16

       2. Prior Notice Exclusion

       In addition to the Event Exclusion, the Policies’ Prior Notice Exclusion bars

coverage for Loss in connection with a Claim:

       arising out of, based upon or attributable to facts or circumstances
       alleged, or to the same or related Wrongful Acts alleged or contained,
       in any claim which has been reported, or with respect to which any
       notice has been given, under any policy of which this Policy is a
       renewal or replacement or which it may succeed in time[.]17

     C. 2012-2014 OCIE Letters

     OCC is a registered United States clearing agency and derivatives clearing

organization, acting as a central counterparty and providing clearing and settlement

services to eighteen exchanges.18 OCC is the sole registered clearing agency for

exchange listed options contracts in the United States and has been designated as a

“systemically important financial market utility” (a “SIFMU”) under Title VII of the

Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank

15
   A detailed explanation of these letters follows. The letters will be referred to collectively as the
“2012-2014 OCIE Letters” because they derive from the Security and Exchange Commission’s
Office of Compliance Inspections and Examinations during that range of years.
16
   Plf.’s Mot. at 7; see Ex. 1, Specific Event(s) Exclusion- Absolute (1)(A). The Insurers contend
that after OCC sought coverage from U.S. Specialty for the SEC Investigation, U.S. Specialty
learned at least 7 additional letters and 6 formal Inspection Reports had been sent by the SEC
between 2012 and March 2015, which had not been disclosed. Def.’s Mot. at 6, n. 4.
17
   Id. Definitions (B)(1)(H).
18
   Id. at 4.

                                                  5
Act”).19 In that role, OCC falls within the oversight responsibility of the SEC’s

Office of Compliance Inspections and Examinations (“OCIE”). The OCIE conducts

the SEC’s National Exam Program, which examines financial market participants,

like OCC, on a regular basis, facilitating compliance and cooperation between its

examination staff and the registered entities.20 The OCIE’s mission is to protect

investors, ensure market integrity, and support reasonable capital formation through

risk-focused strategies that improve compliance, prevent fraud, monitor risk, and

inform policy.21

     In 2012, the OCIE identified deficiencies at OCC and informed them that an

investigation was underway.22 Between June 2012 and November 2017, the SEC

sent at least 25 letters and 9 inspection reports to OCC concerning noncompliance

and potential violations of the Securities and Exchange Act of 1934.23 Three specific

letters and responses from the OCIE, the 2012-2014 OCIE Letters, are the subject of

the Event Exclusion provision in the Policies.24

     Each of the 2012-2014 OCIE Letters addressed different concerns. The 2012

Letter identified system control failures in OCC’s Escrow Receipt Depository

19
   Id. at 4-5; Ex. 11 at 2. SIFMUs are subject to a host of new regulations and enhanced and
evolving expectations by regulators and are highly scrutinized. See Plf.’s Mot. Ex. 9.
20
   Def.’s Mot. at 17.
21
    Division of Examinations, U.S. SECURITIES AND EXCHANGE COMMISSION,
https://www.sec.gov/exams (last visited Nov. 9, 2021, 3:54 PM).
22
   Def.’s Mot. at 2.
23
   Id. at 3.
24
   Plf.’s Mot. at 2.

                                             6
program, reduced effectiveness of the internal audit function, weaknesses within

OCC’s risk management framework, and insufficient written, formal policies and

procedures throughout the organization.25 The 2013 Letter involved a number of

repeat findings, causing OCIE to raise a serious concern about OCC’s overall

commitment to establishing a culture of regulatory compliance and its ability to

timely and adequately address the Staff’s findings.26 The 2013 Letter also found a

pattern of systemic weaknesses in OCC’s risk management and operations in the

areas of Quantitative Risk Management, Governance, Liquidity, Policies and

Procedures and Documentation.27 Lastly, the 2014 Letter found OCC did not

sufficiently identify and mitigate operational risk, as specified under standards

established by Exchange Act Rule 17Ad-22(d)(4), which require clearing agencies

to identify and minimize operational risk through the development of appropriate

systems, controls, and procedures.28 Collectively, the 2012-2014 OCIE Letters

noted several points where OCC’s documentation and practices were not in

compliance with securities laws and regulations or otherwise were insufficient.29

25
   Id.; Ex. 14.
26
   Id.; Ex. 15.
27
   Id.
28
   Id.; Ex. 16.
29
   See Compl. ¶ 31.

                                         7
     Christine Montelbano (“Montelbano”) underwrote on U.S. Specialty’s behalf the

primary D&O liability insurance policies issued to OCC from 2015 to 2020.30

During the underwriting process, U.S. Specialty examined the 2012-2014 OCIE

Letters and became aware the SEC was scrutinizing OCC’s operations, internal

controls and risk management for noncompliance with securities laws and

regulations.31 Based on her assessment of those Letters, Montelbano agreed to issue

a primary D&O policy to OCC, but drafted the Events Exclusion to bar coverage for

OCC’s “ongoing noncompliance and violations of the securities laws reflected in the

SEC’s findings.”32 When the Events Exclusion was prepared, the only documents

in Montelbano’s possession relating to the SEC’s scrutiny of OCC were the 2012-

2014 OCIE Letters.33

     D. The SEC Enforcement Actions

        On June 14, 2017, the SEC’s Division of Enforcement informed OCC of “an

ongoing investigation” (the “2017 Letter”).34 The 2017 Letter required OCC to

preserve and retain evidence relating to its compliance with specific SEC statutes

and regulations “until further notice,” and warned that OCC’s failure to do so “could

30
   Declaration of Christine Montelbano (hereinafter “Monetelbano Decl.”) ¶ 2. The policy relevant
to this action is Policy No. 24-MGU-17-A40094, issued for the period of March 15, 2017, to March
15, 2018. Id. at ¶ 4.
31
   Montelbano Decl. ¶ 7.
32
   Id. ¶ 12.
33
   Id. ¶ 16.
34
   Plf.’s Mot. at 9; Ex. 6.

                                               8
give rise to civil and criminal liability.”35      OCC was instructed to preserve

documents dating back to January 1, 2013.36 On February 27, 2018, the Division of

Enforcement notified OCC of its intention to recommend the SEC bring an

enforcement action alleging violations of specified regulatory provisions.37

       1. The Draft SEC Order Instituting Proceedings (“OIPs”)

       On March 12, 2018, OCC executed a prejudgment waiver, filed a Position

Statement, and submitted compliance plans as requested by the SEC.38 The waiver

allowed SEC staff to discuss the matter with the SEC Commissioners.39 On April

26, 2018, OCC sent the SEC a Statement of Position.40 On August 6, 2018, the SEC

provided a draft Order Instituting Proceedings (“Draft SEC OIP”) to OCC, which

included a list of proposed charges against OCC.41 Unless OCC entered into a

settlement, the SEC indicated it would file an administrative proceeding.42

       2. SEC’s Final OIP

       After negotiations, on September 4, 2019, the SEC issued a final OIP (the

“SEC OIP”) which included allegations that OCC violated certain statutes and

35
   Id.
36
   Def.’s Mot. at 3.
37
   Plf.’s Mot. at 9; Ex. 24 at 2.
38
   Id; Exs. 7-9.
39
   Id. at 9.
40
   Def.’s Mot. at 3.
41
   Plf.’s Mot. at 9-10; Ex. 10; Ex. 24 at 4.
42
   Id. at 10.

                                               9
regulations.43 OCC entered into a settlement agreement with the SEC to avoid an

administrative proceeding, agreeing to pay $15 million in penalties and accept a

mandatory injunction to force improved compliance, including the appointment of

an independent auditor.44 The alleged violations involved (1) the Covered Clearing

Agency Standards (the “2016 CCAs”), effective December 12, 2016 (requiring

OCC’s compliance by April 11, 2017), (2) Regulation Systems, Compliance, and

Integrity (“Reg. SCI”), effective February 3, 2015 (requiring OCC’s compliance by

November 3, 2015), and (3) Section 19(b)(1) of the Exchange Act .45

               a. The 2016 CCAs

        Seven of the twelve violations identified in the SEC OIP involved a new

paragraph (e) of Exchange Act Rule 17Ad-22; this paragraph was added when the

SEC adopted the 2016 CCAs on September 28, 2016, and OCC’s compliance

deadline was April 11, 2017.46 The SEC OIP asserted OCC violated paragraph (e)

by failing to implement certain policies and procedures reasonably designed to

provide a transparent legal framework, maintain risk management, and establish a

methodology to account for risks and attributes of products cleared by OCC.47

43
   Id.
44
   Id. at 10-11.
45
   Id. at 10.
46
   Id. at 11.
47
   Id. at 11-12; for a more detailed description, see Ex. 11 at ¶¶ 17-35, 50-56.

                                                 10
               b. Allegations involving Reg. SCI 19(b)

       The SEC OIP also included alleged violations of Reg. SCI, which required

OCC to create policies and procedures to ensure the security of its computers,

network, and electronic systems that support clearance and settlement of financial

transactions.48 After the November 3, 2015 compliance date passed, the SEC OIP

found OCC failed to establish written policies and procedures reasonably designed

to identify and test vendor-issued patches and secure certain data.49

               c. Rule-Filing Obligation Violations

       The SEC OIP also identified one violation of Section 19(b)(1) of the Exchange

Act, requiring OCC to file with the SEC policies and practices that meet the

definition of a proposed rule change.50 In contrast to the 2016 CCAs and Reg. SCI,

these rule-filing obligations were in effect from 2012-2014, but were not the subject

of the 2012-2014 OCIE Letters.51 These alleged violations arose because of OCC’s

2015 notification to the SEC that OCC did not plan to seek approval of certain

policies under which it had been operating, but instead would file changes to those

policies going forward.52 The SEC rejected that position.53 Further, the SEC OIP

48
   Id. at 12; Ex. 11 at ¶¶ 43-45.
49
   Id. at 12-13; for more detailed description, see Ex.11 at ¶¶ 47, 58-59.
50
   Id. at 13.
51
   Id.
52
   Id.; see also Ex 9 at 19-23; Ex. 24 at 15.
53
   Id.

                                                 11
listed various policies OCC implemented before obtaining the SEC’s approval,

including six policies OCC revised in May 2017.54

                d. The February 2018 Market Event

        Before issuing the SEC OIP, the SEC also questioned OCC about its response

to a one-day market volatility anomaly that occurred on February 5, 2018.55 After

the event, OCC recalculated margins due by exercising its Rule 609A waiver

authority; this provided OCC with a short-term remedy as a response to the one-day

market volatility anomaly.56 In the Draft SEC OIP, the SEC alleged OCC failed to

enforce its margin level policies “from February 6, 2018 to February 15, 2018.”57

This claim, however, eventually was removed from the final SEC OIP.58

     E. The Commodity Futures Trading Commission (“CFTC”) Enforcement
        Action

     On June 1, 2018, the Division of Enforcement of the Commodity Futures Trading

Commission (the “CFTC”) informed OCC that the CFTC was conducting an

investigation concerning compliance with CFTC regulations.59 The CFTC issued its

own draft and final OIPs (respectively, the “CFTC Draft OIP” and the “CFTC OIP”)

on August 6, 2018, and September 4, 2019, asserting OCC violated Core Principles

54
   Id. at 14.
55
   Id.
56
   Id.
57
   Id.
58
   Id. at 15.
59
   Id.

                                        12
(B, D and I) under Section 5(b) of the Commodity Exchange Act and related Part 39

regulations.60     The factual allegations included in the CFTC OIP track those

underlying the SEC OIP.61 A similar claim concerning the February market volatility

event was included in the CFTC Draft OIP, but OCC defended against this

allegation; like the SEC Enforcement Action, this allegation was removed from the

final CFTC OIP.62 OCC entered into a settlement agreement with the CFTC, paying

$5 million in penalties and agreeing to injunctive relief.63 OCC neither admitted nor

denied the CFTC’s allegations in connection with the settlement.64

     F. Contact with the Insurers

       On November 10, 2017, OCC provided notice to the Insurers of the SEC

Enforcement Action under Policies issued for the 2017-2018 period, and OCC gave

the Insurers notice of the CFTC Enforcement Action on October 5, 2018 under

policies issued for the 2018-2019 period.65 In October 2018, OCC also forwarded

its April 2018 Statement of Position and the Draft SEC OIP along with additional

materials to show, in its view, an actual Claim had been made.66

60
   Id. at 15-16.
61
   Id. at 16. Specifically, the CFTC OIP, like the SEC OIP, alleged OCC failed to implement
policies and procedures reasonably designed to: (1) produce margin levels commensurate with the
risk and attributes of each relevant product, (2) effectively monitor its credit exposure and liquidity
risk, and (3) protect the security of certain information systems. Ex. 13 at 2.
62
   Id. at 16.
63
   Id. at 17.
64
   Id.
65
   Id. at 21.
66
   Def.’s Mot. at 8.

                                                  13
        On December 7, 2018, U.S. Specialty denied coverage for the SEC

Enforcement Action based on the Events Exclusion, claiming the alleged violations

in the SEC Draft OIP arose out of the events detailed in the 2012-2014 OCIE Letters,

which were “continuing and unresolved.”67 U.S. Specialty also accepted notice of

the CFTC Enforcement Action on that same day; it did not deny coverage of that

action under the Events Exclusion or on any other basis, but reserved its right to

deem the CFTC Enforcement Action related to the SEC Enforcement Action (the

“Enforcement Actions”).68 In response, OCC’s counsel sent U.S. Specialty a letter

detailing the differences between the SEC Enforcement Action and the 2012-2014

OCIE Letters and asking U.S. Specialty to reconsider its coverage position.69

        On December 20, 2019, U.S. Specialty maintained its position that the SEC

Enforcement Action was barred by the Events Exclusion after receiving the Final

SEC OIP; at this time, U.S. Specialty also raised the Prior Notice Exclusion as an

independent reason to deny coverage.70 U.S. Specialty did concede that the Final

OIP constituted a Claim against OCC.71 But U.S. Specialty reiterated denial of

coverage on July 28, 2020.72

67
   Plf.’s Mot. at 21; Ex. 22 at 6.
68
   Id. at 22; Ex. 23.
69
   Id. at 21.
70
   Id. at 22.
71
   Id.
72
   Id.

                                        14
       OCC filed its action against the Insurers on November 10, 2020, alleging

breach of the 2017-2018 Policies and seeking coverage for the defense costs OCC

incurred in connection with the investigation.73 On April 28, 2021, OCC filed this

motion for partial summary judgment on relatedness.74 At the time OCC filed its

summary judgment motion, Defendants had discovery requests outstanding.75 On

April 30, 2021, OCC served responses and objections to U.S. Specialty’s Requests

for Production, but OCC did not produce any documents in response to those

Requests.76

     G. Party Contentions

       OCC contends the Court should enter summary judgement in its favor with

respect to the Events Exclusion and the Prior Notice Exclusion. OCC argues the

Exclusions are not blanket SEC or regulatory exclusions, but instead exclude

coverage for particular bargained-for events unrelated to the Enforcement Actions

at issue here.77 OCC asserts that under Delaware law, the Enforcement Actions must

be “fundamentally identical” to the 2012-2014 OCIE Letters to bar coverage based

73
   Def.’s Mot. at 9; Compl. ¶¶ 5, 46-50.
74
   See Plf.’s Mot.
75
   U.S. Specialty sent Requests for Production of Documents to OCC on March 8, 2021.
76
   Emily A. Golding Affidavit (hereinafter “Golding Aff”). at ¶ 9.
77
   Plf.’s Mot. at 4.

                                             15
on relatedness.78      And OCC stresses that the Enforcement Actions are not

sufficiently related to the 2012-2014 OCIE Letters to preclude coverage.79

       OCC emphasizes several differences between the OCIE Letters and the

Enforcement Actions. OCC contends those differences preclude this Court from

finding the actions “fundamentally identical,” arguing the OCIE Letters and the

Enforcement Actions involve (1) different regulatory bodies; (2) different time

periods; (3) different alleged wrongful conduct under different enforcement

schemes; and (4) different requested relief.80 The Polices provide that, even if a

Claim involves both covered and uncovered matters, 100% of OCC’s Defense Costs

will be allocated to the covered matters.81 So, OCC contends all the Defense Costs

it incurred in defending the Enforcement Actions are covered because at least a

portion of the Enforcement Actions are unrelated to the 2012-2014 OCIE Letters

and therefore covered. 82 Lastly, OCC asserts the 2012-2014 OCIE Letters were

related to rules and regulations under the SEC’s authority, while the CFTC brought

78
   Id. at 3.
79
   Id.
80
   Id. Specifically, OCC argues that (1) the OCIE, which coordinates routine yearly compliance
reviews vs. the enforcement divisions of the SEC and CTFC; (2) the 2012-2014 OCIE Letters
cover conduct prior to 2014, while the Enforcement Actions cover activity from 2015-2018; (3)
the 2012-2014 OCIE Letters focused on areas for compliance improvements, while the
Enforcement Actions alleged violations of various statutes and regulations that had not even been
adopted at the time of the earlier examinations; and (4) OCC designed remediation plans instead
of the SEC and CFTC mandated monetary penalties and injunctive relief in the Enforcement
Actions.
81
   Id. at 2, Ex. 1.
82
   Plf.’s Mot. at 2.

                                               16
an independent Enforcement Action against OCC for alleged violations of the

Commodity Exchange Act and related regulations.83

       The Insurers contend OCC’s summary judgment motion is premature.84 The

Insurers argue they should be permitted to take discovery under Superior Court Civil

Rule 56(f) concerning the exact circumstances and events related to the OIPs issued

by the SEC and the CFTC, as well as the scope of the Enforcement Actions.85 The

Insurers also assert material disputes of fact concerning the Exclusions negate the

application of the “fundamentally identical” standard.86 The Insurers believe the

Event Exclusion is broad enough to exclude coverage for any Claim arising out of,

based upon or attributable to any Wrongful Act or any underlying fact or

circumstance in any way relating to the 2012-2014 SEC Letters87

        The Insurers also allege that the phrase “Covered and uncovered” matters

used in the Allocation Provision is limited to the circumstances where an

indisputably covered Claim includes some uncovered aspect, which is inapplicable

in this case.88 A covered Claim would allow OCC to seek covered damages, wages,

83
   Id. at 4.
84
   Def.’s Mot. at 1.
85
   Id.
86
   Id. at 2.
87
   Id. at 7; Ex. 1.
88
   Id. at 34.

                                        17
fines, taxes or penalties, and the Policies would allow 100% coverage for defense

costs, notwithstanding the uncovered matters included in the Claim.89

ANALYSIS

     Summary judgment is appropriate “if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits” show “there is

no genuine issue as to any material fact and that the moving party is entitled to

judgment as a matter of law.”90 The movant bears the initial burden of demonstrating

its motion is supported by undisputed material facts.91 If that burden is met, the non-

movant must demonstrate that there is a “genuine issue for trial.”92 To determine

whether material facts are in dispute, the Court construes the record in the light most

favorable to the non-movant.93

       A. The Insurers have not carried their burden of demonstrating that the
          Policies’ Exclusions apply because the 2012-2014 OCIE Letters are
          not related to the Enforcement Actions.

       Delaware law governs the Policies.94 OCC, as the insured, has the burden of

“proving that a claim is covered by an insurance policy,” and if satisfied, “the burden

89
   Id.
90
    Del. Super. Ct. Civ. R. 56(c).
91
    Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979).
92
   Del. Super. Ct. Civ. R. 56(e); see also Brzoska v. Olson, 668 A.2d 1355, 1364 (Del. 1995) (“If
the facts permit reasonable persons to draw but one inference, the question is ripe for summary
judgment.”).
93
    Judah v. Del. Tr. Co., 378 A.2d 624, 632 (Del. 1977).
94
   Compl. ¶ 15-17. The Insurers did not argue that any other state’s law governs the Policies.
Further, the Delaware Supreme Court has concluded that Delaware law generally applies to D&O
coverage for Delaware corporations. See RSU Indem. Co. v. Murdock, 248 A.3d 887, 900-01 (Del.

                                               18
shifts to the [I]nsurer[s] to prove that the event is excluded under the policy.”95 The

Insurers’ Exclusions only will bar coverage if the Enforcement Actions are related

to the 2012-2014 OCIE Letters under the Policies’ definition of relatedness.

       Under Delaware law, the principles of insurance contract interpretation are

well-established and grounded in the parties’ intent.96 Trial courts have been

instructed to analyze contracts using a “plain language framework that is based on

general interpretive principles.”97 OCC attempts to persuade this Court that it should

determine relatedness between the Enforcement Actions and the 2012-2014 OCIE

Letters by applying a “fundamentally identical” standard. But that standard is not

grounded in the Policies’ language, and this Court therefore declines to apply it.98 If

2021) (“[I]n the vast majority of cases, Delaware law governs the duties of the directions and
officers of Delaware corporation to the corporation, its stockholders and its investors. As such
corporations must assess their need for D&O coverage with reference to Delaware law.”) (internal
citations omitted).
95
   See Virtual Bus. Enterprises, LLC v. Maryland Cas. Co., 2010 WL 1427409, at *4 (Del. Super.
Ct. Apr. 9, 2010).
96
   Sycamore Partners Mgmt., L.P. v. Endurance Am. Ins. Co., 2021 WL 4130631, at *10 (Del.
Super. Ct. Sept. 10, 2021.)
97
   Id. at *11 (Del. Super. Ct. Sept. 10, 2021.)
98
   This Court recently addressed the “fundamentally identical” standard in Sycamore Partners
Mgmt., L.P. v. Endurance Am. Ins. Co. There, the Court explained that a number of recent
decisions from the Delaware Superior Court have applied a “fundamentally identical” standard to
policy exclusions based on the relatedness of claims. But the Court went on to explain that neither
the Delaware Supreme Court nor any other jurisdiction has adopted “fundamental identity” as the
standard for all relatedness inquiries. Specifically, this Court explained: “To apply indiscriminately
that type of gloss to otherwise unambiguous policy language arguably could contravene Delaware
law requiring this Court to interpret insurance policies according to their plain language and to
avoid grafting public policy limitations into contracts in the absence of a policy pronouncement
by the General Assembly.” Sycamore Partners Mgmt., L.P., 2021 WL 4130631 at *11 (citing In
re Solera Ins. Coverage Appeals, 240 A.3d 1121, 1131(Del. 2019), In re Verizon Ins. Coverage
Appeals, 222 A.3d 566, 573-75 (Del. 2019)); Sycamore Partners Mgmt., L.P. v. Endurance Am.
Ins. Co., 2021 WL 761639, at *11 (Del. Super. Ct. Feb. 26, 2021) (“Sycamore I”).

                                                 19
contract language is clear and unambiguous, the parties’ intent is established by

giving the language its ordinary and usual meaning.99 A contract will not be found

ambiguous simply because parties do not agree on its construction.100 Ambiguity

exists only when the contract’s controversial provisions reasonably are susceptible

of different interpretations or have two or more different meanings.101

       This Court finds the Policies’ relevant terms clear and unambiguous. The

Event Exclusion bars coverage for Claims “arising out of,” “based upon,” or

“attributable” to the OCIE Letters or any Wrongful Act, which “in any way relat[es]

to” the OCIE Letters or an Interrelated Wrongful Act.102 An Interrelated Wrongful

Act is “any fact or circumstance alleged” in the OCIE Letters or any Wrongful Act

“which is the same as, similar or related to, or a repetition of any Wrongful Act”

alleged or asserted in the OCIE Letters.103 Well-settled Delaware law instructs this

Court to look to dictionaries for assistance in determining the plain meaning of

undefined contract terms.104 The Delaware Supreme Court has undertaken this

99
   RSU Indem. Co. v. Murdock, 248 A.3d 887, 905-06 (Del. 2021).
100
    Id.
101
    Id.
102
    Plf.’s Mot., Ex. 1, Specific Event(s) Exclusion- Absolute.
103
    Def.’s Mot. at 34; Ex. 1
104
    Tetragon Financial Group Limited v. Ripple Labs Inc., 2021 WL 1053835, at *4 (Del. Ch. Mar.
19, 2021) (citing Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728, 738 (Del.
2006).“...[D]ictionaries are the customary reference source that a reasonable person in the position
of a party to a contract would use to ascertain the ordinary meaning of words not defined in the
contract.”) Id.

                                                20
process and defined “arising out of” as having “some meaningful linkage.”105 With

no other textual intent provided by the parties, phrases like “based on” and

“attributed to” also most logically mean “originating from” or “sharing some

meaningful linkage.”106 The Court therefore reads the Event Exclusion to mean that

the Insurers will not be liable to pay any Loss in connection with a Claim originating

from or with “some meaningful linkage” to:

       (a) any Event(s);
       (b) the prosecution, adjudication, settlement, disposition, resolution or
           defense of any Event(s) and/or Claim(s) arising from any Event(s);
       (c) any Wrongful Act, underlying fact or circumstance in any way
           relating to any Event(s); or
       (d) any Interrelated Wrongful Act, regardless of whether or not such
           Claim involves the same or different Insureds or parties, the same or
           different legal causes of action or the same or different claimants, or
           is brought in the same or different venue or resolve in the same or
           different forum.”107

       When considering the plain language, the Event Exclusion bars coverage of a

Claim with a “meaningful link” to the allegations in the 2012-2014 OCIE Letters.

Additionally, the Event Exclusion bars coverage of the prosecution, adjudication,

settlement, disposition, resolution or defense of a Claim with a “meaningful link” to

the 2012-2014 OCIE Letters. Third, the Event Exclusion bars coverage for a Claim

that has a “meaningful link” to any Wrongful Act that relates to the 2012-2014 OCIE

105
    Pac. Ins. Co. v. Liberty Mut. Ins. Co., 956 A.2d 1246, 1257 (Del. 2008); Eon Labs Mfg., Inc.,
v. Reliance Ins. Co., 756 A.2d 889, 894 (Del. 2000).
106
    See Sycamore Partners Mgmt., L.P., 2021 WL 4130631, at *12. Naturally, this assertion should
also qualify for phrases such as “based upon” or “attributable to.”
107
    Plf.’s Mot., Ex. 1, Specific Event(s) Exclusion- Absolute.

                                               21
Letters. Finally, the Event Exclusion bars coverage for a Claim with a “meaningful

link” to any Interrelated Wrongful Act. Accordingly, to invoke this exclusion, the

Insurers must establish a “meaningful link” between the Enforcement Actions and

the 2012-2014 OCIE Letters or the wrongful conduct alleged in those letters.

       Similarly, the Prior Notice Exclusion bars coverage for Loss in connection

with a Claim “arising out of, based upon or attributable to facts or circumstances

alleged, or to the same or related Wrongful Acts alleged or contained” in any Claim

that already has been reported to the Insurers.108 Here too a “meaningful link” must

exist between the Enforcement Actions and the 2012-2014 Letters for the Prior

Notice Exclusion to apply.

       This Court holds that no such meaningful link exists between the Enforcement

Actions and the 2012-2014 OCIE Letters or the wrongful acts alleged therein. In

determining whether a “meaningful link” exists, this Court has held that it is not

enough for two claims to mention some of the same facts.109 And the Delaware

Supreme Court has instructed lower courts to implement “meaningful linkage” in a

coverage context broadly, where possible, to find coverage.110 As OCC correctly

asserted, the nature of its business is such that there is bound to be some surface-

108
    Id. at 7. Definitions (B)(1)(H).
109
    See, e.g., Sycamore Partners Mgmt., L.P., 2021 WL 4130631, at *14.
110
    Sycamore Partners Mgmt., L.P. v. Endurance Am. Ins. Co., 2021 WL 4130631, at *14 (Del.
Super. Ct. Sept. 10, 2021) (citing Pac. Ins. Co. v. Liberty Mut. Ins. Co., 956 A.2d 1246, 1256-57
& n.42 (Del. 2008)).

                                               22
level overlap between earlier enforcement actions and those for which OCC

presently seeks coverage.111          But several key differences refute the Insurers’

argument that a “meaningful link” exists between the Exclusions and the 2012-2014

OCIE Letters.

       First, the type of investigation differs between the Enforcement Actions and

the 2012-2014 OCIE Letters.112 The Enforcement Actions are not concerned with

routine annual compliance examinations, while the 2012-2014 OCIE Letters involve

the SEC Office of Compliance Inspections and Examinations in its function of

overseeing annual compliance.113 Second, the investigation time periods differ; the

SEC Enforcement Action occurred during 2017-2019, the CFTC Enforcement

Action was between 2018-2019, and the 2012-2014 OCIE Letters were from 2009-

2013.114 Next, the regulations allegedly violated differ from the Enforcement

Actions and the 2012-2014 OCIE Letters. The SEC Enforcement Action involved

the 2016 CCAs, Reg. SCI, Rule-Filing Obligations in Section 19(b) and Rule 17Ad-

22(b)(2) and (d)(1).115         The CFTC Enforcement Action concerned Section

5b(c)(2)(B), (D), and (I) of the Commodity Exchange Act and Section 39

Regulations.116 But overall, the 2012-2014 OCIE Letters only involved general

111
    D. I. 58 Tr. at 6.
112
    Plf.’s Mot., Comparison Chart [hereinafter “Chart”], at 1.
113
    Id.
114
    Id.
115
    Id.
116
    Plf.’s Mot. at 15-16.

                                                23
compliance obligations.117 Perhaps most significantly, the Enforcement Actions and

the 2012-2014 OCIE Letters differ in the type of wrongful conduct that is alleged.

The SEC Enforcement Action alleges OCC (1) failed to maintain policies for credit

and liquidity stress testing and margin methodologies as demanded by the 2016

CCAs; (2) failed to maintain system infrastructure policies as demanded by Reg.

SCI; (3) failed to file proposed rules with the SEC; and (4) engaged in wrongful

conduct involving the 2018 volatility event.118 The CFTC Enforcement Action

reproduces the allegations contained in the SEC Enforcement Action. But the 2012-

2014 OCIE Letters involve (1) deficiencies and weaknesses in OCC’s escrow

deposit program, (2) its handling of confidential information, and (3) board structure.

Lastly, the Enforcement Actions differ from the 2012-2014 OCIE Letters based on

the nature of relief sought. The Enforcement Actions sought punitive damages and

injunctive relief. The 2012-2014 OCIE Letters sought compliance and remediation

of OCC’s deficiencies and weaknesses.

       This interpretation and application of the Exclusions also avoids rendering

coverage under the Policies illusory. As a policy matter, the Exclusions must be

construed to safeguard OCC’s reasonable expectation of insurance coverage. 119

117
    Specifically, the 2012-2014 OCIE Letters made references to Exchange Act Rule 17Adj-
22(b)(2); (b)(3); (b)(4); and (d)(1), (d)(3), (d)(4), (d)(8), (d)(11); Rule 17a-1; and Section 19(g)(1).
118
    Chart, at 1.
119
    Sycamore Partners Mgmt., L.P., 2021 WL 4130631, at *11.

                                                  24
Insurance contracts should be interpreted as providing broad coverage to align with

an insured’s reasonable expectations, and it is the insurer’s burden to establish that

a claim specifically is excluded.120 The Insurers successfully bargained for the

inclusion of the 2012-2014 OCIE Letters as part of an exclusion within the Policies.

The Insurers did not bargain for the inclusion of any Claim that has “any fact in

common” with the 2012-2014 OCIE Letters or any Claim involving an SEC office.

If this Court were to interpret the Policies that broadly, coverage would be elusive.

        Having concluded the Exclusions do not apply, the Court need not address

the other issues the parties raised in their briefs, namely (1) whether the Enforcement

Actions involved a single Claim or multiple Claims, and (2) the effect of the 100%

allocation provision.121

       B. The Insurers’ Rule 56(f) request is denied.

       A motion under Superior Court Civil Rule 56(f) is directed to this Court’s

broad discretion.122 In certain circumstances, the Court may “refuse the application

for [summary] judgment” or “may order a continuance” to permit an opposing party

to gather discovery.123 “[A] party opposing summary judgment may, pursuant to …

Rule 56(f), request limited discovery if it cannot present facts essential to oppose the

120
    Murdock, 248 at 905-06.
121
    The Policies also include a Pre-Pending Litigation Exclusion. The Insurers did not address this
in the Answering Brief, admitted so in oral argument, and therefore that argument is moot.
122
    Brick v. Retrofit Source, LLC, 2020 WL 4784824, at *3 (Del. Ch. Aug. 18, 2020).
123
    Del. Super. Ct. R. 56(f).

                                                25
summary judgment motion.”124 The party seeking discovery bears the burden of

demonstrating the discovery requested is both specific and relevant “in light of

applicable law.”125 In support of their Rule 56(f) affidavit, the Insurers allege they

were provided with very little documentation of the SEC Enforcement Action or the

CFTC Enforcement Action during the pendency of those investigations.126 The

Insurers claim the information necessary to adequately respond to and oppose

OCC’s Motion exclusively is in OCC’s possession.127

       The Insurers first argue discovery is necessary to determine whether the

Enforcement Actions constitute a single Claim or multiple Claims at issue.128 But

as indicated above, the Court does not need to address this question at this time.

Based on this Court’s ruling, the issue regarding the number of claims need not be

resolved. This issue may be relevant to retention but does not preclude summary

judgment on the relatedness question before the Court.

       The Insurers also contend discovery is needed to respond to OCC’s argument

that the Prior Notice Exclusion does not exclude coverage for the Enforcement

124
    Aveanna Healthcare, LLC v. Epic/Freedom, LLC, 2021 WL 3235739, at *28 (Del. Super. Ct.
July 29, 2021) (citing Corkscrew Mining Ventures, Ltd. V. Preferred Real Est. Fund Invs., Inc.,
2011 WL 704470, at *3 (Del. Ch. Feb. 28, 2011)).
125
    Aveanna Healthcare, LLC, 2021 WL 3235739, at *28. (citing Schillinger Genetics v. Benson
Hill Seeds, Inc., 2021 WL 320723, at *16 (Del. Ch. Feb. 1. 2021)).
126
    Golding Aff. ¶ 13.
127
    Id.
128
    Id. ¶ 15.

                                              26
Actions in this case.129 The Insurers argue OCC filed this motion too quickly.130 But

this Court takes no issue with the timing of this motion. Next, the Insurers contend

they are entitled to discover the communications between OCC and the SEC that

resulted in the Final OIP to determine the “contours” of OCC’s claim. But the

Insurers have failed to cite to any authority for the proposition that this Court should

look beyond the pleading documents and consider communications between parties

in addition to formal documents as a means of determining relatedness. 131 This

Court only considers the language of the Policies and the pleadings or similar formal

documents to determine the scope of coverage for defense costs.132 The Court does

not find such discovery relevant to the summary judgment motion.

       Lastly, the Insurers argue discovery is needed to aid in policy interpretation if

the terms are deemed ambiguous by this Court.133 But the Policies’ terms are not

ambiguous, and this argument therefore is moot.

CONCLUSION

       For the foregoing reason, OCC’s motion for partial summary judgment on

relatedness is granted. The Insurers have failed to meet their burden of proving that

129
    Id. ¶ 13.
130
    D. I. 58 Trans. 36:10-13.
131
    See id. 42, 50:4-9.
132
    In determining coverage for defense costs, the Court looks to the allegations in the underlying
complaint. See IDT Corp. v. U.S. Specialty Ins. Co., 2019 WL 413692, at *10 (Del. Super. Ct.
Jan. 31, 2019); Johnston v. Tally Ho, Inc., 303 A.2d 677, 679 (Del. Super. Ct. 1973).
133
    Golding Aff. ¶ 19.

                                                27
the Enforcement Actions are related to the 2012-2014 OCIE Letters. Likewise, the

Insurers have failed to present a sufficient basis to support their Rule 56(f) affidavit.

                                           28