Towers Watson's request that the Fourth Circuit reject a lower court decision freeing its insurers from paying out $54 million in directors and officers coverage has raised policyholders' hopes that a favorable ruling will clarify the reach of so-called bump-up exclusions.
The company argued last week that a Virginia federal court wrongly found the exclusion — which prohibits coverage for a settlement that effectively increases the price or consideration for an acquisition — applies to a pair of shareholder suit settlements totaling $90 million tracing to a 2016 merger.
Policyholder experts told Law360 that the lower court decision flew in the face of principles for settling coverage disputes over ambiguous policy language and that a win at the appellate level would stand as a bulwark against insurers that are increasingly wielding the bump-up exclusion to strike down coverage.
"The breadth of the interpretation of the exclusion in this case will give insurers incentive to try to deny coverage based on bump-up exclusions, and I think they'll also continue to write the exclusions more broadly," Seth Lamden of Blank Rome LLP told Law360.
The exclusion at issue prohibits coverage for any settlement of a claim alleging that shareholders received inadequate consideration or payment for an "acquisition" if that settlement represents "the amount by which such price or consideration is effectively increased."
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"Towers Watson's Bump-Up Appeal Lifts Policyholder Hopes," by Abraham Gros was published in Law360 Insurance Authority on July 18, 2024.
