Delaware Court Leaves Room for M&A ‘Bump Up’ Insurance Fights

A highly anticipated ruling from Delaware’s high court that units of American International Group Inc. and Chubb Ltd. may be on the hook for a settlement in post-M&A litigation won’t put an end to disputes over a controversial directors and officers insurance provision.

The heavily litigated “bump up” exclusion often shields insurers from having to cover costly settlements or judgments that effectively boost the transaction price of a corporate policyholder’s M&A deal.

But the clause doesn’t preclude coverage of a $28 million settlement with shareholders of Harman International Industries Inc. after it was acquired by Samsung Electronics Co., the Delaware Supreme Court said last week, because the carriers failed to show the settlement increased the allegedly inadequate deal price.

Orrie Levy of Cohen Ziffer Frenchman & McKenna, who was among the attorneys representing Harman, called the decision a “critical victory” for policyholders in Delaware.

“For years, insurers have wielded the bump-up exclusion to categorically deny coverage for settlements of litigation arising from corporate transactions,” Levy said in an emailed statement. “The Delaware Supreme Court has now rejected that approach, vindicating the rights of D&O policyholders.”

But while the justices affirmed a January 2025 lower court ruling for Harman, the majority rejected some of the lower court’s reasoning and two justices—including Chief Justice Collins J. Seitz Jr.—dissented, narrowing the win for corporate policyholders and opening the door to future coverage disputes.

The Delaware decision will likely resonate outside of bump-up cases because of the state court’s outsized role deciding directors and officers insurance disputes.

One day after the ruling, a policyholder involved in a D&O dispute over coverage for a Securities and Exchange Commission investigation and subsequent settlement submitted the ruling to a lower court judge in the state, pointing to the high court’s analysis of the weight that should be afforded to underlying settlement language and evidence of underlying negotiations when resolving coverage issues.

Following Towers Watson

The decision follows a federal appellate ruling last year siding with insurers in a separate dispute over the provision.

The US Court of Appeals for the Fourth Circuit in May 2025 ruled for AIG and Chubb on coverage for a $90 settlement paid to shareholders by insurance broker Willis Towers Watson Plc following a 2016 deal.

The bump-up exclusion barred coverage for that settlement because the payout represented an increase in deal consideration to shareholders under Virginia law, the Fourth Circuit panel held.

In concluding that Harman’s settlement didn’t represent such an increase, the Delaware court took no issue with the federal appeals panel’s reasoning but said Harman’s case was distinct based on the facts.

That limits the ultimate impact of Delaware’s ruling, said Michael Manire, a managing partner at Manire Curley LLP who represents insurers.

It’s notable that the court paid a lot of attention to the Fourth Circuit decision and didn’t argue it was wrong or that it was a matter of difference between Virginia and Delaware law, Manire said.

The ruling “made clear that the applicability of a bump-up exclusion to the settlement of shareholder litigation depends on the facts and policy language of each case and is not a one-size-fits-all proposition,” Levy said. “If the facts show that the settlement was not for the purpose of bumping up the deal price, then the exclusion should not apply.”

Future Fights

For the exclusion to apply, the insurers had to show both that the underlying suit alleged an inadequate transaction price and that the settlement amount was in effect an increase in consideration to shareholders.

The Delaware Superior Court last year held the insurers failed to meet both requirements because damages for an inadequate deal price weren’t a viable remedy under the theory asserted in the underlying class action. But the top court curtailed the legal win for policyholders, ruling the insurers fell short only on the second step—proving the settlement amount was a “bump up.”

“We agree with Insurers that there is no language in the Policy that gives rise to a ‘viability’ requirement,” Justice Karen L. Valihura wrote for the majority. “We are not inclined to read such a requirement into the language of the Policy.”

Carriers have often reflexively asserted the bump-up exclusion in response to merger-related claims, said Ray Mascia, a policyholder-side lawyer at Anderson Kill PC.

“This decision is important because it highlights that the bump-up exclusion is not a total exclusion,” he said.

Future fights over the exclusion will likely depend on the facts of each case—for example, the terms of the underlying settlement agreement—and the insurance policy language at issue.

The securities bar, both on the plaintiff and defense side, should look to the court’s analysis for guidance on how to formulate settlement agreements to accurately reflect their intent, said Pillsbury Winthrop Shaw Pittman LLP’s Tamara Bruno, a policyholder-side coverage lawyer.

Both insurers and policyholders should expect courts to focus even more on factual disputes in coverage litigation, which may make it harder for either side to get summary judgment rulings without discovery.

“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,” Seitz and Justice Gary F. Traynor said in dissent.

The actual result of the Harman settlement was that shareholders received additional consideration, which means insurers shouldn’t be on the hook for the payment, they said.

The dissenting justices raised a valid concern that the majority’s decision will allow policyholders to potentially manipulate or create settlements aimed at obtaining coverage, said Bryce Friedman, a partner at Simpson Thacher & Bartlett LLP who represents insurers.

“Is this the end of the bump-up exclusion in Delaware?” Friedman said. “I don’t think it is.”

The case is Illinois Nat’l Ins. Co. v. Harman Int’l Indus. Inc., Del., No. 47,2025, 1/27/26.