California SPAC Entitled to Advancement of Subpoena-Related Costs Post-Name Change Based on “Potentially Covered” Standard

The United States District Court for the Northern District of California, applying California law, has held that two former directors and officers were entitled to advancement of defense costs incurred in connection with SEC subpoenas based on the “potentially covered” claim standard. AmTrust Int’l Underwriters DAC v. 180 Life Sciences Corp., 2024 WL 557724 (N.D. Cal. Feb. 12, 2024). The court also found that the D&O insurers failed to carry their burden to prove that a “Change in Control” exclusion applied to bar coverage, notes Wiley Rein in a blog post.

The insured, KBL IV, a SPAC, merged with 180 Life Sciences in November 2020. The SEC investigated the merger and issued subpoenas to two former directors and officers of the SPAC. The post-merger entity sought coverage under its D&O policies for the defense costs advanced on behalf of the two former directors and officers.

The policies’ Advancement clause provided that “the Insurer shall advance Defense Costs . . . not less often than every 90 days and prior to final disposition of the Claim.” The Advancement clause provided further that “[s]uch advanced payments by the Insurer shall be repaid to the Insurer” in the event the “Insured shall not be entitled … to payment of such Loss.” The policies’ Change in Control Exclusion applied if the SEC subpoenas were construed to allege “in whole or in part” any “Wrongful Acts committed, attempted or allegedly committed or attempted by any Insured” after the merger date.

The primary D&O insurer filed a coverage action asserting that the post-merger entity was not an insured and that subpoena-related expenses were subject to policy exclusions. Read more.


Source: California SPAC Entitled to Advancement of Subpoena-Related Costs Post-Name Change Based on “Potentially Covered” Standard