Applying Delaware law, the Superior Court of the State of Delaware has held that a bump up provision did not bar coverage of a settlement that resolved claims asserting breaches of fiduciary duty. Viacom Inc. v. U.S. Specialty Ins., 2023 WL 5224690 (Del. Super. Ct. Aug. 10, 2023).

On December 4, 2019, the insured media company merged with another media company. Stockholders brought several lawsuits challenging the merger and asserted claims for breach of fiduciary duty against the insured’s directors, officers, and controlling stockholders for their roles in negotiating and recommending the merger. Specifically, the plaintiffs in the underlying litigation alleged that one director exerted control over other directors, stockholders, and officers, causing them to approve the merger on terms detrimental to the insured company. Those terms facilitated that director’s preferred candidate to be CEO of the newly formed company, which allegedly led to a valuation of the company that was $1 billion less than previously assessed. The litigants reached a $122.5 million proposed settlement.

The insured company and director sought coverage under the media company’s D&O insurance policy. Some of the insurers in the $200 million tower denied coverage based on the bump-up provision included in the definition of Loss. The provision limited coverage for “any amount representing the amount by which the price of or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or substantially all of the ownership interest in, or assets of, an entity, including a Company, was inadequate or effectively increased.”

The court granted the insureds’ motions for partial summary judgment on the bump-up provision, finding that the provision was ambiguous and resolving that ambiguity in favor of the insureds. Exploring the possible distinction between “acquisition,” as used in the provision, and “merger,” as used elsewhere in the policy, the court determined that the bump-up provision could be reasonably construed to apply to mergers or not to apply to mergers. Given two reasonable interpretations, the Court resolved the ambiguity in the insureds’ favor.

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