4th Circuit Caps Under Armour’s D&O Coverage at $100M in ‘Related Claims’ Ruling

In a significant ruling in favor of directors and officers (D&O) liability insurers, the 4th U.S. Circuit Court of Appeals reversed a lower court’s decision and narrowed coverage limits for Under Armour Inc.

The appeals court determined that separate legal actions against the apparel giant—involving both public financial statements and specific accounting practices—constituted a single claim under the company’s D&O insurance policy. This decision effectively caps the available coverage at the limit of the policy year in which the first claim was made, denying Under Armour access to an additional $100 million in excess coverage from a subsequent policy period.

The Jan. 20 ruling in underscores the critical importance of “related claims” provisions in D&O policies and how courts interpret the nexus between different types of corporate misconduct.

The dispute originated from a series of legal challenges Under Armour faced beginning in 2016. Shareholders filed lawsuits alleging the company made misleading statements about its financial health, specifically regarding its growth prospects despite the bankruptcy of a major retailer, Sports Authority. Concurrently, government entities, including the Securities and Exchange Commission, launched investigations into Under Armour’s accounting practices, focusing on “pull forward” revenue recognition schemes designed to meet aggressive growth targets.

Under Armour sought coverage for these matters under its D&O liability insurance towers. The company held $100 million in coverage for the 2016-2017 policy year and another $100 million for the 2017-2018 year.

The core conflict centered on whether the government investigations into accounting practices were distinct enough from the earlier shareholder lawsuits to trigger the 2017-2018 policy limits. The insurers argued that the accounting allegations and the misleading public statements were fundamentally intertwined. They contended that because the matters arose from related misconduct, they should be treated as a single claim deemed first made during the 2016-2017 period.

Under Armour disagreed, arguing that the specific accounting investigations were separate claims that should trigger the fresh $100 million limit available in the 2017-2018 policy tower.

In its analysis, the 4th Circuit focused heavily on the policy language, specifically the definition of a single claim. The policy stated that claims arising from facts or wrongful acts that are “logically or causally related” constitute a single claim. The court examined the plain meaning of these terms, concluding that a logical relationship exists when matters are reasonably connected.

The court found that the “pull forward” accounting tactics were the mechanism that allowed Under Armour to make the allegedly misleading public statements about its financial health. The accounting manipulation and the optimistic forecasts were part of a unified scheme to project stability during a turbulent financial period, the court said.

The court rejected Under Armour’s reliance on previous case law where distinct anticompetitive schemes were found to be unrelated. As Judge Marvin Quattlebaum Jr. wrote for the court, “Under Armour’s pull forward accounting actions and its alleged misleading public statements, under the plain meaning of the policy language, are logically and causally related.”

Consequently, the appeals court reversed the district court’s decision and ruled in favor of the D&O insurers, limiting Under Armor’s coverage to the 2016-2017 policy tower.

View the full ruling here. &