An AIG unit won its appeal over coverage of a $90 million shareholder settlement stemming from broker Willis Towers Watson’s merger activities in 2015.
National Union Fire Insurance Co. showed that its director and officer insurance terms bar coverage for shareholder claims arising from undervalued acquisitions, the US Court of Appeals for the Fourth Circuit said Tuesday.
A lower court erred in holding that the underlying deal was only a merger and didn’t involve any acquisitions triggering the policy ban, the Fourth Circuit said.
Risk management and brokerage firm Towers Watson & Co. became a subsidiary of London-based broker Willis Group Holdings PLC.
The “bump up provision” in Towers Watson’s D&O coverage, in which AIG unit National Union was the primary insurer, was the focus of the litigation.
A bump-up exclusion generally precludes coverage for losses resulting from judgments or settlements in connection with claims against the insured seeking an increase or “bump up” in the consideration paid for it.
Towers Watson shareholders filed several lawsuits against former Willis Towers Watson CEO John Haley and others, alleging that they received less than market value for their shares in the merger, according to the ruling.
According to the ruling, they eventually settled for $90 million, $75 million in Virginia and $15 million in a consolidated Delaware litigation.
Towers Watson’s insurers refused to provide indemnity coverage, citing the bump-up exclusion.
Towers Watson filed suit in the United States District Court for the District of Virginia in Alexandria, Virginia, and the court ruled in 2021 that the bump-up exclusion “does not unambiguously” preclude indemnity coverage for the underlying settlements.
“In doing so, however, the court adopted an unduly narrow reading of the exclusion, finding ambiguity where none exists and ascribing specialized meanings to policy forms that the parties did not reasonably intend,” a three-judge appellate panel wrote in overturning the district court’s decision and remanding the case for further proceedings.
According to the ruling, Towers Watson may choose to appeal two remaining claims: that the bump-up exclusion was inapplicable because it refers to “an entity,” which does not include Towers Watson, and that the settlements did not effectively increase the deal’s price as required by the exclusion.
Requests for comment from the case’s attorneys were not returned.