Delaware Supreme Court: Bump-Up Exclusion Does Not Apply To Settlement of a Section 14(a) Securities Claim
In a win for policyholders, the Delaware Supreme Court, in a 3-2 decision, adopted a narrow reading of “Bump-up” provisions in Illinois Nat'l Ins. Co. v. Harman Int'l Indus., Inc., 2026 WL 204209 (Del. Jan. 27, 2026). A class of investors had filed suit, alleging that Harman’s board had violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 by providing inadequate disclosures about a proposed acquisition. Consequently, the class alleged Harman’s shareholders had voted to approve Harman’s acquisition at a price below the company’s true value. The class, which included shareholders who held stock at the time of the vote as well as those who held stock at the time of the sale, sought damages equal to “the difference between the price Harman shareholders received and Harman’s true value at the time of the Acquisition.
Harman’s insurers defended Harman, but then disclaimed any duty to indemnify Harman for the resulting settlement in reliance on the policies’ bump-up provision. Bump-up provisions generally bar coverage, with respect to a claim alleging inadequate consideration in an acquisition, for that part of a judgment or settlement amount that represents an effective increase in the price or consideration paid in the transaction.
The Delaware Supreme Court held that the provision required a two-part test:
- First, the underlying claimants must have alleged that the consideration for an acquisition was inadequate. The Court held this element was satisfied.
- Second, the Court held that the provision applied only to that portion of the settlement amount that specifically represented an effective increase to the sale price.
The Court held that the insurers failed to meet their burden on this second element, emphasizing that some class members did not own any shares when the acquisition closed and had not received any consideration from the acquisition. The Court also highlighted that there was nothing in the record tying the settlement to any price differential. The Court held that the insurer had failed to prove that the settlement of the Securities Exchange Act claims was excluded by the bump-up provision.
