Later Acts that Are Not “Wrongful” Don’t Bar D&O Run-Off Coverage

Key Takeaways

• Subsequent acts must be unlawful to trigger exclusion
• Court requires insurer to prove “Wrongful Act” definition
• Broad lead‑in language does not override missing wrongful element
• New York law imposes heavy burden on insurers for exclusions
• Run‑off policies still cover pre‑cut‑off wrongful conduct

Summary

A New York federal court ruled that subsequent acts after a run‑off policy cut‑off date do not bar coverage unless they are unlawful. Judge Jed Rakoff found AmTrust’s 2019 preferred‑share delisting was a lawful corrective disclosure, so the insurer’s reliance on the subsequent‑acts exclusion failed. The opinion emphasizes that “Wrongful Act” under New York law requires unlawful conduct and that insurers bear a heavy burden to prove an exclusion applies. The case now moves beyond the motion to dismiss, with further litigation pending.

Pulse Analysis

The rise of merger‑and‑acquisition transactions has made excess D&O run‑off policies a standard component of post‑deal insurance programs. These policies typically contain a “subsequent acts” exclusion that bars coverage for claims arising from conduct occurring after a predefined cut‑off date. Practitioners have long assumed that any post‑cut‑off event, such as a corporate disclosure or restructuring, could trigger the exclusion, even when the act itself is lawful. The AmTrust case forces insurers and counsel to revisit that assumption and examine the precise language that defines a “Wrongful Act.”

In Judge Jed Rakoff’s March 13, 2026 opinion, the Southern District of New York held that the delisting of AmTrust’s preferred shares in early 2019 was a “corrective disclosure,” not a wrongful act under the policy’s definition. Because the policy required an unlawful act to activate the exclusion, the insurer could not rely on the broad lead‑in phrasing to deny coverage. The ruling underscores New York’s strict‑construction approach to policy exclusions, placing a heavy evidentiary burden on insurers to demonstrate that the subsequent conduct meets the statutory “unlawful” threshold. This interpretation narrows the scope of exclusions that were previously viewed as almost automatic.

The decision carries immediate practical implications for corporate risk managers and M&A lawyers. Drafting run‑off policies now demands clearer delineation of what constitutes a wrongful act, and insurers may need to revise pricing or endorsement language to reflect the heightened proof requirement. Moreover, the precedent is likely to influence courts in other jurisdictions that look to New York authority on insurance contract interpretation. Companies can leverage this ruling to argue for broader coverage in pending or future securities litigation, while insurers must prepare more robust documentation when invoking subsequent‑acts exclusions.