In a recent determination, the Delaware Court has cast ambiguity over the application of the “Bump-Up” Exclusion clause in relation to mergers and acquisitions. A standing feature of directors’ and officers’ (D&O) liability insurance policies, this clause is garnering attention for its increasing relevance in securities litigation that often follows high-profile business mergers and acquisitions.
According to a post on the Pillsbury – Policyholder Pulse blog, the Bump-Up Exclusion clause is vital for publicly traded policyholders. The clause typically excludes coverage for a claim that seeks to benefit the shareholders of a company by invalidating, or “bumping up”, the purchase price of the company’s securities. For example, shareholders might bring a claim alleging that the directors and officers wrongfully approved a transaction for less than its fair market value.
Understanding the implication of the “Bump-Up” Exclusion is even more crucial in the current environment where securities litigation has been escalating post the majority of mergers and acquisitions, particularly those involving publicly traded companies.
However, the Delaware Court’s recent decision has thrown this understanding into ambiguity. It suggests the necessity for greater clarity in policy language pertaining to the application of this clause, specifically in relation to mergers versus acquisitions. This ruling poses an important consideration for companies aiming to safeguard themselves against costly securities litigation.
In conclusion, the Delaware Court’s decision has highlighted the need for clear interpretation and application of the Bump-Up Exclusion clause in D&O liability insurance policies. It underscores the significance of this feature in protecting the interests of publicly traded companies amidst the rising trend of securities litigation following mergers and acquisitions.