Not Every Regulatory Knock Is a Claim: US D&O Lessons for South African Boards

Directors’ and officers’ liability (D&O) insurance is a critical risk management tool for companies and their leadership, providing protection against claims arising from alleged wrongful acts in the management of the company. However, the scope of coverage under such policies is often the subject of dispute, particularly when regulatory investigations are involved. A recent decision from the Delaware Superior Court in the United States, in the matter between Clear Channel Outdoor Holdings Inc. v. Illinois National Insurance Company (2025), provides important guidance on the interpretation of D&O policies in the context of regulatory investigations.

The SEC Investigation

In the United States, the SEC is the primary regulator of securities markets and has broad powers to investigate potential violations of securities laws. In this case, Clear Channel Outdoor Holdings, a major advertising company, became the subject of an SEC investigation following allegations of financial misconduct at a subsidiary. During the course of its investigation, the SEC requested that Clear Channel enter into a “tolling agreement”.

What is a Tolling Agreement?

A “tolling agreement” is a legal mechanism used in the US to pause or extend the running of a statutory time limit (the “statute of limitations”) within which the SEC must bring an enforcement action. By agreeing to “toll” the statute, the company effectively gives the SEC more time to complete its investigation and decide whether to pursue legal action. This concept does not exist in South African law, where time limits for legal proceedings are generally fixed and can only be extended in limited circumstances

The Insurance Dispute

Clear Channel sought coverage under its D&O policy for the legal costs incurred in responding to the SEC’s investigation, including costs associated with the tolling agreement. The D&O policy in question provided coverage to the company (the “entity”) only for “Securities Claims” – a defined term in the policy. The insurer denied coverage, arguing that the SEC’s tolling request did not meet the policy’s definition of a “Securities Claim”.

Key Policy Provisions and Arguments

The policy defined a “Securities Claim” as a claim (other than an investigation of the company) alleging a violation of securities laws in connection with the purchase or sale of the company’s securities. The policy’s broader definition of “Claim” included any written request to toll or waive a statute of limitations, but this applied primarily to claims against individual insureds (such as directors and officers), not the company itself. The policy required that any Securities Claim be made “for any Wrongful Act” of the company – that is, it must allege some form of misconduct.

Clear Channel argued that the SEC’s tolling request was a “Claim” under the policy and should therefore trigger coverage. The insurer countered that, for the company, only “Securities Claims” were covered, and the tolling request did not qualify.

The Court’s Decision

The Delaware Superior Court sided with the insurer. The court’s reasoning can be summarised as follows:

1. The policy expressly excluded investigations of the company from the definition of “Securities Claim”. The SEC’s tolling request was made in connection with an ongoing investigation, not as part of a formal enforcement action.
2. While the policy’s definition of “Claim” included written requests to toll the statute of limitations, this did not override the narrower definition of “Securities Claim” applicable to the company. The court emphasised that coverage for the company was limited to Securities Claims, not all Claims.
3. The SEC’s tolling request did not allege any violation of securities law or any specific wrongful act by the company. It was simply a procedural request to preserve the SEC’s ability to bring an action in the future, should it decide to do so.
4. The tolling request did not seek any remedy or redress for alleged misconduct, further distinguishing it from a covered Securities Claim.

South African Context

While the concept of tolling agreements is foreign to South African law, the underlying principle – that not every regulatory step constitutes a covered claim – is highly relevant. South African companies should be alert to the limitations of their D&O cover.