If a defendant company settles a shareholder lawsuit by issuing stock rather than by paying cash, does the settlement represent “Loss” within the meaning of the company’s D&O insurance policy? Earlier this year, a Delaware court said it does. Now, the Delaware Supreme Court has affirmed the lower court, for the reasons stated by the lower court. As discussed below, these rulings raise some interesting issues. The Delaware Supreme Court’s December 9, 2025, order affirming the lower court can be found here.
Background
AMC sought to engage in certain share transactions. Some 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.
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, asserting, among other things, that the stock payment did not represent a “Loss” under the policy, and arguing further that the company had not, as required under the policy, obtained the insurers’ consent to the settlement. 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 Delaware Superior Court’s Ruling
In a February 28, 2025, Opinion (here), 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.
Because the Supreme Court ultimately affirmed the lower court’s ruling for the reasons stated by the lower court, it is worth reviewing the lower court’s ruling in detail.
The Superior 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, observing that under Delaware law stock is “a form of currency that can be exchanged for other forms of currency.”
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.”
The insurer appealed the Superior Court’s ruling to the Delaware Supreme Court.
The Supreme Court Order
On December 9, 2025, in a brief one paragraph order, the Delaware Supreme Court affirmed the Superior Court’s ruling, saying that “we find it evident that the judgment of the Superior Court should be affirmed on the basis of and for the reasons stated in the Memorandum Opinion dated February 28, 2025.”
As I understand the current procedural posture of the dispute, the matter must now go back to the Superior Court for the lower court to address the remaining consent-to-settlement issue.
Discussion
As I noted at the time of the Superior Court’s ruling, it is undeniably true that there is nothing in the definition of “Loss” saying that a settlement payment has to be in the form of cash money in order to constitute a “Loss.”
However, the definition of Loss does say that Loss must be “paid.” The Superior Court said that the insurer’s argument on this point – that is, that AMC “issued” rather than “paid” the stock – was “technical and linguistic.” I am not convinced that this response is sufficient. It could be conceded that the argument is “technical and linguistic” but the argument that AMC did not “pay” anything still remains. Besides, all policy language arguments are “technical and linguistic” but that does not invalidate the arguments.
I have also thought that it could be argued that the it is inherent in the plain and ordinary meaning of the word “Loss” that it requires, at a minimum, that there has been “loss” – that is some financial detriment or harm – and, further, not only is “loss” a prerequisite of “Loss,” but all of the specific items included in the definition of “Loss” are self-evidently items of financial loss or harm.
Of course, of course, “Loss” is a defined term under the policy, given a specific meaning in the parties’ contract. And in that respect, there arguably is nothing specific, or perhaps express, in the definition of the term “Loss” to suggest that economic harm has to be shown for an item to be characterized as “Loss.”
Moreover, AMC did make the argument that there was an economic consequence of its share issuance, in terms of opportunity cost (that is, the loss of a future opportunity, the opportunity for the company to issue those same shares in the future). The company also took a bookkeeping charge to recognize the accounting consequence of the share issuance, which does make it harder to argue that the share issuance involved no harm or detriment.
In the final analysis, I believe that the most important line in the lower court’s opinion is the one in which the judge cited the principle of Delaware law that “Insurance companies should be interpreted to favor broad coverage.” This principle explains what so many insurance disputes in Delaware – including this one – result in decisions favoring policyholders.
Of course, with respect to the specific issues involving in this decision, insurers could address the problem at issue by inserting a requirement into the policy specifying that a payment must be made in cash or cash equivalents (with a further definition of the term “cash equivalents,” as well).
But while the insurers are thinking about how they might adjust their policies to address the concerns raised in this case, they may also want to think about adding choice of law and choice of forum provisions in their policies. It remains to me one of the great mysteries of our times why more carriers are not trying to insert choice of law and choice of forum provisions in their policies, particularly when the insured entity has been organized under the laws of Delaware.