Delaware Court Finds A Meaningful Link Where Notice Of Circumstances And Later Claim Allege Same Underlying Conduct

The Superior Court of Delaware, applying Delaware law, has held that there was a meaningful link between a notice of circumstances and a later claim where the circumstances described in the notice "allege[d] the same underlying conduct" as the later claim. Forte Biosciences, Inc. v. Wesco Ins. Co., 2026 WL 66768 (Del. Super. Ct. Jan. 8, 2026).

The insured, a biopharmaceutical company, sought coverage under its D&O Policies for June 2022 to June 2023 ("Year 1"), or in the alternative, under its D&O Policy for June 2023 to June 2024 ("Year 2") for a complaint filed in the Delaware Court of Chancery in 2023 (the "2023 Lawsuit"). In the 2023 Lawsuit, the plaintiff alleged that the insured and its directors breached fiduciary duties and primarily challenged a 2023 PIPE stock sale. Although the 2023 Lawsuit was filed in Year 2, the insured argued that it was entitled to coverage under the Year 1 Policies because the 2023 Lawsuit linked to a previously noticed Section 220 books and records demand (the "2022 Demand"). The primary Year 1 insurer (the "insurer") had accepted the 2022 Demand as a "notice of circumstance which may give rise to a Claim related to a potential action against [the insured] in connection with its at-the-market offering of common stock." The 2022 Demand generally called into question the independence of the Board, the Board's management, and a specific ATM stock issuance.

The Year 1 Policies covered "any Claim [ ] subsequently [ ] made against [the insured] ... alleging, arising out of, based upon or attributable to such circumstances or alleging any Wrongful Act which is the same as" those described in a notice of circumstances accepted by the insurer in Year 1. The insurer argued that the 2022 Demand failed to allege any Wrongful Acts that could give rise to the 2023 Lawsuit. The court dismissed this argument, stating that even if the 2022 Demand did not allege a Wrongful Act, that does not bar coverage if "the 2023 Lawsuit 'aris[es] out of, [is] based upon or [is] attributable to [the] circumstances' described in the 2022 Demand." The court noted that "arising out of" requires "some meaningful linkage." Further, under the Delaware Supreme Court's Alexion analysis, courts are directed to adopt a broader "scope of inquiry" when "comparing an insurance claim and notice of circumstances, as compared to two claims," and the key question is whether they "involve the same conduct."

The court rejected the insurer's argument that the 2022 Demand was limited solely to the ATM stock offering, finding it ignored "the circumstances of the 2022 Demand, as well as Alexion's direction to broaden the 'scope of inquiry' evaluation." The court explained that "although the 2023 Lawsuit primarily refers to the PIPE sale, it does so in the context of challenging [ ] mismanagement and efforts to entrench the Board via value diluting transactions." Further, the 2023 Lawsuit discussed the role of the ATM issuance within the broader dispute. The court therefore found that the "circumstances described in the 2022 Demand were integral parts of [the plaintiff's] argument in the 2023 Lawsuit." The court concluded that because both the 2022 Demand and the 2023 Lawsuit involved the same alleged underlying conduct regarding the Board's efforts to resist attempts to contest Board management, there was a meaningful link between them. Thus, the insured was entitled to coverage under the Year 1 Policies.

Lastly, the court held that the insured's bad faith claim failed as a matter of law. Although it agreed with the insured regarding coverage under the Year 1 Policies, there was "legitimate dispute concerning whether the 2023 Lawsuit arose out of the circumstances discussed in the 2022 Demand," and the insurer's denial was "based in a genuine belief that its policy did not cover the claims [ ] asserted."

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