In a New York Law Journal article titled “Fourth Circuit Upholds Bump-Up Exclusion in Towers Watson Insurance Case,” Schulte partner Ted Keyes examined the Fourth Circuit Court of Appeals’ decision holding that Towers Watson’s claim for loss related to the settlement of shareholder litigation, arising from the 2016 merger with Willis Group Holdings, was barred by the bump-up exclusion in its Directors & Officers (“D&O”) insurance policies. This decision affirmed the ruling from the United States District Court for the Eastern District of Virginia and likely ended a long-running and closely watched insurance coverage litigation.

The bump-up exclusion in D&O insurance policies typically bars coverage for loss that represents an increase in the consideration paid for an acquisition as a result of a claim alleging that such consideration was inadequate. The Fourth Circuit confirmed that the settlements paid to the shareholders effectively represented an increase in consideration, thus satisfying the exclusion’s conditions and barring the $90 million settlement coverage.

This ruling serves as a reminder to policyholders that it is important to review the key terms of their D&O policies, including the bump-up exclusion, to ensure that their policies provide the appropriate scope of coverage.