4th Circuit limits D&O coverage in Under Armour case

RALEIGH, NC — The 4th U.S. Circuit Court of Appeals reversed a federal district court ruling that had expanded directors and officers (D&O) insurance coverage for the defendant, holding that claims tied to accounting practices and related public statements constituted a single claim under the policies at issue.

Multiple insurers sought review after the U.S. District Court for the District of Maryland ruled that government investigations into the defendant’s accounting practices triggered a separate $100 million layer of coverage under a 2017–2018 D&O policy. The insurers argued that the investigations were interrelated with earlier securities class actions and shareholder derivative demands, and therefore fell within the limits of a 2016–2017 policy.

The dispute turned on the interpretation of the policies’ “single claims” or “related claims” provisions. Those provisions defined a single claim to include claims arising from the same wrongful act or from interrelated wrongful acts that are “logically or causally related,” and deemed such claims first made during the earliest applicable policy period.

The defendant faced a series of civil lawsuits between 2016 and 2018 alleging misleading public statements about financial performance, as well as confidential investigations by the Securities and Exchange Commission focused on revenue “pull-forward” practices. The matters ultimately resulted in settlements exceeding $443 million. The defendant contended that the government investigation involved distinct conduct and therefore triggered additional coverage under a later policy period.

The 4th Circuit disagreed. Applying Maryland law and the plain meaning of “logically or causally related,” the court concluded that the alleged misconduct formed part of a single scheme to maintain the appearance of continued financial growth. The accounting practices enabled the challenged public forecasts, creating both a logical and causal connection between the earlier private litigation and the later government investigation.

Because the claims shared a common objective, arose contemporaneously, and produced a connected effect, the court held they constituted a single claim deemed first made during the earlier policy period. As a result, coverage was limited to the 2016–2017 policy’s $100 million limit, and no separate 2017–2018 layer was available.

The 29-page opinion is Navigators Insurance Company v. Under Armour Inc., Lawyers Weekly No. 001-026-26.