DealLawyers.com Blog

Just over a year ago, John blogged about the Delaware Superior Court’s decision in Harman International Industries v. Illinois National Insurance (Del. Supr. 1/25), rejecting an insurer’s efforts to rely on a “bump-up” exclusion to avoid coverage for a settlement of disclosure claims arising out of the sale of Harman to Samsung. In late January, the Delaware Supreme Court affirmed the decision in Illinois National Insurance v. Harman International Industries (Del. Sup.; 1/26). This HLB blog from Olshan has more:

The insurance policies at issue followed form to a “bump‑up” provision found in the definition of “Loss” in the primary policy which states that, in the event of a claim alleging inadequate price or consideration for an acquisition of all or substantially all of an entity, “Loss” shall not include any amount of any judgment or settlement representing the amount by which such price or consideration is effectively increased (defense costs and non‑indemnifiable loss excepted). The Delaware Supreme Court construed this provision applying a two-pronged analysis: (1) did the claim allege inadequate consideration; and (2) does the settlement represent an effective increase in the consideration.

The Delaware Supreme Court affirmed judgment for Harman, concluding that the insurance companies failed the second prong of the analysis even though they satisfied the first. The court held that the underlying Section 14(a) claim alleged inadequate consideration, but the record did not show that any portion of the $28 million settlement “represented” an effective increase in the merger consideration. Accordingly, the bump‑up provision did not apply, and coverage for the settlement was affirmed.

John shared a Hunton memo at the time of the Delaware Superior Court decision that noted that the decision is particularly significant for policyholders incorporated in Delaware. The Delaware Supreme Court has said that Delaware law should apply to disputes involving D&O policies sold to Delaware-chartered companies, and other courts have come out differently. In June, John blogged about a 4th Circuit decision holding that the bump-up exclusion precludes coverage for the underlying settlement. Companies facing potential bump-up exclusion challenges may be incentivized to litigate coverage claims in Delaware courts.

– Meredith Ervine