As we previously discussed in this blog, in June 2021 the Delaware Superior Court found in First Solar Inc. that there was no coverage under a claims-made policy for a securities action (Maverick) filed during the relevant policy period, on the grounds that the Maverick action constituted a “related claim” with respect to a class action that had been filed before the policy period commenced (Smilovits). In so holding, the court applied a “fundamentally identical” standard of relatedness, noting that the claims would be deemed related “only where the two underlying claims are fundamentally identical.”

In its March 16 decision on appeal from the Superior Court, the Delaware Supreme Court affirmed but determined that the lower court had applied the incorrect standard for “relatedness” in arriving at its result. Specifically, the Supreme Court declared that the lower court’s application of a “fundamentally identical” standard “disregards the plain language of the insurance policy,” directing instead that “[w]hether a claim relates back to an earlier claim is decided by the language of the policy, not a generic ‘fundamentally identical’ standard.”

In light of this deference to policy language, the court focused on the policy’s related claims provision, noting that it defined a “related claim” as a “Claim alleging, arising out of, based upon or attributable to any facts or Wrongful Acts that are the same as or related to those that were … alleged in a Claim made against an Insured.” Applying this policy language to the “relatedness” of the Maverick and Smilovits actions, the court presented a side-by-side comparison of certain characteristics of each case, including the named defendants, relevant time period, claimed damages, and relevant evidence.

In its analysis of these characteristics, the court noted that “[a]lthough the Actions are not identical in their claims or evidence, absolute identity is not required.” For example, while certain aspects of First Solar’s alleged misrepresentations differ as between the Smilovits action and the Maverick action, the court found that both actions “focus on First Solar’s misrepresentations about the cost of solar power.” Similarly, while the plaintiffs in each action sought a different type and degree of damages, the court concluded that “the thrust of the Wrongful Acts alleged in the two Actions is the same regardless of how damages are claimed.” Thus, the court noted that the Smilovits action and the Maverick action are “substantially similar and fundamentally identical” and concluded as follows:

Using the Primary Policy’s Related Claim definition, the Maverick Action raised claims “alleging, arising out of, based upon or attributable to any facts or Wrongful Acts that are the same as or related to those” raised in the Smilovits Action. Thus, the Maverick Action Claim is deemed first made at the time of the Smilovits Action and is excluded from coverage under the Related Claim Exclusion of the Policies.

Accordingly, the court affirmed the lower court’s dismissal of the coverage action.