Policyholder Pulse
Long a feature of directors’ and officers’ (D&O) liability insurance policies, the so-called “Bump-Up” Exclusion has gotten significant attention over the last few years. Because of the recent escalation in securities litigation that follows a majority of mergers and acquisitions, the Bump-Up Exclusion is of critical importance to publicly traded policyholders. Bump-Up Exclusion provisions are often found in a D&O policy’s definition of “Loss” and purport to exclude the amount of a settlement or judgment that represents an increase in the price paid to acquire an entity, where such consideration was alleged to be inadequate. A recent decision out of the Delaware state courts affirms again that D&O insurers will be held to the specific terms of their Bump-Up Exclusions.
Recently, amid the tempest of media coverage surrounding Supreme Court oral arguments in the case of 
A feature of most corporate liability insurance programs is the tower system of coverage: a primary policy with several overlying excess policies stacked atop one another collectively providing coverage up to a desired (or available) limit of liability. Depending on the size and liability exposures of a policyholder, a tower can consist of dozens of policies providing limits totaling hundreds of millions of dollars. Adding to this complexity, excess policies often share layers of coverage in quota share arrangements, sometimes subscribing to the same policy but more often issuing separate policies for a stated percentage of the quota share whole. To avoid as much as possible an impenetrable web of conflicting coverage terms, excess policies often “follow form” to the underlying coverage (usually to the primary policy) providing the insurer certainty and providing the policyholder a consistent tower of coverage. It is not always possible, though, to obtain clarity and certainty in tower placements. Insurance companies issuing excess coverage may not wish to agree to all the terms included in the underlying policies, and so may offer additional or differing terms, creating inconsistencies in an otherwise monolithic tower. For example, a primary insurer may refuse to cover punitive damages whereas an excess insurer may agree to do so, or vice versa.
Last month, the U.S. Court of Appeals for the Ninth Circuit awarded Pillsbury client Northrop Grumman a 
A federal court in Michigan just breathed new life into a long-running legal saga—while at the same time issuing a warning shot across the bows of insurers—by declining to dismiss an insured’s bad faith cause of action alleging its insurer wrongly decided to pay one claim before another, to the insured’s detriment.
As the old adage goes, “the devil is in the details.” Insurance policy terms do not always apply in ways that policyholders expect. For this reason, it is imperative to understand how coverages, definitions and exclusions work together to avoid surprise gaps in coverage. The Fifth Circuit found a coverage gap in a recent case holding that settlement contributions from co-defendants met an excess policy’s broad definition of “Other Insurance,” preventing the policyholder from securing coverage for a significant part of its losses.
their responsibility to ensure the language is clear. Some states require the use of extrinsic evidence before resolving ambiguous language in favor of the policyholder, and many consider the reasonable expectations of the parties in interpreting policy language.
Excess liability policies often include a limitation requiring the “exhaustion” of underlying policy limits before excess coverage is triggered. If the policyholder settles with an underlying insurer for less than the underlying policy limits, excess insurers may dispute whether the settlement qualifies as “exhaustion.”