‘Bump Up’ Exclusions Must Connect Alleged and Actual Consideration

This week, the Delaware Supreme Court determined that a policy’s “Bump-up” exclusion did not apply and the insurers owed $28M to indemnify a settlement following a company’s acquisition by Samsung. In Ill. Nat'l Ins. Co. v. Harman Int'l Indus., Inc., No. 47, 2025, 2026 LX 14311 (Del. Jan. 27, 2026), the underlying lawsuit alleged that false disclosures deprived shareholders of a fully informed vote and the "full and fair value" of their shares, seeking damages equal to "the difference between the price Harman shareholders received and Harman's true value at the time of the acquisition." The insurers denied coverage based on the policy’s “Bump-up” exclusion that precluded coverage for losses that represent "the amount by which such price or consideration is effectively increased" when a claim alleges inadequate consideration in an acquisition.  

The court sided with the insurer in noting that first element of the exclusion was satisfied, concluding that the underlying suit did assert inadequate consideration. In doing so, it rejected the lower court’s determination that allegations must be legally viable remedies. It emphasized that the policy language only required that inadequate price of consideration be alleged. This was moot, however, given the court’s determination that the second element of the exclusion was not met. “[T]he second step will be satisfied only if Insurers can show that the ‘real result’ of the Settlement is that the Settlement Amount, or any portion of the Settlement Amount, increased the amount of deal consideration the shareholders received in the Transaction.” Id. at *27.  

The insurers failed to meet their evidentiary burden of proving a connection between the settlement amount and the alleged gap in consideration owed to the shareholders. The court noted several shortcomings: Shareholders who sold their stock prior to the merger were included in the settlement class, the insurers’ experts failed to connect the settlement amount to the alleged shortcoming in valuation (roughly $279M), and the actual payment aligned with the insured’s estimated litigation costs. In its analysis, the court also rejected the rationale employed by the Fourth Circuit in Towers Watson & Co. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 67 F.4th 648 (4th Cir. (Va.) 2023). It noted that the district court’s analysis, which rejected application of the “Bump-up” exclusion on similar facts, was more persuasive. For a full discussion of that case and more analysis of “Bump-up” exclusions, see David A. Gauntlett, Fourth Circuit Improperly Rejected Reasonable Construction of Exclusion, https://lnkd.in/gxEj4Tvj (July 25, 2024).