For the second time in recent days, a court has held that a D&O insurance policy provision operates to preclude coverage for claims against an insured company and its executives that the consideration to be paid for the acquisition of the insured company is inadequate. The Seventh Circuit in a recent decision held that the “inadequate consideration” exclusion (sometimes referred to as the “bump-up” exclusion) in the applicable D&O insurance precludes coverage for a claim that disclosure in the company’s proxy statement omitted information that could have been used to negotiate a higher price. As discussed below, the policy wording at issue was relevant to the outcome. The Seventh Circuit’s January 23, 2023, opinion in the Komatsu Mining Corp. case can be found here.

Continue Reading “Inadequate Consideration” Exclusion Precludes Coverage for Underpayment of Insured Company’s Acquisition

Among the various provisions of the D&O insurance policy, one of the most litigated provisions is the Insured vs. Insured exclusion, which, in simple terms, precludes coverage for claims brought by one insured against another insured. However, the exclusion typically has several carve-back provisions preserving coverage for various kinds of claims that otherwise would be excluded. One of these carve-back provisions came into play in a court’s recent determination, applying Kentucky law, that coverage for a claim brought by a group of plaintiffs that included both insured and non-insured persons was precluded, because the claim had not been brought independently of the participation of an insured person.

A copy of Southern District of New York Judge Valerie Caproni’s December 9, 2022, opinion in the case can be found here. A January 18, 2023 post on the Wiley law firm’s Executive Summary blog about the decision can be found here.

Continue Reading Coverage Precluded Where Claims Brought by Both Insured and Non-Insured Persons

It is a standard D&O insurance policy feature that if two claims are “related” within the meaning of the policy then they are “deemed” a single claim first made at the time of the earlier claim. However, in a recent coverage dispute, a Delaware court held, in reliance on policy language the court found to be clear and unambiguous, that two related claims were deemed first made not at the time the earlier claim but rather during the policy period of the policy in force at the time the later claim was made. Confused? Read on!

Continue Reading Two Claims Related But Deemed Made During the Later Claim’s Policy Period

One of the hotly contested issues in recent years has been whether or not there is D&O insurance coverage for shareholder appraisal actions. In a recent decision that was largely focused on choice of law issues, the Delaware Supreme Court affirmed the trial court’s dismissal of a policyholder’s action to try to obtain coverage for defense costs incurred in an underlying shareholder appraisal action. Though the insurers prevailed in this coverage dispute, the Court’s holding on the choice of law issues could have ominous implications for insurers’ prospects in future coverage disputes, as discussed below. The Delaware Supreme Court’s January 10, 2023, opinion in the Stillwater Mining Company coverage dispute can be found here.

Continue Reading Delaware Supreme Court: No Coverage for Appraisal Action

The so-called “Bump-Up” Exclusion found in many D&O insurance policies typically excludes coverage for claims alleging that the insured company, as the acquiror, underpaid or sought to underpay for the acquisition of a target company. However, in a recent decision following a bench trial, in which the court interpreted an unusually worded exclusion that arguably applied to preclude coverage whether or not the insured company was the acquiror or the acquisition target, the court held that the exclusion unambiguously precluded coverage for the settlement of a claim that the directors of Onyx Pharmaceuticals, the insured company, had breached their duties by accepting an inadequate amount for the sale of their company. The judge’s opinion is a cautionary tale for anyone involved in the placement of D&O insurance and also has important implications about the wording of the bump-up exclusion. A copy of the court’s December 30, 2022, post-trial Final Statement of Decision can be found here.

Continue Reading Exclusion Bars Coverage for Insured Company’s Acquisition Underpayment

As 2022 came to an end, many SPAC sponsors and executives, concerned about the possible onset on January 1, 2023, of an excise tax on amounts to be returned to investors, moved to liquidate their SPACs. As discussed further below, concerns about the possible applicability of the tax have now been alleviated, but given the general marketplace conditions for SPAC merger transactions, it seems likely that there will be further SPAC liquidations ahead in the new year. The possibility of a SPAC liquidation raises a number of considerations, including also important considerations with respect to D&O insurance.
Continue Reading SPAC Liquidations and D&O Insurance

One of the perennial D&O insurance coverage issues has to do with whether a later claim made during the policy period is interrelated with an earlier claim made prior to the policy period, and whether the later claim therefore is deemed under the policy to have been made prior to the policy periods. These issues were front and center in a recent coverage dispute in which the door manufacturer Jeld-Wen argued that earlier antitrust liability actions were not interrelated with the later securities class actions. In an interesting November 18, 2022 opinion by Western District of North Carolina Judge Max O. Cogburn, Jr., applying North Carolina law, held that the antitrust and securities actions were interrelated; that the securities claim was deemed first made prior to the policy period of the excess insurer’s policy; and therefore that the settlement of the securities claim was not covered by the policy at issue. A copy of Judge Cogburn’s opinion can be found here.
Continue Reading Prior Antitrust Action Held Interrelated with Later Securities Suit

Gary Lill

Elisabeth Groehe

The D&O insurance market is cyclical and is currently going through one of its periodic cycle turns. In the following guest post, Gary Lill, Head of Professional Lines at IQUW, and Elisabeth Groehe, Professional Lines Underwriter at IQUW, examine the current D&O insurance market and discuss the challenges that D&O insurers currently face. A prior version of this article previously was published on the IQUW website. I would like to thank Gary and Elisabeth for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Gary and Elisabeth’s guest post.
Continue Reading Guest Post: Challenges in the D&O Market – A Sisyphean Task?

Peter S. Selvin

In the following guest post, Peter S. Selvin, a partner with Beverly Hills, California based Ervin, Cohen & Jessup law firm where he chairs the firm’s insurance coverage and recovery practice, reviews two recent case decisions involving the question of whether or not D&O insurance policies apply to provide coverage for consumer protection claims arising from the sale or marketing of products. A version of this article previously published in the Los Angeles Daily Journal. I would like to thank Peter for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Peter’s article.
Continue Reading Guest Post:  Are Consumer Protection or False Advertising Claims Covered by Insurance?

In the latest development a long-running D&O insurance coverage dispute, a Delaware Court has held that Verizon’s D&O insurance program covers the company’s $95 million settlement of a bankruptcy Trustee’s fraudulent transfer claim. In reaching this conclusion, the Court held, among other things, that the fraudulent transfer claim was a “Securities Claim” within the meaning of Verizon’s primary D&O insurance policy. The specifics of the court’s analysis of this issue underscores how complicated the question of what constitutes a “Securities Claim” can be. A copy of Delaware Superior Court Judge Eric Davis’s October 20, 2022 opinion can be found here.
Continue Reading Delaware Court Holds D&O Insurance Covers Fraudulent Transfer Claim Settlement