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Ceradyne Ruling Adds Wrinkle To Bump-Up Exclusion Fight

Law360

  • November 10, 2022

Liberty Mutual's summary judgment win over Ceradyne offers a much-needed boost to insurers in the ongoing battle to interpret the "bump-up" exclusion in directors and officers policies, although policyholder attorneys have mixed views on how harmful the ruling may prove to be for companies seeking coverage.

Last month, a California federal court held that Liberty Mutual doesn't have to cover Ceradyne for an $11.3 million settlement the company struck to end shareholder lawsuits stemming from its acquisition by 3M. U.S. District Judge James V. Selna found that coverage was precluded by a "bump-up" exclusion in Ceradyne's directors and officers, or D&O, policy, despite the company's argument that its deal with 3M didn't meet key characteristics required for the clause to apply.

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"It's worrisome because the insurance industry is clearly going to use it to try and expand the bump-up exclusion beyond its intent and its plain language, said Raymond Mascia Jr., a shareholder in Anderson Kill's insurance recovery practice.

. . .

"That intent is demonstrated from the history of the exclusion, but I also think the intent is demonstrated from the plain language of the exclusion," Mascia said.

. . .

"That language is narrow, and it focuses on instances where the payment of an inadequate purchase price is the act that gives rise to the liability," Mascia said, referring to the Ceradyne language. "That exclusion does not apply to a claim against the seller. It can't, because the seller doesn't pay for its own acquisition."

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