The Fourth Circuit didn't seem convinced Wednesday that it should affirm a lower court's finding that government investigations into Under Armour are unrelated to a securities class action against the sportswear company and thus trigger an additional $100 million in directors and officers coverage from Under Armour's excess insurers.

During oral arguments, Under Armour counsel Michael T. Sharkey of Perkins Coie LLP contended that investigations by the U.S. Securities and Exchange Commission and the U.S. Department of Justice concerning certain sales and accounting practices are not related to a consolidated securities class action. The securities case, which alleged that the company made misleading public statements about its financial condition, was covered under the company's 2016-2017 tower of D&O coverage.

Sharkey asserted that a common motive is not enough to establish that the claims are related.

Many D&O claims concern securities class actions alleging that a company was trying to keep its stock prices up, Sharkey said, and "if that were the level of generality that were appropriate … all claims would be related."

U.S. Circuit Judge Nicole G. Berner cut Sharkey off, saying, "but here it's not you're trying to keep your stock prices up, it's you're trying to keep your stock prices up through a specific scheme."

U.S. Circuit Judge A. Marvin Quattlebaum Jr. then seemed to suggest that the public statements were related to the company's sales and accounting practices, particularly the act of pulling forward sales from future quarters, though Sharkey asserted that the statements were broad and did not touch on pulling sales.

Under Armour shareholder Brian Breece filed the securities action against the company and its executives in February 2017, and the government began looking into the company later that year.

The company's insurers covered the securities action and certain derivative demands under the 2016-2017 policy period, but denied Under Armour's request for coverage under the 2017-2018 policy for the government investigations and subsequent derivative matters, according to court filings. Under Armour's primary carrier, Endurance American Insurance Co., filed the present action in September 2022, with the excess carriers, including AIG unit National Union Fire Insurance Co. and Hartford unit Navigators Insurance Co., joining later.

Endurance and Under Armour eventually resolved their dispute, but the excess carriers maintained that the securities action, government investigations and subsequent derivative matters all constituted one claim under the 2016-2017 policy. The lower court ultimately rejected that contention in March 2024, when U.S. District Judge Richard D. Bennett granted Under Armour's Rule 12(c) motion for judgment on the pleadings and held that the government investigations and derivative matters triggered coverage under the 2017-2018 tower.

Judge Bennett found that the "supposed common nexus of facts" between the securities class action and the government investigations was insufficient to make the two claims "wrongful acts that are logically or causally related," and thus subject to the policy's single claims provision. The judge held that an endorsement added to the 2017-2018 policy was "significantly narrower" than the original single claims provision, such that it replaced the original provision.

The original provision provides that all claims arising out of the same wrongful act or wrongful acts that have a common nexus shall be deemed one claim. The endorsement states that all claims that "arise out of the same fact, circumstance, situation, event, or wrongful act, or facts, circumstances, situations, events, or wrongful acts that are logically or causally related" shall be deemed one claim.

On Wednesday, U.S. Circuit Judge Toby J. Heytens voiced confusion and displeasure with the lower court's ruling, remarking that the court summarily declared that the endorsement was narrower than the original provision without any explanation.

"First, let me say, these definitions are confusing as heck," Judge Heytens said. "Second of all, it is not at all obvious to me that one of these definitions is much narrower than the other."

Sharkey contended that the endorsement is indeed narrower because it applies only to "the" facts and circumstances rather than "any" facts and circumstances, adding that Maryland courts have held that "the" is a narrower term.

Arguing for the insurers, Richard A. Simpson of Wiley Rein LLP told the panel that the "logically or causally related" standard used in the endorsement and the "common nexus" standard used in the original provision are "overlapping and comparable."

Determining whether the claims are related also depends on the level of generality used, Judge Quattlebaum said.

"I don't think you would say [the claims are] related because they both involve Under Armour. I don't think you would say they're related because they both involved potential securities violations," the judge added.

Simpson agreed, saying the securities class action and government investigations are connected by a single scheme and fall within the single claims provision under either standard.

U.S. Circuit Judges A. Marvin Quattlebaum Jr., Toby J. Heytens and Nicole G. Berner sat on the appeals panel for the Fourth Circuit.

The insurers are represented by attorneys from Wiley Rein LLP, DLA Piper, Werner Ahari Mangel LLP, Azrael Franz Schwab Lipowitz & Solter LLC, Kaufman Borgeest & Ryan LLP, Walker Murphy & Nelson LLP, Ropers Majeski PC, Kennedys CMK, Bailey Cavalieri LLC and Peabody & Arnold LLP.

Under Armour is represented by Michael T. Sharkey, Jonathan G. Hardin and Molly A. Olds of Perkins Coie LLP.

The case is Navigators Insurance Co. et al. v. Under Armour Inc., case number 25-1068, in the U.S. Court of Appeals for the Fourth Circuit.