Design Highlights
- The Delaware Supreme Court mandated AIG and Chubb to pay a $28 million insurance claim linked to Harman International Industries.
- The court found that while the first element of the bump-up exclusion was met, the second element was not satisfied.
- Insurers argued the settlement indicated an acquisition price increase, but the court rejected this claim due to insufficient evidence.
- The ruling emphasizes that insurers must prove both elements of any exclusion to deny coverage in disputes.
- This case strengthens D&O rights by highlighting the importance of specific policy language and case facts in insurance claims.
In a surprising turn of events, the Delaware Supreme Court slapped down AIG and Chubb‘s attempt to wiggle out of a hefty insurance payout. The court’s ruling was all about the bump-up exclusion that the insurers leaned on to dodge covering a $28 million securities settlement for Harman International Industries. Spoiler alert: it didn’t work.
Harman had previously been acquired by Samsung Electronics in 2017, but their troubles began when shareholders claimed they were misled by a false proxy statement, alleging that the acquisition price was inadequate. AIG, the primary insurer, along with Chubb and Berkley, tried to make a case that the settlement somehow increased the acquisition price, which is where the bump-up exclusion came into play.
Shareholders accused Harman of being misled about its acquisition price, prompting insurers to invoke a bump-up exclusion in the settlement dispute.
However, the court wasn’t having any of it. The Superior Court, before the Supreme Court got involved, had already granted summary judgment for Harman, ruling that the insurers failed to prove their exclusion applied. They couldn’t meet the second requirement of the bump-up clause, which was essential.
Yes, the shareholders pointed out an inadequate price, but the insurers couldn’t demonstrate that the settlement was tied to an actual price increase. Game over.
Fast forward to the Supreme Court’s decision, which reaffirmed the lower court’s ruling. The court dissected the situation, noting that while the first element of the bump-up clause was met, the second was a total flop. They went through the timing and terms of the settlement, reminding everyone not to put too much stock in just the settlement language due to potential collusion risks.
You can’t just slap a label on it and call it a day. This ruling sends a clear message to insurers: don’t get too comfortable with your one-size-fits-all bump-up denials. The courts are ready to scrutinize the details.
Insurers now carry the burden to prove both elements of any exclusion, which isn’t as simple as it sounds. The door is wide open for policyholders as they can now challenge denials based on interpretations of exclusions. Additionally, this case sets a precedent that highlights the importance of specific case facts in determining the applicability of coverage exclusions. Unlike workers compensation, which is separate from general business insurance, D&O coverage is often subject to complex exclusions that require careful examination.
In the grand scheme of things, this victory for Harman is a win for D&O rights in transaction litigation. It’s a reminder that policy language and case-specific facts hold significant weight.
