Bump-Up Clause Bumps Shareholder Settlement Out of D&O Coverage

A Delaware Superior Court, applying Delaware law, held that a D&O policy’s bump-up clause precluded coverage for an underlying settlement because the settlement effectively represented an increase in merger consideration. Zayo Grp. Holdings, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 2026 WL 2254784 (Del. Super. Ct. Aug. 5, 2026).

The insured communications infrastructure provider was acquired by a private investment consortium through a reverse triangular merger. The insured entity was taken private, and shareholders received thirty-five dollars per share. Following the acquisition, former shareholders sued the insured entity’s CEO, alleging that he had breached his fiduciary duties by depressing the company’s value and failing to disclose information suggesting that the buyer was willing to pay a higher price per share. The parties settled, with payment to the former shareholders calculated on a per-share basis. The company’s D&O insurer denied coverage on the ground that the settlement did not constitute Loss. Specifically, the policy provided that when a “Claim alleg[es] 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 does not include “any amount of any judgment or settlement representing the amount by which such price or consideration is effectively increased” (the “Bump-Up Clause”).

The Delaware Superior Court granted the insurer’s motion for summary judgment because it concluded that the Bump-Up Clause applied. First, the court found that the underlying action alleged inadequate consideration in the acquisition of the insured entity because the shareholders explicitly sought damages for “unfair Merger consideration” and alleged that the CEO’s conduct caused them to receive an unfair price. Second, the court determined that the settlement represented an amount by which the allegedly inadequate consideration was effectively increased. Crucially, the settlement was distributed on a per-share basis only to the shareholders that allegedly received an inadequate price for stock they held at closing. Thus, the court concluded that the settlement functioned as additional merger consideration rather than as a payment to avoid litigation risk. Finally, because the Bump-Up Clause barred coverage for the entire settlement, the court declined to order an allocation—either under the larger settlement rule or the policy’s allocation provision—because there were no covered amounts to allocate.