DealLawyers.com Blog

We’ve previously blogged about a Virginia federal court’s decision holding that a D&O policy’s “bump-up” exclusion precluded coverage for a $90 million settlement of litigation arising out of the Towers Watson’s 2016 merger with Willis Group. Over on The D&O Diary, Kevin LaCroix reports that the district court’s decision was affirmed on appeal by the 4th Circuit. Here’s an excerpt from Kevin’s summary of the 4th Circuit’s decision:

In a May 28, 2025, opinion written by Judge G. Steven Agee for a unanimous three-judge panel, the Fourth Circuit affirmed the district court, holding that the bump-up exclusion precludes coverage for the underlying settlement, including the portion of the settlement that ultimately went toward attorneys’ fees.

In concluding that the exclusion applied to preclude coverage, the appellate court agreed with the district court that the settlements do “represent” an amount by which the merger price was “effectively increased.” The “real result” of the settlements, the appellate court said, was that the shareholders received additional consideration for their relinquished shares.

In reaching this conclusion about the settlement, the appellate court rejected Towers Watson’s argument that the settlement of the Virginia class action could not trigger the exclusion because it asserted only violations of Section 14(a), for which a purchase price adjustment is not an available remedy. The court said that this argument, “while clever, is beside the point.” The appellate court’s said that its role is not to assess the substance of the underlying claims, but rather whether or not the settlement itself represented an effective increase in the merger consideration – which the appellate court concluded that it did.

The 4th Circuit’s hostility to the argument that remedies for proxy disclosure claims do not involve an increase in the purchase price stands in sharp contrast to a recent Delaware decision addressing that issue. In Harman International Industries v. Illinois National Insurance, (Del. Supr. 1/25), the Delaware Superior Court rejected an insurer’s claim that the settlement of a shareholder class action lawsuit alleging false and misleading disclosures in the merger proxy involved an increase in the purchase price.

– John Jenkins