On January 27, 2026, the Delaware Supreme Court held that a bump-up exclusion, commonly cited by D&O carrier in relation to merger and acquisition litigation, did not preclude coverage for a $28 million post-closing settlement with former shareholders of Harman International Industries. The majority and dissenting opinions in Illinois Nat'l Ins. Co. v. Harman Int'l Indus., Inc., 2026 WL 204209 (Del. Jan. 27, 2026), are available in the court’s published opinion.
Many aspects of the bump-up exclusion have been litigated over the years, but this decision marks the first time that an insured has defeated its application by successfully arguing that insurers didn’t meet their evidentiary burden to establish that a settlement “represent[ed] the amount by which the price or consideration [was] effectively increased.”
As an appellate decision coming from the important corporate forum of Delaware, the Harman decision is likely to be influential and to materially raise the bar for insurers who seek to invoke bump-up exclusions. Furthermore, the decision could influence coverage disputes relating to other types of excluded loss, forcing insurers to prove that settlements represent the relief originally sought by plaintiffs as opposed to litigation cost avoidance.
The case arose from Harman’s 2017 sale to Samsung. After the transaction closed, former Harman shareholders filed class actions alleging that Harman’s proxy disclosures violated Sections 14(a) and 20(a) of the Exchange Act because they were materially misleading and deprived stockholders of information needed to cast an informed vote and to receive “full and fair value for [their] Harman shares.”
Ultimately, Harman settled the litigation for $28 million and sought indemnification under its D&O insurance program.
The carriers denied coverage for the settlement based on a bump-up provision in the primary D&O policy.[1] The specific bump-up provision in question was comparable to or the same as in several previous coverage disputes, namely a carve-out from the definition of covered loss which provided:
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 of any judgment or settlement representing the amount by which such price or consideration is effectively increased; provided, however, that this paragraph shall not apply to Defense Costs or to any Non-Indemnifiable Loss in connection therewith.
The Delaware Superior Court granted Harman’s summary judgment motion in January 2025, finding that the insurers did not show that the provision excludes coverage. On appeal, the Supreme Court affirmed that the exclusion was not triggered. In doing so, it adopted a structured, two-step inquiry. First, does the underlying litigation allege that shareholders received inadequate consideration for the transaction? Second, if the answer to this question is yes, does the settlement amount, or any portion of it, represent the amount by which the consideration was “effectively” increased?
The Supreme Court (unlike the Superior Court) found that the insurers had met their burden of establishing the first point. Although Section 14(a) is triggered by inadequate disclosures as opposed to specific deal pricing, the Court quoted language from the Operative Complaint stating that the “actual economic losses” were comprised of “the difference between the price Harman shareholders received and Harman’s true value at the time of the acquisition,” and found that “allegations of inadequate consideration were intrinsic to the theory of the Section 14(a) claim.”
However, when the Supreme Court turned to the second question, whether the insurers had met their burden of establishing that the settlement “effectively increased” the transaction's consideration, it found that they had not succeeded. Several factors drove that conclusion. Most notably, unlike in other similar coverage disputes, the settlement class included shareholders who sold their shares before the merger closed and therefore never received merger consideration in the first place. According to the court, payment to those specific shareholders could not reasonably be characterized as an increase in transaction consideration.
In addition, the Court pointed out that, unlike in some prior similar coverage disputes, there were no expert reports “relating to the true value of the shares” and “the Insurers did not present any evidence that the Settlement Amount was in any way arrived at or calculate based on how much the recovering class members should or could have received in the Transaction.” On the other hand, the Supreme Court agreed with the Superior Court that there was “ample [] evidence that the full settlement amount [$28 million] truly represents the actual cost of litigation had the case proceeded.” Consequently, the Court upheld the determination that “the Insurers did not meet their burden to show that the Settlement Amount represented an increase in deal consideration.”
01
Insurers can no longer confidently rely on the mere presence of inadequate consideration allegations in a complaint to establish a presumption concerning the nature of a settlement thereof. To the extent that future courts follow the reasoning of Harman, insurers will face a potentially heavy burden to establish, with evidence, that the settlement “effectively” operated as increased deal consideration. This may now be considered a fact-intensive inquiry, which will require extensive discovery.
02
The Harman decision has potential implications beyond the world of bump-up coverage disputes. Whenever settlement amounts arguably reflect litigation costs, risk, or uncertainty (which is often the case with class actions of any type), insurers may struggle to prove the applicability of a policy’s limitations to covered Loss, regardless of what was alleged in the operative complaint. At least one analogous recurring coverage dispute springs to mind: the issue of whether or not a settlement of a fiduciary class action constitutes excluded Benefits.
Historically, insurers and most courts seem to have presumed that a settlement represents a compromise of the amount and type of relief sought in the complaint. In Harman, the Delaware Supreme Court declared that it won’t be making such presumptions; consequently, insurers may face a considerable challenge in proving that settlements are based on what was alleged and sought in the complaint as opposed to litigation costs.
03
The Court emphasized that, unlike in other cases, the Harman class included investors who never received merger consideration. This may materially affect how plaintiff and defense counsel define classes — and how insurers evaluate coverage.
04
Future insurance disputes will probably require a more robust development of the factual record, including:
Coverage litigation likely will become longer, more expensive and more dependent on underlying discovery.
05
Policyholders now have a stronger basis to challenge bump‑up denials. The analysis by Delaware’s influential high court, particularly its rejection of insurers’ reliance on prior decisions, puts insureds in a better position than previously.
The Harman decision may significantly constrain insurers’ ability to use bump‑up exclusions to deny coverage for M&A‑related securities settlements. Particularly for companies incorporated in Delaware — or whose D&O policies are interpreted under Delaware law — this ruling may shift leverage toward policyholders and may influence both underwriting and claims handling going forward.
Furthermore, it seems likely that insureds will have some success in citing the Harman decision for support in any case where the relief plaintiffs sought in their complaint constituted excluded loss (including possibly in fiduciary liability matters involving potentially excluded Benefits). Insurers will have to be prepared to affirmatively prove that the settlement did in fact represent a compromise of the relief sought, notwithstanding that the insureds may argue that the sole motivation was avoiding the cost of defense.
We encourage you to reach out to your broker for a detailed assessment of bump-up wording in your specific policy and to address potential wording alternatives at renewal.
WTW hopes you found the general information provided here informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
