Chubb and AIG Score Big in Court Ruling Over Insurance Dispute
What happens when companies argue over what their insurance should cover? Sometimes, it ends up in court. That’s exactly what happened recently, and big players like Chubb and AIG came out on top. Here’s the deal.
What’s a “Bump-Up” Exclusion?
A federal appeals court ruled in favor of insurers Chubb Ltd. and AIG over something called the “bump-up” exclusion. Sounds a little confusing, right? It’s not as wild as it sounds. This exclusion is a clause in directors and officers (D&O) insurance policies. (That’s the kind of insurance companies often buy to protect their execs from lawsuits.) The “bump-up” part? It’s all about money. Specifically, it blocks insurance from covering settlement payments that essentially increase the price of a merger or acquisition.
Here’s how it went down. After a merger involving Willis Towers Watson Plc, some shareholders weren’t thrilled. They sued, claiming the deal undervalued their shares. The company ended up settling for $100 million. Naturally, Willis Towers looked to their insurance to help cover it. But Chubb and AIG said, “Hold on a second. That settlement is basically bumping up the merger price. And our policies don’t cover that.”
The Court’s Decision
The court agreed. They ruled the “bump-up” exclusion applied. Essentially, the insurers don’t have to pay because the settlement is seen as part of the acquisition costs—not something insurable under their D&O policies.
Why This Ruling Matters
Why’s this such a big deal? Well, companies love their mergers. And shareholder lawsuits like this? They pop up more often than you’d think. This ruling sets a precedent, or a kind of guide, for how these disputes might go in the future. It’s a reminder for companies to really read the fine print on their insurance policies.
A Win for Insurers, A Warning for Companies
For insurers, it’s a win. It backs their right to enforce these “bump-up” provisions. But for companies, it’s a warning. They’ll need to think hard about how to handle lawsuits over deals and whether they’ve got the right coverage.
Complicated? A little. But at its heart, this case is all about defining where the line is when it comes to D&O insurance. And for Chubb and AIG, the line worked out in their favor.