One of the most hotly – and frequently – contested D&O insurance coverage issues involves the question of the preclusive effect of the policy’s Bump-Up provision. There have been a host of decisions in recent years addressing this issue, with some finding in favor of coverage and some ruling against coverage. In the latest in this series of cases, the Delaware Superior Court held that the Bump-Up provision precluded coverage for the settlement of litigation arising out of the acquisition of Madison Square Garden Networks. As discussed below, the decision raises some interesting questions about the Bump-Up provision and how it is to be applied. A copy of the June 24, 2026, opinion in the case can be found here.
Background
This insurance dispute arises out of the 2021 merger of Madison Square Garden Networks (MSGN), a sports content development and distribution company, and Madison Square Garden Entertainment (MSGE), now known as Sphere Entertainment, which operates sports and entertainment venues. Prior to the Merger, the Dolan Family Group owned around a quarter of both companies but held a majority of the voting power of both. In July 2021, the two companies executed a stock-for-stock reverse triangular merger, in which MSGN combined with an MSGE subsidiary, becoming MSGE’s wholly owned subsidiary.
In March 2023, the MSGN action settled for a payment of $48.5 million to the shareholders. Two of MSGN’s D&O insurers each separately consented to advance $10 million toward the settlement, with the understanding that the insurers could recoup the advance if the policy didn’t provide coverage. MSGN paid the rest of the settlement cost. The MSGE derivative suit separately settled for $85 million.
At relevant times, MSGN maintained a program of D&O insurance consisting of a primary policy and several excess policies. The primary policy contained a so-called Bump-Up Clause, which, as the court later described it, provides that “amounts paid in acquisition-related litigation that represent or are substantially equivalent to an increase in consideration aren’t covered.” The insurers contended that the Bump-Up provision precluded coverage for the settlement.
MSGN filed an action in the Delaware Superior Court seeking a judicial declaration that the settlement amount was covered under the D&O insurance program. The insurers countersued, seeking a judicial declaration that the Bump-Up provision precluded coverage for the settlement. The parties cross-moved for summary judgment.
Relevant Policy Provision
The Bump-Up Provision provides that:
Loss does not include any portion of such amount that constitutes any: … (3) amount that represents, or is substantially equivalent to, an increase in the consideration paid (or proposed to be paid) in an acquisition (or proposed acquisition) of more than 50% of the outstanding securities or other ownership interest of an entity, including an Organization, or in the right to vote for election of, or to appoint, more than fifty percent (50%) of the directors or limited liability company managers or members, or the equivalent of such positions, of an entity, including an Organization; except for any amount otherwise covered under Insurance Clause (A).
The June 24, 2026, Opinion
In an opinion published on June 24, 2026, Delaware Superior Court Judge Paul Wallace granted the insurers’ summary judgment motions and denied MSGN’s summary judgment motion, holding that the settlement satisfies all of the criteria of the Bump-Up provision and therefore that the provision precludes coverage.
Judge Wallace first determined that the settlement represents both an increase in consideration and the substantial equivalent of an increase of consideration. In concluding that the settlement amount represents an increase in consideration, Judge Wallace considered four factors: (1) the Settlement’s language; (2) indications that the Settlement amount represents consideration for an inadequate deal price; (3) the stage of the litigation at the time of the settlement; and (4) the settlement class’s composition. Judge Wallace found that each of these factors supported the conclusion that the settlement represented an increase of the deal consideration, though also noting that “none are dispositive.”
Among other things, Judge Wallace noted that in seeking approval of the settlement, the MSGN shareholders had informed the court that the Settlement represented an 8.8% increase in consideration, contending that the settlement was a substantial “get.” In approving the settlement, the Chancery Court said that the settlement represented a “meaningful benefit,” which Judge Wallace said is “strong evidence that Settlement indeed constituted an increase in consideration.”
MSGN had tried to argue that the settlement agreement itself stated that the parties had settled solely to avoid the costs and burden of litigation. Judge Wallace said that this “doesn’t wholly foreclose the conclusion that the Settlement represented an increase in consideration.” Judge Wallace also noted that the shareholders had, in fact, sued for an increase in consideration, and that the class that received the benefit of the settlement consisted exclusively of persons who sought an increase in consideration. Judge Wallace noted that “upon a hard look at what the Settlement represents, the Insurers have shown it constitutes an increase in consideration.”
Judge Wallace also concluded, consistently with the Delaware Supreme Court’s opinion in its recent Harman decision, that the reverse triangular merger transaction was an “acquisition” within the meaning of the Bump-Up provision, as it is “an acquisition effectuated via a merger mechanism.” MSGN had tried to argue that the transaction was not an acquisition, because the Dolans controlled both companies before and after the transaction, and therefore there was no change in control. Judge Wallace rejected this argument because it depended on a “change in control” requirement that was not in fact in the Bump-Up provision.
Judge Wallace ruled that the Bump-Up provision precluded coverage for the settlement, that the excess insurers who had advanced their limits were entitled to recoup the advanced amounts, and that the Bump-Up provision’s preclusive effect applied to the entire settlement amount including amounts awarded out of the settlement fund to pay attorney’s fees and expenses.
Discussion
As I noted at the outset, the potential preclusive effect of the Bump-Up provision may be one of the most hotly and frequently contested issues in the world of D&O insurance coverage. The provision is so frequently disputed for several reasons: the amount of money at stake is often huge; and the transactions involved are often highly complex, allowing room for the parties to argue about what the transaction represented. Moreover, there is almost always an argument about what the underlying settlement represents – is it really an increase in consideration?
Given these factors, it is arguably unsurprising that there are cases going both ways, some courts finding in favor of coverage, and some finding coverage precluded. Indeed, in his analysis in this case, Judge Wallace considered in depth two recent Bump-Up provision cases, one (the Fourth Circuit’s May 2025 opinion in the Towers Watson case) finding that the provision precluded coverage, and the other (the Delaware Supreme Court’s January 2026 opinion in the Harman case), which held that the provision did not preclude coverage. (Students of D&O insurance case law will note that Judge Wallace was the trial court judge who ruled in favor of coverage in the Harman case.)
MSGN here tried to lean heavily on the Harman opinion, and in particular on the language in the settlement agreement here that the parties had entered the settlement solely to avoid the costs and burden of litigation. Judge Wallace concluded that this case was distinguishable from Harman, based on what the shareholders had told the Chancery Court about the settlement and what it represented.
What the opinion in this case shows is that, in light of Harman, parties disputing the applicability of the Bump-Up provision must now fight their way through an evidentiary record scrutinizing the motivations of the parties to the underlying settlement. From my perspective, this is unnecessarily convoluted (particularly the cumbersome four-factor analysis Judge Wallace deployed here).
I agree with the dissenting opinion in Harman that it would be “far simpler and more efficient if the court limited its review to the ‘real effect’ of the settlement rather than plumb the depths after an evidentiary proceeding in search of the true motivations of the settling parties.” Moreover, settling parties, in settling cases, may now try to “skew” the record with recitations and so on to try to affect a later coverage dispute.
If the pattern in earlier cases is any indication, it seems likely that this case too will now make its way to the Delaware Supreme Court, so there may still be more to be heard about the Bump-Up exclusion (and, I strongly suspect, about the Harman opinion as well).
Where does all of this now leave us with respect to Bump-Up cases? I think we are now in the same place we have always been, which is that the outcome of a Bump-Up dispute is going to be a reflection of the policy wording, the deal structure, and the governing law. The appeal of this case could have more to say about whether and to what extent, in light of Harman, the motivations of the parties to the underlying settlement should also matter.
I will leave for another day the question of whether the Bump-Up provision should even apply (or rather, be written so as to apply) to transactions (like the one here) where the insured entity is the target of the acquisition. The Bump Up provision makes more sense in the context of a transaction where the insured entity is the acquiror; the entity should not be able to underpay for an acquisition and then expect its insurer to make up the shortfall. But when the insured entity is the target, the allegation is that, in breach of their duties (that is, through the commission of wrongful acts), the company’s executives sold their company too cheaply, to the financial detriment of the entity’s shareholders. That starts to sound to me an awful lot like the kind of thing that D&O insurance was invented to insure against.
My thanks to the several loyal readers who sent me a copy of Judge Wallace’s opinion.