The Fourth Circuit has held in a published decision that a 2015 reverse triangular merger between Willis Group Holdings plc (“Willis”) and Towers Watson & Co (“Towers Watson”) was “the acquisition of all or substantially all the ownership interest in or assets” of Towers Watson within the terms of the Bump Up Provision in the Towers Watson D&O policies. See Towers Watson & Co. v. National Union Fire Insurance Co. of Pittsburgh, Pa., 67 F.4th 648 (4th Cir. 2023).
The Bump Up Provision in the subject policy provides:
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 by which such price or consideration is effectively increased.
Following the 2015 merger, former Towers Watson shareholders filed two class actions against, among others, Towers Watson’s former chairman and CEO John Haley (“Haley”), alleging that Haley negotiated the merger agreement under an undisclosed conflict of interest and therefore allegedly agreed to a below-market valuation of Towers Watson’s shares. The shareholder actions were settled for a total payment of $90 million. Towers Watson’s D&O insurers provided defense coverage for the shareholder actions, but denied coverage for the settlement based on the Bump Up Provision.
In the subsequent coverage action, the district court granted summary judgment for Towers Watson on the ground that the merger did not involve an “acquisition” within the meaning of the Bump Up Provision. See Towers Watson & Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 2021 U.S. Dist. LEXIS 192480 (E.D. Va. Oct. 5, 2021). The Fourth Circuit has now reversed that ruling.
The Fourth Circuit found that the “ordinary and accepted meaning” of the term “acquisition” is “the act or action of acquiring,” and the word “acquire” means “to come into possession [or] control… of often by some uncertain or unspecified means.” As such, the court asked whether, as a result of the merger, Willis gained “possession” or “control” “of all or substantially all the ownership interest in or assets of” Towers Watson. Because the merger resulted in Towers Watson and all of its pre-merger assets becoming a wholly owned subsidiary of Willis, the court found that “the answer is clearly yes.”
The Fourth Circuit criticized the district court’s reliance on Northrup Grumman Innovation Sys. Inc. v. Zurich Am. Ins. Co., 2021 Del. Super. LEXIS 92 (Del. Super. Ct. Feb. 2, 2021), to justify interpreting the phrase “the acquisition or completion of the acquisition of all or substantially all the ownership interest in or assets of an entity” to mean only a certain specific and limited form of “takeover acquisition” under Delaware law. As the Fourth Circuit stated, “nothing in the bump up exclusion stipulates, or even hints, that the term ‘acquisition’ was intended to refer only to a particular form of acquisition—i.e., a takeover—under Delaware law.”
Because the district court’s now-reversed ruling only addressed one of three arguments Towers Watson raised with respect to the Bump Up Provision, the Fourth Circuit’s ruling ordered a remand of the case to the district court for further proceedings to resolve the remaining issues.