Introduction
Being a director or officer (“D&Os”) of a U.S. public company may be an unforgiving job. By virtue of their position in the company, D&Os open themselves up to personal liability for their decisions that affect the company’s financial performance.[1] As such, many of these individuals buy D&O liability insurance, which insures them against personal losses or defense costs if they are sued in their capacity as a D&O.[2] Companies also benefit from their key employees having this type of policy since the costs and legal fees of defending their D&Os in such lawsuits may also be reimbursed.[3] D&O policies are incredibly popular for such reasons, but recent Delaware jurisprudence in the mergers & acquisitions (“M&A”) context may change their outlook for the future.[4]
“Bump-Up” Provisions
M&A litigation is a significant source of shareholder suits against D&Os, and recent years have seen an increase in these cases.[5] As a result, insurance issuers are being asked to pay out more frequently on their D&O policies.[6]
Enter the “bump-up” provision, a mechanism by which insurance providers can exclude coverage for M&A litigation in their D&O policies.[7] These provisions bar settlements and judgements from coverage if they result in the shareholders of the target company receiving more value from the sale than they would have otherwise.[8] The idea behind such policies was originally to stop the two companies from colluding on a below market price and forcing the insurance provider to fill in the value after the shareholders sue the board.[9] However, given the increase in M&A litigation, providers are looking for ways to apply these exemptions more broadly to exclude more settlements and judgments.[10]
Recent Cases
Despite efforts from issuers to expand bump-up exclusions more broadly, the Delaware Courts have continuously attempted to limit their applicability.[11] In fact, Delaware law requires that the judges interpret exclusionary contract clauses narrowly and strictly.[12] In the context of bump-up provisions, courts must read the exclusionary language against the insurers.[13]
In 2021, the Delaware Superior Court found a bump-up provision inapplicable in Northrop Grumman Innovation Systems, Inc. v. Zurich American Insurance Co.[14] The provision at issue stated, “[i]n the event of a Claim alleging that the price or consideration paid for the acquisition … 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 is effectively increased.”[15] The insurers brought a §14(a) claim for material misrepresentations or omissions in proxy statements and argued that this type of claim barred coverage of the underlying settlement.[16]
However, the court, narrowly and strictly construing the exclusion in accordance with Delaware law, found that insurers must cover the §14(a) claim.[17] The court reasoned that the provision barred coverage for claims alleging only inadequate consideration and no other losses.[18] In contrast, the insurers primarily alleged false proxy statements.[19] Additionally, the court reasoned that the provision covered only a specific type of transaction, an “acquisition.”[20] Since the underlying transaction was a reverse triangular merger, which, according to their technical meaning, does not include “acquisitions,” the provision did not apply to it.[21]
In 2023, the Superior Court again found another provision inapplicable, under similar reasoning, in Viacom Inc. v. U.S. Specialty Insurance Co.[22] With similar language, the court again found the underlying “transaction” did not qualify under the provision as an “acquisition.”[23] Here, the court reasoned that it was ambiguous as to whether the provision included mergers due to references to mergers elsewhere in the contract.[24] As a result, the court again read the exclusion strictly against the Insurer and determined that the settlement costs were covered.[25]
Most recently in January 2026, the Delaware Supreme Court found another provision inapplicable in Illinois National Insurance Co. v. Harman International Industries, Inc.[26] Here, the court analyzed the bump-up provision by applying a two-step analysis.[27] First, they asked whether the claim alleged inadequate consideration.[28] Unlike in Northrop, the court found that the insurers alleged it correctly.[29]
However, the court ruled the provision did not pass the second step: whether the settlement is effectively an increase to the consideration.[30] The court reasoned that because the settlement included shareholders who sold before the merger and never received deal consideration[31], and because the insurers failed to introduce evidence to support the contention that it was an effective increase, the second step was not satisfied.[32]
Predictions for the Future of M&A/What to Expect
These three cases tell us that Delaware is not shying away from continuing to make pro-D&O decisions any time soon.[33] These actions do not come as a surprise considering recent rumblings of a potential “DExit,” or mass exodus of American companies incorporating in Delaware.[34] Insurers will need to rethink the language of bump-up provisions going forwarded to ensure broad applicability.[35] Even with such measures, it seems likely that these pro-D&O decisions will continue to be the trend, at least for the near future.
[1] See International Risk Management Institute, Inc., What Is Directors and Officers Liability Insurance?, https://www.irmi.com/term/insurance-definitions/directors-and-officers-liability-insurance.
[2] See Julia Kagen, What is Directors and Officers (D&O) Insurance and Who Needs It?, Investopedia (Sep. 18, 2025), https://www.investopedia.com/terms/d/directors-and-officers-liability-insurance.asp.
[3] See id.
[4] See generally Peter Adams, Jacquelyn Burke, & Linh Nguyen, Will A Bump-Up Exclusion Bar Coverage of an M&A Settlement?, Harvard Law School Forum on Corporate Governance (Sep. 2, 2024),
https://corpgov.law.harvard.edu/2024/09/02/will-a-bump-up-exclusion-bar-coverage-of-an-ma-settlement/.
[5] See id. (“…as public company M&A deal litigation has accelerated, D&O insurers are relying on the bump-up exclusion more frequently and applying it more broadly to exclude coverage.”).
[6] See id.
[7] See id. (“…the bump-up exclusion, which bars coverage for settlements (or judgments) in M&A litigation that, in effect, bump up the consideration paid to the shareholders of the target company in the underlying deal.”).
[8] See id.
[9] See id. (“Historically, insurers used the bump-up exclusion to prevent buy-side insureds from colluding with a target company’s board to acquire the company for less than market value, then turning to their insurers to fill the gap after the target company shareholders inevitably sue for the shortfall.”).
[10] See id. (“Now, insurers are drafting and enforcing bump-up exclusions to bar coverage even when it is the sell-side insured or acquisition target who is seeking coverage.”).
[11] See generally id.
[12] See Pfizer Inc. v. Arch Ins. Co., 2019 Del. Super. LEXIS 345, at *20 (July 23, 2019) (“Exclusionary clauses, on the other hand, are ‘accorded a strict and narrow construction.’ . . . [C]ourts will give effect to exclusionary language where it is found to be ‘ specific,’ ‘clear,’ ‘plain,’ ‘conspicuous,’ and ‘not contrary to public policy.'”).
[13] See Med. Depot, Inc. v. RSUI Indem. Co., 2016 Del. Super. LEXIS 484, at *22 (Sept. 29, 2016) (“Coverage language is interpreted broadly to protect the insured’s objectively reasonable expectations. Exclusionary clauses, on the other hand, are “‘accorded a strict and narrow construction.’”).
[14] Northrop Grumman Innovation Sys., Inc. v. Zurich Am. Ins. Co., 2021 Del. Super. Lexis 92 (Feb. 2, 2021).
[15] Id. at *10 – *11.
[16] See id. at *4 (“…challenging proxy solicitation statements (the “14(a) Claim”) about the merger of Alliant Techsystems, Inc. (“Alliant”) and Orbital Sciences Corporation…”).
[17] See id. at *7 (“…must cover the 14(a) Claim.”).
[18] See id. at *43 (“Narrowly and strictly construed, the string of terms weaves an exclusion of a lawsuit (‘Claim’) that “alleg[es]” only the “consideration” exchanged—nothing else…”).
[19] See id. at *44 (“[T]he 14(a) Claim wasn’t exclusively about the Orbital Sciences stockholders’ ‘inadequate’ ‘consideration’ (i.e., unwisely-exchanged stock).”).
[20] See id. at *46.
[21] See id.
[22] Viacom Inc. v. U.S. Specialty Ins. Co., 2023 Del. Super. LEXIS 728 (Aug. 10, 2023).
[23] See id. at *6.
[24] Id. at *5 (“On the other hand, ‘an acquisition of all or substantially all ownership interest in, or assets of, an entity’ may be exclusive of merger transactions based on the reference to mergers in other provisions of the contract.”).
[25] See id. at *23 – *24 (“Because the Bump-Up Provision is subject to two contrary, reasonable interpretations, ambiguity should be resolved in favor of Plaintiffs.”).
[26] Ill. Nat’l Ins. Co. v. Harman Int’l Indus., Inc., 2026 Del. LEXIS 30 (Jan. 27, 2026).
[27] See id. at *18 (“Determining whether the Bump-Up Provision applies requires two steps.”).
[28] See id. (“Under the first step, we consider whether the underlying Claim alleges inadequate deal consideration for the Transaction.”).
[29] See id. at *21 (“We hold that Insurers have met their burden under the first step to show that the Claim underlying the Settlement is a Claim alleging inadequate consideration.”).
[30] See id. (“However, we agree with the Superior Court’s determination that Insurers have not satisfied the second step requiring Insurers to show that the Settlement Amount represents an increase in the alleged inadequate consideration.”).
[31] See id. at *30 (“the composition of the settlement class was not limited to shareholders who received consideration in connection with the Transaction.”).
[32] See id. at *34.
[33] See Hunton Andrews Kurth LLP, Delaware Supreme Court Rejects “Bump-Up” Exclusion, Affirms $28 Million D&O Coverage for M&A Litigation (Feb. 12, 2026) https://www.hunton.com/insights/legal/delaware-supreme-court-rejects-bump-up-exclusion-affirms-28-million-d-o-coverage-for-m-a-litigation.
[34] See Dan Byrne, What is DExit? It might signal a new norm, Corporate Governance Institute, https://www.thecorporategovernanceinstitute.com/insights/news-analysis/what-is-dexit/?srsltid=AfmBOopffcVTRP_1P48dRP0D-ZtjTBwyhm-kFnE1G02-0wa_GZdF1Dhj.
[35] Anthony B. Crawford, Delaware Supreme Court Affirms D&O Coverage, Harvard Law School Forum on Corporate Governance (Feb. 20, 2026), https://corpgov.law.harvard.edu/2026/02/20/delaware-supreme-court-affirms-do-coverage/.
