Securities Regulation Daily Wrap Up, LAW FIRM PERSPECTIVES—Delaware High Court Rejects Application Of D&O Policy's ‘Bump-Up‘ Exclusion To Securities Claim Settlement, (Feb 10, 2026)

By Tyrone Childress, Matthew Divelbiss, Amanda P. Ellison, Tara Kowalski, Jason Lissy, Brian McDonald and Thomas K. Conerty of Jones Day

In a significant victory for policyholders, the Delaware Supreme Court rejected three insurers' attempts to apply their Directors and Officers ("D&O") liability policies' so-called "bump-up" exclusion to bar coverage for securities litigation arising from Samsung's acquisition of Harman International Industries, Inc.

D&O insurance policies often contain—and insurers often attempt to rely on—"bump-up" exclusions. However, in a significant victory for policyholders, the Delaware Supreme Court in Illinois National Insurance Company v. Harman International Industries, Inc. recently rejected a group of insurers' strained attempt to apply a "bump-up" exclusion to an underlying settlement that expressly represented the parties' attempt to avoid the costs of litigation and not increased consideration for an acquisition.

Harman International and Samsung Electronics America, Inc. completed a merger in early 2017. Thereafter, Harman's former shareholders filed a class action complaint alleging that Harman had issued false and misleading proxy statements in violation of Sections 14(a) and Sections 20 of the Securities Exchange Act in order to procure support for the Samsung acquisition, which the plaintiffs asserted was undervalued.

Harman settled the underlying securities action for $28 million, but its D&O insurers denied coverage for the settlement, relying on their policies' "bump-up" exclusion. The "bump-up" exclusion stated, in relevant part, that: "In the event of a Claim alleging that the price or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or substantially all the ownership interest in or assets of an entity is inadequate, Loss with respect to such Claim shall not include any amount of any judgment or settlement representing the amount by which such price or consideration is effectively increased."

In the ensuing coverage litigation, the Delaware Superior Court rejected the insurers' reliance on the "bump-up" exclusion, and the Delaware Supreme Court affirmed that decision on appeal. Specifically, the Delaware Supreme Court held that the "bump-up" exclusion did not limit coverage for the underlying settlement because the insurers failed to carry their burden of showing that the settlement amount represented an increase in consideration for Harman's acquisition. Rather, the Delaware Supreme Court observed that the settlement class was not limited to shareholders who received consideration in connection with the acquisition. Additionally, the underlying settlement amount was not calculated based on how much money the class members purportedly should have received in connection with the acquisition; it was based upon the costs and uncertainty of continuing the underlying litigation.

In light of the Harman International decision, commercial policyholders should carefully review their D&O policy language in conjunction with the actual terms of any corporate acquisition and resist insurer efforts to apply and expand so-called "bump-up" exclusions beyond their terms.

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Tyrone Childress, Matthew Divelbiss, Amanda P. Ellison, Tara Kowalski, Jason Lissy, Brian McDonald and Thomas K. Conerty

Jones Day

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