On January 27, 2026, the Delaware Supreme Court issued a significant pro-policyholder decision affirming that directors and officers (“D&O”) insurers must cover a $28 million settlement paid by Harman International Industries Inc., to resolve stockholder litigation arising from its multi-billion dollar sale to Samsung Electronics Co., Ltd. The Court affirmed the Superior Court’s ruling that the applicable D&O policy’s Bump-Up Provision did not exclude coverage for the settlement, rejecting the insurers’ arguments that the payment effectively increased the merger consideration and was therefore barred under the policy.
The Court’s analysis centered on the specific structure of the Bump-Up Provision, which excluded coverage when (1) an underlying claim alleged that the acquisition consideration was inadequate, and (2) a settlement payment represented an effective increase in that consideration. While the Supreme Court agreed that the securities claims satisfied the first requirement, it held that the insurers failed to prove the $28 million settlement functioned as an effective increase in deal consideration. This rendered the Bump-Up Provision inapplicable as a bar to coverage.
In evaluating whether the settlement represented an “effective increase” in consideration, the Supreme Court examined the settlement terms, class of recipients, timing, and nature of the payment. The Court made clear that compensatory payments tied to alleged legal harm do not automatically equate to a repricing of a transaction. The coverage analysis therefore depends on the policy’s wording and the real-world effect of the payment, not simply the transactional setting.
For policyholders facing post-closing stockholder suits and other M&A-related disputes, the Harman decision confirms that D&O coverage may be available where a bump-up exclusion requires proof that a settlement represents an effective increase in consideration and the insurers cannot meet their burden to make that showing. Settlements are not excluded merely because they arise from a transaction. Courts will require a clear alignment between the exclusion’s wording and the loss at issue, rather than relying on broad insurer characterizations of the loss.
The Harman decision also underscores how subtle drafting differences in the policy language, such as how the terms “representing,” “effectively,” or “consideration” are framed, can impact or determine the outcome of a coverage dispute. This serves as a timely reminder of the importance of reviewing and negotiating corporate insurance policies at renewal, including a company’s D&O policy—a core fundamental coverage for most all public and private companies and their individual directors and officers. The Harman decision reflects the reality that a number of policy provisions in D&O policies can vary widely, and small wording changes can have substantial consequences. With slightly different language in the Bump-Up Provision in Harman, the result here (millions of dollars in insurance coverage) could have been different, underscoring the value of policy reviews by counsel before renewing your policies and after a claim arises without accepting insurers’ often inaccurate interpretations at face value.