Bumping the Bump-Up Exclusion: A Policyholder’s Guide to Resisting Improper Coverage Denials

New York Law Journal

  • Published On: October 1, 2023

Most public-company M&A deals are challenged in court. Commonly referred to as merger objection litigation, these lawsuits typically involve a variety of claims brought by shareholders against the companies and their directors and officers involved in the transaction, including claims under Sections 14(a) and 10(b) of the Securities Exchange Act. Shareholders also assert breach of fiduciary duty claims against the directors and officers under state law.

Policyholders faced with these potential liabilities should be aware that their directors and officers (D&O) liability insurance companies may deny coverage based on the so-called “bump-up” or “inadequate consideration” exclusion (“the bump-up exclusion” or “the exclusion”). Insurance companies routinely and reflexively argue that the bump-up exclusion precludes coverage for any lawsuit following a corporate merger or similar transaction in which a settlement payment or judgment could be characterized as an increase (a “bump-up”) of the price paid for a target company.

In our experience, however, insurance companies interpret the bump-up exclusion far too broadly and beyond the insurance industry’s purported intent behind the exclusion. D&O policyholders should be prepared to resist such coverage denials.


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