Please ensure Javascript is enabled for purposes of website accessibility
Home / Opinion Digests / Carriers argue they aren’t responsible for settlement

Carriers argue they aren’t responsible for settlement

Where shareholders sued after the insured’s assets were acquired by another company, that merger constituted an “acquisition” that is subject to the director and officer policy’s “bump up” exclusion.


In 2015, Towers Watson & Co. purchased directors and officers, or D&O, liability insurance coverage from several insurance companies. Following Towers Watson’s merger with another company, Towers Watson shareholders filed several lawsuits against Towers Watson’s chairman and CEO and others, alleging that the shareholders received below-market consideration for their shares in the merger. The litigation settled, and Towers Watson sought indemnity coverage from its insurers under the relevant D&O policies.

The insurers refused the indemnity request, citing a so-called “bump-up” exclusion, which generally bars coverage for losses stemming from judgments or settlements in connection with claims against the insured seeking an increase, or “bump up,” in the consideration paid for a security. The district court agreed with Towers Watson that the consummated merger agreement did not involve an “acquisition” within the meaning of the bump-up exclusion.


The “bump up” exclusion provides that “[i]n the event of a Claim alleging 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 with respect to such Claim shall not include any amount of any judgment or settlement representing the amount by which such price or consideration is effectively increased.”

As the district court correctly noted, the term “acquisition” “is not defined in the policy, [so] the term must be given its ordinary and accepted meaning.” The term “acquisition” is defined as “the act or action of acquiring.” The word “acquire,” in turn, means “to come into possession [or] control … of often by some uncertain or unspecified means.” Given this plain and ordinary meaning, this court’s limited and straightforward inquiry is whether, as a result of the executed merger agreement, another entity gained “possession” or “control” “of all or substantially all the ownership interest in or assets of” Towers Watson.

The answer is clearly yes. Under the merger agreement, Willis-subsidiary Citadel merged into Towers Watson, with Towers Watson as the entity surviving the transaction. The Towers Watson shares were then canceled and delisted, and newly created Towers Watson shares were issued solely to Willis. These events collectively resulted in Towers Watson, with all its pre-merger assets, becoming a wholly owned subsidiary of Willis. An ordinary person would understand that, through this reverse triangular merger, Willis obtained “possession” or “control” of — i.e., acquired — not just all the equity ownership interest in Towers Watson, but also all of Towers Watson’s assets.

Nothing in the bump-up exclusion stipulates, or even hints, that the term “acquisition” was intended to refer only to a particular form of acquisition — i.e., a takeover — under Delaware law. Nor can such an intent be gleaned from any other provision of the policy, which is governed not by Delaware law but by Virginia law.

This court also disagrees with the district court that this initial reverse triangular merger involving Towers Watson and Citadel was merely a “short-lived transitional event” with no legal significance. To the contrary, that legally distinct merger — and the sole merger contemplated by the merger agreement — carried with it distinct legal consequences.

Nor does this court think it material that “Willis never actually ‘acquired’ any of the stock of the former Towers Watson Shareholders” but instead received newly created shares “never held by any [Towers Watson] shareholder.” What matters is whether Willis obtained possession or control of all or substantially all of Towers Watson’s equity or assets.

Towers Watson has raised two independent bases for the exclusion’s facial inapplicability — that Towers Watson doesn’t constitute “an entity” and that the underlying settlements don’t represent an effective increase in consideration for the original Towers Watson shares. The district court declined to address those arguments below. The proper course is to remand to the district court for resolution of those issues in the first instance.

Vacated and remanded.

Towers Watson & Co. v. National Union Fire Insurance Company of Pittsburgh Pa., Case No. 21-2396, May 9, 2023. 4th Cir. (Agee), from EDVA at Alexandria (Trenga). Jonathan D. Hacker for Appellants. Robin L. Cohen for Appellee. VLW 023-2-129. 18 pp.