Public company insurance policyholders beware: In recent years, insurance carriers have increasingly invoked the “bump-up” exclusion, which is a carve out provision typically found in directors and officers (D&O) insurance policies. In many public company M&A deals, the shareholders of the target or acquired company will file a lawsuit challenging the deal, generally alleging that the board violated its fiduciary duties or the law by selling the company for a below-market price. Enter the bump-up exclusion, which bars coverage for settlements (or judgments) in M&A litigation that, in effect, bump up the consideration paid to the shareholders of the target company in the underlying deal. In other words, if settlement of the M&A claim would result in the acquired company’s shareholders receiving more value for the sale of the company, then the settlement will not be covered by the D&O policy.
Read more by checking out Cooley’s Securities Litigation + Enforcement blog post.
