Fourth Circuit Considers Only Insurer’s Position in Problematic Ruling

In Towers Watson & Co. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, No. 24-1302, 2025 WL 1509393 (4th Cir. (Va.) May 28, 2025), the Fourth Circuit affirmed the district court’s conclusion that Towers Watson was not entitled to indemnification for a $90M settlement paid to shareholders after the company was allegedly sold off at a price below market value. Coverage was precluded by the “bump-up” exclusion for claims “alleging that the price or consideration paid . . . for the acquisition . . . of . . . the ownership interest in or assets of an entity is inadequate.” Because of the exclusion, the policy would not cover “any amount of . . . any settlement representing the amount by which such price or consideration is effectively increased.” The court stated that the exclusion’s conditions were met based on dictionary definitions of the relevant terms. To support this view, it characterized the underlying case as one in which “[t]he shareholders, claiming their shares were devalued in the merger process because of Haley's conflict of interest, sued Towers Watson. . . . The settlements they eventually received constituted—i.e., “represent[ed]”—precisely such a bump-up.” Id. at *6.  

The court’s analysis, however, is flawed in that it only explains why the insurer’s position is reasonable. It does not address any alternative possibilities raised by Towers Watson, as national coverage law dictates it must. See, e.g., SXSW, L.L.C. v. Fed. Ins. Co., No. 22-50933, 2024 WL 1216560, at *4 (5th Cir. (Tex.) Mar. 21, 2024) (“We need not consider Federal's understanding of the exclusion because SXSW's reading of it is plainly reasonable.”); MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 655 (2003) (“[E]ven if [the insurer’s] interpretation is considered reasonable, it would still . . . have to establish that its interpretation is the only reasonable one. ‘[W]e are not required, in deciding the case at bar, to select one “correct” interpretation from the variety of suggested readings.’ ”) While not directly addressed by any Virginia Supreme Court decision, this approach is implicitly approved by its prior coverage decisions. St. Paul Fire & Marine Ins. Co. v. S.L. Nusbaum & Co., 227 Va. 407, 412, 316 S.E.2d 734, 736 (1984) (“[E]xperts on the subject of the real estate industry, may reach reasonable, but opposite, conclusions as to whether leasing is a part of property management. It was incumbent upon the insurer to employ exclusionary language clear enough to avoid any such ambiguity . . . .”)   For additional information, see our full blog post written after the Fourth Circuit’s earlier decision: https://lnkd.in/gxEj4Tvj.