Delaware Court Preserves Coverage Under Target Company’s D&O Policy After De-SPAC Merger

In View Operating v. Starstone, No. N25C-08-064 SKR CCLD, 2026 WL 895939 (Del. Super. Ct. Mar. 30, 2026), a Delaware court applied the well-established rule that exclusions be interpreted narrowly and strictly against the insurer, holding that a Public Offering Exclusion in a subsidiary’s D&O policy did not apply to claims that arose out of the parent company’s post-merger public offering.

The merger at issue involved a Special Purpose Acquisition Company (SPAC) and its insured target. After the SPAC consummated the merger with the target, the SPAC, the target and one of the target’s officers were accused in multiple actions of making material misrepresentations prior to the merger. One of the target’s five D&O insurers denied coverage based on the Public Offering Exclusion, which barred coverage for claims “based upon, arising out of, or attributable to any public offering of equity securities of the Company.” The insurer argued that the SPAC’s post-merger public offering was “functionally equivalent” to a public offering of the target itself and asked the court to extend the exclusion in recognition of the “economic reality” that the SPAC was merely a shell.

However, the court found that the insurer’s “substance over form” argument was not plainly and clearly supported by the language of the exclusion or by the principles of policy interpretation and that a holding for the insurer would “undermine the narrow function of insurance exclusions.” More broadly, the decision underscores that courts may be reluctant to stretch exclusions to fit the unique structure of SPAC transactions absent clear policy language expressly addressing de-SPAC mergers.

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