In a recently unsealed opinion, a trial court in Delaware granted summary judgment to three excess insurers holding that a prior knowledge exclusion in warranty letters provided to the excess insurers precludes coverage for government investigations, enforcement actions, and civil and criminal litigation concerning Infinity Q Capital Management LLC (“Infinity Q”). See Infinity Q Capital Management, LLC, et al. v. Travelers Casualty and Surety Company, et al., C.A. No. N21C-07-158 EMD CCLD, 2022 WL 2902803, 2022 Del. Super. LEXIS 363 (Del. Super. Ct., Aug. 15, 2022).
Infinity Q, which is a registered investment advisor, procured excess professional liability insurance by providing the excess insurers with warranty letters representing that “[n]o person or entity for whom this insurance is intended has any knowledge or information of any act, error, omission, fact or circumstance that may give rise to a claim under the proposed insurance,” and agreeing that “any claim for, based upon, arising from, or in any way related to any act, error, omission, fact or circumstance of which any such person or entity has any knowledge or information shall be excluded from coverage under the proposed insurance.” The court found that Infinity Q and its executives had knowledge of any act, fact, or circumstance that may give rise to a claim under the excess policies because among other facts the court set forth in its opinion, the SEC Division of Enforcement had sent multiple letters to Infinity Q in the months prior to Infinity Q’s submission of the warranty letters, and Infinity Q acknowledged in communications (not shared with the excess insurers at the time) just days before submission of the warranty letters, that the SEC’s inquiry of Infinity Q was ongoing. Consequently, the court held that the warranty letters bar coverage for the investigations, enforcement actions, and civil and criminal litigation arising out of the SEC’s inquiry. In so holding, the court found that the warranty letters and their prior knowledge exclusions were unambiguous and applied to bar coverage for all insureds on a non-severable basis. It also considered and rejected the insureds’ arguments that the warranty letters were inapplicable to the excess policies.
Dykema represented Travelers Casualty and Surety Company of America, which issued the first layer of excess insurance at issue in the case.