The typical D&O insurance policy provides coverage, subject to all of its terms and conditions, for an insured’s payment of “Loss.” The policy typically provides that “Loss” includes settlements. But what happens if in settling a lawsuit a policyholder issues stock rather than paying cash? Does the stock issuance represent “Loss” within the meaning of the policy? In an interesting recent opinion, the Delaware Superior Court held that AMC Entertainment Holding’s issuance of stock in connection with the settlement of a stockholders’ claim did represent “Loss” within the meaning of the applicable policy. As discussed below, the court’s opinion raises some interesting questions. The Delaware court’s February 28, 2025, opinion can be found here.

Background

AMC sought to engage in certain share transactions. Certain AMC shareholders objected to the transactions and filed suit. The shareholder suit ultimately was settled by AMC’s agreement to issue to the plaintiffs nearly 7 million shares of its common stock and to pay the plaintiffs’ attorneys fees. After certain adjustments to the parties’ settlement agreement, the Delaware Chancery Court approved the settlement. AMC recorded the settlement payment as a contingent liability and as an expense in its books and valued the payment as a $99.3 expense based on the estimated fair market value of the shares.

The D&O Coverage Issues

At relevant times, AMC maintained a program of D&O insurance consisting of a layer of primary insurance and several layers of excess insurance. The various carriers contended that the settlement was not covered under their policies, taking the position, among other things, that the stock payment did not represent a “Loss” under the policy, and contending further that the insurers had not consented as required under the policy to the settlement as it was adjusted in order to obtain court approval. AMC sued the insurers in Delaware Superior Court seeking a judicial declaration of coverage.

One excess insurer – the sole insurer defendant remaining in the action – and AMC filed cross motions for summary judgment.

The Relevant Policy Language

The term “Loss” means “damages, judgments, settlements, pre-judgment and post-judgment interest or other amounts (included punitive, exemplary or multiplied damages, where insurable by law) that any Insured is legally obligated to pay and Defense Expenses, including that portion of any settlement which represents the claimant’s attorneys’ fees.”

The February 28, 2025, Opinion

In a February 28, 2025, Opinion, Delaware Superior Court Judge Meghan A. Adams granted AMC’s summary judgment motion in part, and denied the insurer’s motion in part, holding that AMC’s issuance of stock in connection with the settlement did represent “Loss” under the policy, but holding further that disputed questions of material fact remained with respect to the question of whether or not the insurers had consented to the adjusted settlement.

The Court quickly addressed the insurer’s argument that the stock portion of the settlement does not represent “Loss.” The insurer had tried to argue that because the shares of stock are not money which can be “paid,” the policies do not cover the settlement. AMC, the insurer argued, issued stock but did not pay any amount that reaches the excess carrier’s layer. Judge Adams noted that the policy’s definition of “Loss” contains no language limiting its application to cash payments. The word “Pay” as used in the definition, the court said, is not a defined term, adding that “insurance policies should be interpreted to favor broad coverage.” Judge Adams said that the court “will not insert a restricting clause into the Policy which provides that only cash settlements are covered ‘Loss’.”

Judge Adams also noted that Delaware law recognizes the close similarity between stock and cash, and also observed that the policy’s “bump up” provision, which precludes coverage for amounts representing additional consideration paid in settlement of merger related actions, had been held to apply additional consideration paid in the form of stock.

Judge Adams said that the settlement payment, including stock, satisfies the policy’s definition of “Loss,” and that the insurer’s “technical, linguistic arguments to the contrary do not persuade the Court.”

The insurer did have one additional argument, which is that, whatever else “Loss” may mean, it has to involve some form of financial or economic harm or detriment. AMC’s issuance of stock, the insurer argued, caused AMC no harm. AMC countered that it had recognized a permanent loss in its accounting because it issued new shares for the settlement, and it argued further that it suffered an opportunity cost in providing its shares for the settlement.

Judge Adams said, with respect to the insurer’s “economic loss” argument, that the policy does “not condition coverage on a showing of economic harm or financial detriment.” Rather, the court said, “Loss occurs anytime AMC makes a covered payment.” The court’s holding that “Loss” definition was satisfied by the settlement “demonstrates that coverage under the Policies is invoked, regardless of AMC’s economic harm.”

Discussion

It does seem, as the court found, that there is nothing in the definition of “Loss” saying that a payment has to be in the form of cash money in order to constitute a “Loss.” And I can understand the court’s observation that the insurer’s argument – that is, that AMC “issued” rather than “paid” the stock – could be viewed as “technical, and linguistic.”

All of that said, I can also understand the argument that the term “Loss” includes within its meaning an imbedded notion that in order for anything to fairly be characterized as “Loss” that it must involve an economic harm or financial detriment. After all, as the court itself observed before launching into its coverage analysis, not only must the policy be considered as a whole, but the policy’s terms must be “given their plain and ordinary meaning.” I think it could reasonably be argued that the plain and ordinary meaning of the word “Loss” inherently includes “loss” – that is, some financial detriment or harm – and further that all of the specific items included in the definition of “Loss” are self-evidently items of financial loss or harm.

The trained advocate part of my brain also immediately sees the problem with this economic harm argument. The first of course is that “Loss” is a defined term, it has been given by the contractual parties a specific, defined meaning. The term must be given the specific meaning given to the term by the parties’ contract. And in that respect, Judge Adams is correct that there is nothing express in the definition of the term “Loss” to suggest that economic harm has be shown for an item to be characterized as “Loss.”

The other counterpoint to the economic loss argument is the one that AMC raised, which is that it did sustain an economic consequence in issuing the shares, in terms of opportunity cost (which is of course an economic term meant to describe the loss of an future opportunity – here, the ability of the company to issue those same shares in the future). The company also did take a bookkeeping charge recognizing the accounting consequences of the share issuance, which makes it even harder to argue that there the share issuance in the settlement involved no harm or detriment.

I will say this, though: once again I find that the most important part of any coverage opinion by a Delaware court is the point where the court repeats the Delaware law principle that “Insurance policies should be interpreted to favor broad coverage.” This principle explains why so many insurance disputes in Delaware courts – including this one – result in decisions favoring policyholders.

Contractual parties in almost every other commercial context deal with these kinds of concerns by inserting choice of law and choice of forum provisions in their policies. It is to me one of the great D&O insurance mysteries of our times why more carriers are not trying to insert choice of law and choice of forum provisions in their policies.