A D&O policy’s bump-up clause bars coverage for a shareholder class settlement that effectively increased merger consideration, according to the Delaware Superior Court’s ruling in MSG Networks Inc. v. Federal Insurance Company, et al., C.A. No. N23C-01-103 PRW CCLD, 2026 Del. Super. LEXIS 282 (Del. Super. Ct. June 11, 2026).

The coverage dispute arose after shareholders of MSG Networks Inc. (“MSG”) settled claims challenging a stock-for-stock reverse triangular merger in which MSG became a wholly owned subsidiary of Madison Square Garden Entertainment Corp. (“MSG Entertainment”). The shareholder plaintiffs alleged that the merger process was unfair and that their MSG shares were undervalued. MSG agreed to pay $48.5 million to settle the claims, and the insurers sought a declaration that the settlement was excluded by the policy’s bump-up clause, which provided that Loss does not include any:

amount that represents, or is substantially equivalent to, an increase in the consideration paid (or proposed to be paid) in an acquisition (or proposed acquisition) of more than 50% of the outstanding securities or other ownership interest of an entity, including an Organization, or in the right to vote for election of, or to appoint, more than fifty percent (50%) of the directors or limited liability company managers or members, or the equivalent of such positions, of an entity, including an Organization.

Focusing on the clause’s plain language, the court found the settlement both represented and was substantially equivalent to an increase in consideration. The court emphasized that the settlement was paid to MSG’s Class A shareholders on a pro rata, per-share basis, that the Court of Chancery had described the settlement as an 8.8% premium to the deal price, and that the settlement amount closely tracked the plaintiff shareholders’ damages theory. The court rejected MSG’s argument that the merger was not an “acquisition” because the Dolan family controlled both entities before and after the merger. The bump-up clause did not require a change in control; it required an acquisition of more than 50% of the relevant securities or voting rights, which the court found was satisfied because MSG Entertainment held none of MSG’s voting securities before the merger and 100% after.

The court further held that the bump-up clause also applied to attorneys’ fees and costs paid from the common settlement fund. Because the entire settlement fund increased the shareholders’ consideration, the fee award deducted from that fund was “fused into the Settlement” and likewise excluded. The court therefore granted the insurers’ motion for summary judgment, denied MSG’s motion, and permitted two insurers to recoup their settlement advances under separate recoupment agreements.

On July 1, 2024, the Sixth Circuit released its opinion in J.M. Smucker Co. v. ACE American Ins. Co., No. 25-3799, ___ F.4th ___, holding that thousands of claims due to exposure to 225 lots of salmonella-contaminated peanut butter produced at a single plant were a single “occurrence” under ACE’s policies.

Continue Reading Sixth Circuit Holds Product Recall Was a Single “Occurrence” Under CGL Policy, Limiting Policyholder Retention

South Carolina Court Of Appeals Rules Endorsement Covering Theft Did Not Cover Loss Of Money Unwittingly Wired To Hacker
Speights v. Chubb Ltd., No. 2026-UP-194, 2026 S.C. App. Unpub. LEXIS 205 (S.C. Ct. App. Apr. 29, 2026).

An insured attorney filed a claim with the firm’s insurer after a bookkeeper wired money to a hacker posing as the attorney, resulting in a $250,000 loss. After the insurer denied coverage for the loss, the insured sued for negligence, breach of contract, and breach of the implied covenant of good faith and fair dealing. The coverage dispute centered around a Money and Securities endorsement, which covered theft and stealing; a Forgery and Alteration endorsement, which covered forgery or alteration of checks, drafts, and promissory notes; and a false pretenses exclusion on the policy form, which barred coverage for “voluntarily parting” with property under false pretenses or fraudulent inducement. The court found the Forgery and Alteration endorsement inapplicable because the emails were demands for money and not a promise to pay. The court ruled that the false pretenses exclusion did not conflict with the Money and Securities endorsement because the latter expressly incorporated the exclusions listed in the policy form. The court also found the exclusion’s “voluntarily parting” language unambiguous, reasoning that the bookkeeper intended to wire the money and voluntarily did so, even if she did not intend to send the money to a hacker. Read the decision.

Continue Reading Insurance Bad Faith Report, July 2026

A D&O policy’s capacity exclusion bars coverage for claims alleging that an insured director or officer acted in a dual capacity for insured and uninsured entities, according to the Supreme Court of New Jersey’s ruling in Mist Pharmaceuticals, LLC v. Berkley Insurance Company, 355 A.3d 253 (N.J. 2026). 

Continue Reading New Jersey Supreme Court Holds Capacity Exclusion Applicable to Dual Capacity Claims

The United States District Court for the Southern District of New York has denied an insurer’s motion to dismiss coverage litigation, holding under New York law that a run-off D&O policy’s subsequent acts exclusion does not bar coverage for an underlying securities class action. See AmTrust Financial Services, Inc. v. Forge Underwriting Ltd., 2026 U.S. Dist. LEXIS 53034 (S.D.N.Y. Mar. 13, 2026).

Continue Reading New York Federal Court Holds Run-Off Policy’s Subsequent Acts Exclusion Inapplicable Because Conduct Alleged After Cut-Off Date Was Lawful and Not a “Wrongful Act”

The Eleventh Circuit has held under Georgia law that a misappropriation exclusion in a lawyer’s professional liability insurance policy did not eliminate the insurer’s duty to defend an underlying lawsuit. See Medmarc Casualty Insurance Co. v. Fellows Labriola LLP, 2025 U.S. App. LEXIS 26389 (11th Cir. Oct. 10, 2025).

Continue Reading Eleventh Circuit: Misappropriation Exclusion Doesn’t Bar Duty to Defend Under Georgia Law

The Second Circuit recently affirmed a decision by a New York district court that the contract exclusion in a D&O insurance policy applied to all of the causes of action in an underlying action, including a cause of action for declaratory relief stemming from a shareholder agreement. See Paraco Gas Corp. v. Ironshore Indem., Inc., No. 23-1069-cv, 2024 U.S. App. LEXIS 14628, at *9 (2d Cir. June 17, 2024).

Continue Reading Second Circuit Affirms Broad Reading of Contract Exclusion in Closely Held Family Corporation Litigation

Note: This article was originally published by Law360 as an Expert Analysis column.

Following the rising trend in runaway bad faith verdicts, on March 22, 2024, the U.S. District Court for the Northern District of Indiana upheld a whopping $112 million jury verdict, including $12.5 million in punitive damages against each of the seven insurers involved.  See Ind. GRQ, LLC v. Am. Guar. & Liab. Ins. Co., No. 3:21-CV-227 DRL, 2024 U.S. Dist. LEXIS 51281, at *102 (N.D. Ind. Mar. 22, 2024).

Continue Reading Insurer Quota-Sharing Lessons From $112M Bad Faith Verdict

The Sixth Circuit has held under Michigan law that a reservation of rights letter including a right to reimbursement was sufficient to entitle an insurer to recoup defense costs paid when the insurer had no duty to defend even though the subject policy did not include language expressly providing for such right.  See Great American Fidelity Insurance Co. v. Stout Risius Ross, Inc., Nos. 23-1167/1195, 2024 U.S. App. LEXIS 8576 (6th Cir. Apr. 8, 2024).

The insureds were named as defendants in an underlying lawsuit that initially included statutory and common law causes of action. The insurer agreed to defend the insureds subject to a reservation of rights, including the right to seek reimbursement of defense costs if it had no duty to defend. The subject policy did not expressly provide for such reimbursement. The insurer commenced a declaratory judgment action, and the trial court initially ruled on summary judgment that the insurer had a duty to defend because the policy excluded coverage only for the statutory causes of action and not the common law causes of action. After the underlying complaint was amended to eliminate the common law causes of action, however, the trial court ruled that the insurer had no duty to defend following the amendment and was entitled to reimbursement of any defense costs it paid after the amendment.

On appeal, the Sixth Circuit affirmed. It found that the insurer’s explicit reservation of its right to reimbursement and the insured’s acceptance of the defense after receiving notice that the insurer might seek reimbursement gave rise to an implied-in-fact contract for reimbursement when there was no duty to defend. Although the Sixth Circuit stated that the Michigan Supreme Court has not recognized implied-in-fact contracts in the insurance context, it has recognized them in other contexts, and at least one Michigan appellate court has permitted an insurer to recover defense costs on an unjust enrichment theory while recognizing other jurisdictions that permit reimbursement based on implied-in-fact contract theory. See NCMIC Ins. Co. v. Dailey, No. 267801, 2006 Mich App. LEXIS 2260 (Mich. Ct. App. July 20, 2006). The Sixth Circuit also previously permitted reimbursement based on a timely reservation of rights letter expressly reserving the right to seek reimbursement. See Continental Cas. Co. v. Indian Head Indus., Inc., 666 F. App’x 456 (6th Cir. 2016).