Illinois National Insurance Company and Federal Insurance Company v. Harman International Industries, Incorporated

IN THE SUPREME COURT OF THE STATE OF DELAWARE

ILLINOIS NATIONAL INSURANCE §
COMPANY and FEDERAL § No. 47, 2025
INSURANCE COMPANY, §
§
Defendants-Below, Appellants, § Court Below: Superior Court
§ of the State of Delaware
v. §
§
HARMAN INTERNATIONAL § C.A. No. N22C-05-098
INDUSTRIES, INCORPORATED, §
§
Plaintiff-Below, Appellee. §

Submitted: November 5, 2025
Decided: January 27, 2026

Before SEITZ, Chief Justice; VALIHURA, TRAYNOR, LEGROW, and GRIFFITHS,
Justices, constituting the Court en Banc.

Upon appeal from the Superior Court. AFFIRMED.

Kurt M. Heyman, Esq., Aaron M. Nelson, Esquire, Brendan Patrick McDonnell, Esquire,
HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware for Defendants-
Below/Appellants Illinois National Insurance Company.

Robert J. Katzenstein, Esquire, Julie M. O’Dell, Esquire, SMITH, KATZENSTEIN &
JENKINS LLP, Wilmington, Delaware for Defendants-Below/Appellants Federal
Insurance Company.

Jennifer C. Wasson, Esquire, Carla M. Jones, Esquire, POTTER ANDERSON &
CORRON LLP, Wilmington, Delaware. Of Counsel: Robin L. Cohen, Esquire, Orrie A.
Levy, Esquire, Maria Brinkmann, Esquire, COHEN ZIFFER FRENCHMAN &
MCKENNA LLP, New York, NY, Paul D. Clement, Esquire, Andrew C. Lawrence,
Esquire, Joseph J. DeMott, CLEMENT & MURPHY, PLLC, Alexandria, Virginia for
Plaintiff-Below, Appellee Harman International Industries, Incorporated.

VALIHURA, Justice, for the Majority:
INTRODUCTION

This insurance coverage action involves a dispute between Harman International

Industries, Inc. (“Harman”) and three of Harman’s insurers: Illinois National Insurance

Company (“AIG”), Federal Insurance Company (“Chubb”), and Berkley Insurance

Company (“Berkley” and together with AIG and Chubb, “Insurers”). In 2017, Harman

was acquired by Samsung Electronics Co., Ltd. (“Samsung”) and in response to the

acquisition (the “Transaction”),1 a class of former Harman shareholders brought a lawsuit

alleging that the disclosures made in connection with the transaction violated federal

securities laws. After the lawsuit settled, Harman sought coverage from Insurers for the

$28 million paid in settlement (the “Settlement Amount”). Insurers denied coverage of

the Settlement Amount asserting that a bump-up provision in each insurance policy

(collectively, the “Bump-Up Provision”) excluded the Settlement Amount from coverage.

The Bump-Up Provision excludes coverage of settlement amounts which would

otherwise be covered by the Policy where the claim underlying the settlement alleged

inadequate deal consideration for an acquisition and such settlement amount represented

an effective increase in deal consideration. This case presents two questions. First, did

this federal securities law claim alleging that disclosures were inadequate allege

inadequate consideration? And second, did this Settlement Amount, or any portion of

this Settlement Amount, represent an increase in deal consideration even though (1) the

settlement class included shareholders who did not hold stock at the time of the

1
The Transaction is sometimes referred to herein as the “Acquisition” or the “Merger.”

2
Transaction and, therefore, did not receive deal consideration and (2) no party presented

any evidence concerning the “true value” of the shares?

The Superior Court held that neither requirement was met so the Bump-Up

Provision did not exclude coverage of the Settlement Amount. Although we disagree

with the Superior Court’s determination that the first requirement of the Bump-Up

Provision was not met, we agree that Insurers did not satisfy the second requirement.

Because the Bump-Up Provision requires satisfaction of both requirements, we AFFIRM

the Superior Court’s judgment that the Bump-Up Provision does not exclude coverage of

this Settlement Amount.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A. D&O Insurance

Harman purchased Directors and Officers (“D&O”) insurance from Insurers

covering the period from January 29, 2016, to January 29, 2017 (the “Policy”).2 The

Policy, consisting of a primary policy (the “AIG Policy”), first excess policy (the “Chubb

Policy”), and second excess policy (the “Berkley Policy”), provides for a total of $40

million in D&O coverage.3 The AIG Policy, Chubb Policy, and Berkley Policy all

operate identically as applicable to this action, and the Chubb Policy and Berkley Policy

both follow form to the relevant provisions of the AIG Policy included below.4

2
App. to Appellants’ Opening Br. at A69, 76 [hereinafter “A__”] (Del. Sup. Ct. Compl. at 1, 8).
3
A69–70, 76 (Del. Sup. Ct. Compl. at 1–2, 8). The full program of management liability
insurance “provides $125 million in coverage[.]” A76 (Del. Sup. Ct. Compl. at 8).
4
A76 (Del. Sup. Ct. Compl. at 8).

3
The Policy provides coverage for (1) the Loss5 of any Insured Person6 “that

arises from any: [] Claim (including any Insured Person Investigation) made against

such Insured Person (including any Outside Entity Executive) for any Wrongful Act

of such Insured Person[]” and (2) the “Loss of any Organization: []arising from any

Securities Claim made against such Organization for any Wrongful Act of such

Organization[.]”7 A Claim is “a written demand for monetary, non-monetary or

injunctive relief[.]”8 A Securities Claim is a specific type of Claim which alleges a

violation of a federal statute regulating securities arising out of the purchase or sale of the

securities of an Organization.9 An Organization includes Harman as the Named

Entity.10

The Policy’s definition of “Loss,” which otherwise includes settlements, contains

a Bump-Up Provision which excludes a specific type of Loss with respect to a specific

type of Claim.11 The provision states:

In 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

5
Bolded terms shall have the meaning ascribed to them in the Policy, where they are defined.
See A903 (AIG Policy at 17).
6
See A908 (AIG Policy § 13, at 21) (Insured Person “means any: (1) Executive of an
Organization; (2) Employee of an Organization; or (3) Outside Entity Executive.”).
7
A886 (AIG Policy §§ 1.A., 1.C.).
8
A903 (AIG Policy § 13, at 17).
9
A912 (AIG Policy § 13, at 25).
10
A909 (AIG Policy § 13, at 22); A882 (AIG Policy at 1).
11
A908–09 (AIG Policy § 13, at 21, 22).

4
or consideration is effectively increased; provided, however, that this
paragraph shall not apply to Defense Costs or to any Non-Indemnifiable
Loss in connection therewith.12

In other words, the Bump-Up Provision excludes coverage of settlement amounts which

would otherwise be covered by the Policy where (1) the Claim underlying the settlement

alleged inadequate deal consideration for an acquisition and (2) such settlement amount

represented an effective increase in deal consideration.

B. The Transaction

On November 14, 2016, Samsung announced its proposed acquisition of Harman,

structured as a reverse triangular merger (i.e., the Transaction).13 Proxy materials

describing the Transaction were disseminated to Harman shareholders in January of

2017.14 On February 17, 2017, Harman shareholders voted to approve the Transaction,

under which each share of outstanding Harman stock, with certain exceptions (i.e.,

dissenting shares), would be converted into the right to receive $112.00 in cash. 15

Harman and Samsung completed the Transaction on March 10, 2017.16

12
Id. Non-Indemnifiable Loss is Loss for which an Organization cannot indemnify an
Insured Person pursuant to applicable contracts and law. Id.
13
A2809 (Samsung Press Release at 1); A2820 (February 2024 Stipulation of Facts ¶ 3).
14
A563 (Operative Compl. ¶ 5).
15
A566 (Operative Compl. ¶ 13); A2830 (Agreement and Plan of Merger § 2.01(c)).
16
A2820 (February 2024 Stipulation of Facts ¶ 2).

5
C. The Baum Action and Settlement

1. Underlying Claims

On July 12, 2017, Patricia B. Baum (the “Investor”) filed an amended class action

complaint (the “Operative Complaint”)17 in the United States District Court for the

District of Connecticut (the “District Court”) against Harman and the Board18 (together,

with Harman, “Defendants”), on behalf of herself and all persons similarly situated (the

“Investor Class” and, together with Defendants, the “Underlying Parties”). 19 The

Operative Complaint alleged that Defendants disseminated a false and misleading proxy

statement (the “Proxy”) in violation of §§14(a) and 20(a) of the Securities Exchange Act

of 1934 (the “Exchange Act”), 15 U.S.C. §§78n(a) and 78t(a), and SEC Rule 14a-9, 17

CFR § 240.14a-9, promulgated thereunder, to induce Harman shareholders to vote in

favor of the Transaction.20

The Operative Complaint alleged that the Proxy was misleading because, among

other things, it “failed to disclose that its ‘Management Projections’—which supported

the Board’s recommendation regarding the intrinsic value of Harman—rested on an

unreliable premise that the Company would immediately discontinue its longstanding and

17
The Operative Complaint is sometimes referred to herein as the “Baum Action.”
18
The Board members, omitted from the text above for the sake of brevity, are Dinesh C. Paliwal
(“Paliwal”), Adriane M. Brown, John W. Diercksen, Ann M. Korologos, Robert Nail, Abraham
N. Reichental, Kenneth M. Reiss, Hellene S. Runtagh, Frank S. Sklarsky, and Gary G. Steel.
A562, 568–569 (Operative Compl. ¶¶ 2, 23–33).
19
A562 (Operative Compl. at 1).
20
A562 (Operative Compl. at 1). The initial complaint, filed on February 15, 2017 (the “Initial
Complaint”), included both state fiduciary duty claims and federal securities law claims. See
A526 (Initial Compl. at 1). However, the Operative Complaint retained only the federal
securities law claims. See A561 (Operative Compl. at 1).

6
valuable bolt-on acquisition growth strategy[]” and “contained greater downside risk than

upside potential[.]”21 The Operative Complaint also alleged that the Board “concealed

the fact that the Proxy Management Projections contained in the proxy did not include a

keystone component of the Company’s operative reality and standalone business strategy

and presented a misleading narrative regarding the disclosed projections.”22

The Operative Complaint alleged that, as a result of the inadequate disclosures in

the Proxy, the members of the Investor Class were deprived of their right to a fully

informed shareholder vote in connection with the Transaction and the full and fair value

for their respective Harman shares.23 The relief sought included “compensatory and/or

rescissory damages” equaling “the difference between the price Harman shareholders

received and Harman’s true value at the time of the Acquisition [] in an amount to be

determined at trial.”24

2. The Settlement

After attending a court-recommended mediation, the Underlying Parties agreed to

a $28 million Settlement Amount and filed a Stipulation of Settlement (the “Settlement”)

on June 23, 2022 seeking the District Court’s approval.25 The Settlement stated that (1)

the Settlement was a final and complete resolution of all disputes between the Underlying

21
A588, 590 (Operative Compl. ¶¶ 64, 70).
22
A593 (Operative Compl. ¶ 75). The Operative Complaint alleges that Paliwal was motivated
to reduce the valuations to protect “his lucrative side deals with Samsung.” A590 (Operative
Compl. ¶ 70).
23
A608–609 (Operative Compl. ¶ 120).
24
A609, 611 (Operative Compl. at 48, 50).
25
A705, 707, 714 (Stipulation of Settlement at 1, 3, 10).

7
Parties with respect to the claims alleged in the Operative Complaint, (2) Defendants

continued to deny liability, and (3) the Underlying Parties’ decision to settle was based on

avoiding the costs, uncertainty, and risks inherent in the litigation.26 The Settlement also

defined the class for the purposes of the Settlement as “all Persons who purchased, sold,

or held Harman common stock at any time during the period from and including January

10, 2017, the record date, through and including March 12, 2017, the date the Merger

closed.”27

The Notice of Pendency and Proposed Settlement of Class Action (the “Notice to

Shareholders”) described the lawsuit as concerning alleged violations of securities laws

and notified the settlement class members that “[i]n exchange for the Settlement and the

release of the Released Claims [] as well as dismissal of the Litigation, Defendants have

agreed that a payment of $28 million will be made by Defendants (or on their behalf) to

be divided, after taxes, fees, and expenses, among all Authorized Claimants.”28 The

District Court granted final approval of the Settlement on November 10, 2022.29

3. Denial of Insurance Coverage

On July 20, 2017, AIG issued a coverage letter stating that AIG would accept, and

provide coverage for, the litigation arising out of the Operative Complaint as a

26
A708–709 (Stipulation of Settlement at 4–5).
27
A710 (Stipulation of Settlement at 6).
28
A756, 761 (Notice to S’holders at 4, 9). However, the notice did not explicitly state what the
Settlement Amount represents. See A761–762 (Notice to S’holders at 9–10).
29
A2690 (Final J. & Order of Dismissal with Prejudice).

8
“Securities Claim subject to a reservation of rights.”30 However, in December 2021 prior

to the court-recommended mediation, AIG issued a supplemental coverage letter stating

that, based on the Bump-Up Provision included in the Policy’s definition of Loss, the

Relief being sought in the Operative Complaint is excluded from the Policy’s Loss

coverage.31 “Chubb and Berkley adopted AIG’s coverage position.”32

D. Proceedings Below

On May 16, 2022, Harman initiated this action (1) alleging that Insurers breached

the Policy by wrongfully excluding the Settlement Amount from coverage and (2)

arguing that the Bump-Up Provision does not exclude coverage of the Settlement

Amount.33 The Superior Court “denied both Insurers’ motion to dismiss and Harman’s

earlier request for summary judgment because the record as-then developed didn’t

provide sufficient facts to make any determinations in favor of either party.” 34 After

discovery, both Harman and Insurers cross-moved for summary judgment based on

conflicting interpretations of the Bump-Up Provision.35

30
A2186 (AIG’s July 20, 2017, Coverage Position Letter at 1).
31
A3541–42 (AIG’s December 13, 2021, Coverage Position Letter [hereinafter “Dec 2021
Letter”]).
32
A83 (Del. Sup. Ct. Compl. at 15).
33
A87–88 (Del. Sup. Ct. Compl. at 19–20).
34
Harman Int’l Indus., Inc. v. Illinois Nat’l Ins. Co. (Harman II), 2025 WL 84702, at *3 (Del.
Super. Jan. 7, 2025).
A294–334 (Br. in Supp. of Harman’s Mot. to Dismiss); A445–494 (Br. in Opp’n to Harman’s
35

Mot. to Dismiss & in Supp. of Insurer’s Mot. for Summ. J.).

9
In January 2025, the Superior Court granted summary judgment in favor of

Harman finding that Insurers did not show that the provision excludes coverage.36 The

court, in addressing the Bump-Up Provision, described it as having the following

elements:

For this Bump-Up to exclude any settlement or portion thereof: (1) the
settlement must be related to an underlying acquisition; (2) inadequate deal
price must be a viable remedy that was sought for at least one claim in the
Baum Action; and (3) the settlement, or a portion of the settlement, must
represent an effective increase in consideration.37

The Superior Court held that the Settlement was related to an underlying

acquisition.38 The court held that the Transaction, structured as a reverse triangular

merger, was an acquisition as contemplated by the operative Policy language. It

determined that the Transaction had the characteristics of an acquisition because

“Harman retained separate legal existence, only Harman shareholders voted, and the

transaction was commonly referred to, even by Harman, as an acquisition.”39

36
Harman II, 2025 WL 84702, at *12. It also denied the Insurers’ motion for summary
judgment. Id.
37
Harman II, 2025 WL 84702, at *6. Previously, at the pleading stage, the court held that the
provision applies only if the following three elements were met: “(1) the transaction must be ‘an
acquisition of all or substantially all of an entity’s assets or ownership’; (2) the Baum Action
settlement must be related only to the allegation of inadequate consideration; and (3) the Baum
Action settlement must represent an effective increase in consideration.” Harman Int’l Indus.,
Inc. v. Illinois Nat’l Ins. Co. (Harman I), 2023 WL 3055217, at *9 (Del. Super. Apr. 24, 2023)
withdrawn and superseded by Harman II, 2025 WL 84702. However, the court restated the
elements in Harman II after re-examining “the relevant language and the parties’ cross-motion
positions set out in their papers and arguments[.]” Harman II, 2025 WL 84702, at *6 n.68.
38
Id. at *8–11.
39
Id. at *9.

10
However, the Superior Court determined that the Operative Complaint did not

allege inadequate consideration. It acknowledged that the “only relief sought in the

Baum Action was ‘the difference between the price Harman shareholders received and

Harman’s true value at the time of the Acquisition[]’ [and] one might rightly read that as a

request of relief for inadequate consideration.”40 Yet, the court also stated that “Insurers

must establish the Baum Action plaintiffs requested a remedy for inadequate deal price

for at least one claim, and that was a form of relief permitted for the claim alleged.”41

Therefore, the court concluded that the Operative Complaint did not allege inadequate

consideration because, “[a]s only violations of Sections 14(a) and 20(a) of the Exchange

Act were alleged, there [was] no claim pled where inconsiderate deal price [was] a viable

remedy.”42

The court also determined that the Settlement Amount did not represent an

effective increase in deal consideration. The court observed that “for a settlement to

represent an effective increase in consideration, the settlement must be for the actual

purpose of ‘bumping up’ the value of the deal[]” and “only the amount of the settlement

related to curing the deal price may be excluded from coverage under the Policy

language.”43 To determine what this Settlement Amount represented, the court

considered four factors: “the language of the settlement;” “indications that the settlement

amount represents compensation for an inadequate deal price;” “the stage of litigation at
40
Id.
41
Id.
42
Id. at *10.
43
Id.

11
the time of the settlement;” and “the composition of the settlement class.”44 The court

stated that “[o]n the record developed—which the Insurers [stated was] [] adequate to

resolve the issue—the Court cannot find that any part of the Baum Action settlement

represents an amount by which the transaction price or consideration is effectively

increased.”45 Accordingly, the Superior Court held that the Bump-Up Provision did not

exclude the Settlement Amount from coverage.

II. CONTENTIONS ON APPEAL

On appeal, Insurers argue that the Superior Court erred in determining that the

Settlement Amount was covered by the Policy because the Operative Complaint alleged

inadequate consideration and the Settlement Amount represented an increase in deal

consideration. First, Insurers claim that the plain and ordinary meaning of the Bump-Up

Provision requires only that a Claim allege inadequate consideration and does not require

a determination that the Claim be viable. Insurers argue that this requirement was met

because, in their view, there is no doubt the Baum Action alleged that the consideration

paid to Harman shareholders was inadequate.

Second, Insurers assert that when determining whether the Settlement Amount

represented an increase in deal consideration, the court must consider the overall result of

the Settlement rather than whether the Settlement was for the actual purpose of increasing

the deal consideration. Insurers argue that because the Settlement expressly stated that it

was meant to be a final and complete resolution of the Operative Complaint, and because

44
Id.
45
Id. at *11.

12
the sole theory of loss in the Operative Complaint was inadequate deal consideration, the

Settlement Amount must represent the resolution of that loss (i.e., an increase in the

alleged inadequate deal consideration). Insurers also argue that the Settlement Amount

represented an increase in deal consideration because the Settlement Amount was

disbursed on a pro rata, per share basis and the Notice to Shareholders used the word

“compensation” when describing what the shareholders would receive in the

Settlement.46

In response, Harman asserts that the Superior Court correctly held that the

Bump-Up Provision did not apply because the Operative Complaint did not allege

inadequate consideration and the Settlement Amount did not represent an increase in deal

consideration. Harman argues that “[u]nder Delaware law, for a Claim to ‘allege’ a

particular fact or circumstance within the meaning of an insurance policy exclusion, that

fact or circumstance must be meaningfully linked to the viability of the Claim faced by

the policyholder and the Loss the policyholder could incur.” 47 According to Harman,

“[t]here was no such meaningful link here[]” because the Operative Complaint was a

“Securities Claim” predicated on securities law violations that deprived shareholders “of

the ability to cast an informed vote on the Transaction[.]”48

According to Harman, the Settlement Amount did not represent an increase in

consideration because “indisputable record evidence shows that the Baum Action also

46
Opening Br. 35–36 (“[T]he settlement represents ‘compensation’ to the class for its injury,
which, according to the plaintiff and her counsel, was inadequate deal consideration.”).
47
Answering Br. on Appeal of Pl.-Below/Appellee 44 [hereinafter “Answering Br.”].
48
Id. at 44.

13
posed risks unrelated to the adequacy of the deal price[.]” 49 Harman argues that the

complete and final resolution of the Operative Complaint was not limited to resolving

inadequate deal consideration because the Operative Complaint alleged compensatory

and rescissory damages based on a flawed transaction process in addition to inadequate

deal consideration. Harman asserts that because the settlement class definition did not

require shareholders to receive deal consideration, the composition of the settlement class

also suggests that the Settlement did not represent an increase in deal consideration.

Additionally, Harman argues that the distribution method “has zero bearing on

what the amounts paid actually ‘represent’ to shareholders[]” because shareholder class

action settlements are routinely distributed on a per-share basis.50 Harman argues that the

language of the notice shows that the “compensation” was based on the “risk-adjusted

possibility of recovery after trial and any appeals” rather than inadequate deal

consideration. Accordingly, Harman argues that Insurers have not met their burden to

show that both requirements were met.

Further, Harman argues that even if the Settlement Amount represented an

effective increase in deal consideration, the attorneys’ fees component of the Settlement

Amount does not. Harman asserts “that $8,803,809.79 of the Settlement was never paid

to or controlled by recovering shareholders, such that it would make little sense to

conclude that this amount represents an effective increase in their deal consideration.”51

49
Id. at 25.
50
Id. at 27.
51
Id. at 42.

14
III. STANDARD OF REVIEW

“This Court reviews a grant or denial of a motion for summary judgment de

novo.”52 “We review the interpretation of insurance contracts de novo.”53

IV. ANALYSIS

“[W]hen there is a coverage dispute, ‘[t]he language of the policy and the

allegations of the complaint must be construed together to determine the insurers’

obligation.’”54 “Insurance contracts, like all contracts, are construed as a whole, to give

effect to the intentions of the parties.”55 “Normally, unless a contract is found to be

ambiguous, a court should interpret its language as it would be understood by an

objective, reasonable third party, and ascribe to it its ordinary and usual meaning.”56 “[I]f

the language is clear and unambiguous a Delaware court will not destroy or twist the

words under the guise of construing them.”57

“However, ‘[b]ecause an insurance policy is an adhesion contract and is not

generally the result of arms-length negotiation, courts have developed rules of

construction which differ from those applied to most other contracts.’”58 “This has led

52
In re Solera Ins. Coverage Appeals, 240 A.3d 1121, 1130 (Del. 2020); see also Ferrellgas
Partners L.P. v. Zurich Am. Ins. Co., 319 A.3d 849, 865 (Del. 2024).
53
In re Solera, 240 A.3d at 1130; see also Origis USA LLC v. Great Am. Ins. Co., 345 A.3d 936,
951 (Del. 2025); Ferrellgas, 319 A.3d at 865.
54
Origis, 345 A.3d at 952.
55
Id. at 954 (quoting RSUI Indem. Co. v. Murdock, 248 A.3d 887, 905 (Del. 2021)).
56
Id. at 952 (quoting Ferrellgas, 319 A.3d at 868).
57
Ferrellgas, 319 A.3d at 868 (quoting Hallowell v. State Farm Mut. Auto. Ins. Co., 443 A.2d
925, 926 (Del. 1982)).
58
Id. (quoting Hallowell, 443 A.2d at 926).

15
this Court to adopt the doctrine of reasonable expectations and ‘[a] fundamental premise

of the doctrine is that the policy will be read in accordance with the reasonable

expectations of the insured so far as its language will permit.’”59 “Courts will interpret

exclusionary clauses with ‘a strict and narrow construction . . . [and] give effect to such

exclusionary language [only] where it is found to be specific, clear, plain, conspicuous,

and not contrary to public policy.’”60 “Generally, an insured’s burden is to establish that a

claim falls within the basic scope of coverage, while an insurer’s burden is to establish

that a claim is specifically excluded.”61

Insurers have acknowledged that the underlying action has met the threshold

requirements for coverage.62 Therefore, the sole issue before this Court is whether

Insurers have shown that the Bump-Up Provision otherwise excludes the Settlement

Amount from coverage.63

59
Origis, 345 A.3d at 953 (quoting Ferrellgas, 319 A.3d at 868); see also RSUI Indem. Co., 248
A.3d at 906 (“Insurance contracts should be interpreted as providing broad coverage to align
with the insured’s reasonable expectations.”).
60
RSUI Indem., 248 A.3d at 906 (quoting AT&T Corp. v. Clarendon Am. Ins. Co., 2006 WL
1382268, at *9 (Del. Super. Apr. 13, 2006), rev’d in part on other grounds, AT & T Corp. v.
Faraday Cap. Ltd., 918 A.2d 1104 (Del. 2007)) (ellipses in original).
61
Id. (quoting AT&T Corp., 2006 WL 1382268, at *9).
62
A2186 (AIG’s July 20, 2017, Coverage Position Letter at 1) (accepting the Operative
Complaint as a securities claim); A903 (AIG Policy § 13, at 17) (“‘Claim’ shall include any
Securities Claim.”).
63
Insurers argue that the Superior Court erred in treating the Bump-Up Provision as an
exclusion. However, they waived the argument by raising it only in a footnote in their opening
brief on appeal. Del. Sup. Ct. R. 14(b)(vi)(A)(3) (“The merits of any argument that is not raised
in the body of the opening brief shall be deemed waived and will not be considered by the Court
on appeal.”); see Opening Br. 15 n.5.

16
A. The Bump-Up Provision Does Not Exclude the Settlement Amount from Coverage

The Bump-Up Provision excludes coverage of settlement amounts where the

Claim underlying the settlement alleged inadequate deal consideration for an acquisition

and such settlement amount represented an effective increase in deal consideration. For

convenience, we restate the relevant part of the provision:

In 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[.]64

Determining whether the Bump-Up Provision applies requires two steps. Under

the first step, we consider whether the underlying Claim alleges inadequate deal

consideration for the Transaction. If the answer is yes, then we must determine whether

the Settlement Amount, or any portion of the Settlement Amount, represented the amount

by which such alleged inadequate deal consideration was effectively increased. The

Bump-Up Provision will exclude coverage of the Settlement Amount, or a portion of the

Settlement Amount, if, and only if, Insurers show that both requirements have been met.

This two-step construction of the Bump-Up Provision is supported by other courts

construing similar bump-up provisions. In Northrop Grumman Innovation Sys., Inc. v.

Zurich American Ins. Co., the Delaware Superior Court first analyzed the allegations in

the underlying claim and the type of transaction, then considered what the settlement

64
A909 (AIG Policy § 13, at 22).

17
amount represented.65 In Towers Watson & Co. v. National Union Fire Insurance

Company of Pittsburgh, PA (Towers II), the United States Court of Appeals for the Fourth

Circuit similarly analyzed the claim and then the settlement amount where the bump-up

“provision establishes two conditions that must be satisfied before the exclusion is

triggered.”66

However, not all bump-up provisions contain the same claim and loss

requirements. For example, the bump-up provision in Joy Global, Inc. v. Columbia

Casualty Company effectively contained only the “first-step” of the analysis concerning

Claims alleging inadequate consideration.67 As a result, the United States District Court

65
Northrop Grumman, 2021 WL 347015, at *20–21. In relevant part, the exclusion provided:
In the event of a Claim alleging that the price or consideration paid for the
acquisition or completion of the acquisition of all or substantially all the
ownership interest or assets in 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 is effectively increased[.]
Id. at 19.
66
138 F.4th 786, 793 (4th Cir. 2025) (stating that, “[f]irst, there must be a ‘Claim’ alleging that
the consideration paid for an acquisition was inadequate[,]” and “second, the settlement of such
claim must ‘represent[]’ an ‘effective[] increase[]’ in the ‘price or consideration’ shareholders
received for that acquisition[]”); see also Towers Watson & Co. v. Nat’l Union Fire Ins. Co. of
Pittsburgh, PA (Towers I and, collectively with Towers II, “Towers Watson”), 2024 WL 993871,
at *4 (E.D. Va. Mar. 6, 2024), aff’d, Towers II, 138 F.4th. In relevant part, the exclusion
provided:
In 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[.]
Towers II, 138 F.4th at 793.
67
555 F. Supp. 3d 589, 593 (E.D. Wisc. 2021), aff’d, Komatsu Mining Corp. v. Columbia
Casualty Co., 58 F.4th 305 (7th Cir. 2023). In relevant part, the exclusion provided that “Loss
18
for the Eastern District of Virginia did not determine what the settlement amount at issue

represented. In fact, the Joy Global court distinguished Northrop Grumman by observing

that the exclusion at issue in Northrop Grumman “[wa]s narrower and applied only to

that part of a settlement of an Inadequate Consideration Claim ‘representing the amount

by which such price is effectively increased.’”68 The Bump-Up Provision here is also

narrow like the provisions in Northrop Grumman and Towers Watson and requires a two-

step analysis.

We hold that Insurers have met their burden under the first step to show that the

Claim underlying the Settlement is a Claim alleging inadequate consideration. However,

we agree with the Superior Court’s determination that Insurers have not satisfied the

second step requiring Insurers to show that the Settlement Amount represents an increase

in the alleged inadequate consideration. Therefore, we affirm the Superior Court’s

holding that the Bump-Up Provision does not exclude coverage of the Settlement

Amount. We next explain our reasoning.

(other than Defense Costs) shall not include: . . . any amount of any judgment or settlement of
any Inadequate Consideration Claim other than Defense Costs and other than [loss incurred
by directors and officers that is not indemnified by Joy Global][.]” Id. (ellipses in original).
“Inadequate Consideration Claims are defined as[] ‘[t]hat part of any 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 of the ownership interest in or assets of an entity is
inadequate.” Id.
68
Id. at 595. The court observed that, “[t]he provision before me does not contain such
language.” Id. (referring to the part of the exclusion that “applied only to that part of a
settlement of an Inadequate Consideration Claim ‘representing the amount by which such price
is effectively increased[]’”).

19
1. The Operative Complaint is a Claim Alleging Inadequate Price

To satisfy the first step, Insurers must establish three related components: (1) a

Claim, (2) an allegation that the price or consideration for a transaction was inadequate,

and (3) an acquisition.69 The parties agree that the Operative Complaint is a Claim as

defined by the Policy70 and have not appealed the Superior Court’s holding that the

Transaction was an acquisition under the Policy’s plain language.71 Thus, the sole

remaining inquiry under this first step concerns the second component—an allegation of

inadequate price.

The language of the Bump-Up Provision sets a low bar for this inquiry. “Where

no ambiguity exists, the contract will be interpreted according to the ‘ordinary and usual

meaning’ of its terms.”72 The provision states that the Claim must allege inadequate price

or consideration.73 “Allege” is not defined in the Policy, but “[t]his Court often looks to

dictionaries to ascertain a term’s plain meaning” where the term is not defined in the

69
See A909 (AIG Policy § 13, at 22).
70
A2186 (AIG’s July 20, 2017, Coverage Position Letter at 1) (accepting the Operative
Complaint as a securities claim); A903 (AIG Policy § 13, at 17) (“‘Claim’ shall include any
Securities Claim.”).
71
Harman II, 2025 WL 84702, at *8 (finding that “the transaction between Harman and
Samsung was an acquisition under the plain language of the provision[]”).
72
Thompson St. Cap. Partners IV, L.P. v. Sonova United States Hearing Instruments, LLC, 340
A.3d 1151, 1166 (Del. 2025).
73
See A909 (AIG Policy § 13, at 22).

20
contract.74 Merriam-Webster’s Dictionary defines “allege” as “to assert without proof or

before proving” or “to bring forward as a reason or excuse[.]”75

Harman argues that, “[u]nder Delaware law, for a Claim to ‘allege’ a particular

fact or circumstance within the meaning of an insurance policy exclusion, that fact or

circumstance must be meaningfully linked to the viability of the Claim faced by the

policyholder and the Loss the policyholder could incur.”76 However, Harman’s argument

relies on ACE American Insurance Company v. Guaranteed Rate, Inc., where the relevant

insurance contract language was “arising out of” rather than “allege.”77 In that case, this

Court determined “whether the FCA [False Claims Act] claims arose out of GRI’s loan

originating and underwriting services.”78 Because the Policy at issue here uses “allege”

rather than “arising out of,” the “meaningful linkage” standard discussed in ACE

American Insurance Company is not useful in determining whether the underlying Claim

here alleged inadequate consideration.

The Superior Court held that “for the exclusion to apply, inadequate deal price

must be a viable remedy that was sought for at least one claim in the Baum Action.”79

However, we agree with Insurers that there is no language in the Policy that gives rise to

74
In re Solera, 240 A.3d at 1132.
75
Allege, Merriam-Webster’s Dictionary (last accessed Jan. 7, 2026), https://www.merriamwebst
er.com/dictionary/allege; see also Allege, Cambridge Dictionary (last accessed Jan. 7, 2026),
https://dictionary.cambridge.org/dictionary/english/allege (defining “allege” as “to say that
someone has done something illegal or wrong without giving proof”).
76
Answering Br. 44 (citing ACE Am. Ins. Co., 305 A.3d at 347).
77
305 A.3d at 345–47.
78
Id. at 345.
79
Harman II, 2025 WL 84702, at *9.

21
a “viability” requirement. We are not inclined to read such a requirement into the

language of the Policy. Further, other courts, considering similar policy language, have

found inadequate disclosure claims to allege inadequate consideration without

considering a viability requirement.80

In Towers I, the United States District Court for the Eastern District of Virginia,

applying Virginia law, found that the Section 14(a) claims and the fiduciary duty claims

alleged inadequate consideration “[b]ecause the allegations of inadequate consideration []

were the basis for the harms underlying” both types of claims.81 Although the Section

14(a) claim ultimately relied on material misrepresentations in a proxy statement, the

federal court determined that the claim alleged inadequate consideration because the

factual allegations of inadequate consideration “were intrinsic to the theory of the Section

14(a) claim.”82

Similarly, in Joy Global, the relevant “suits alleged that Joy Global and its

directors and officers had issued a false or misleading proxy report for the purpose of

inducing shareholders to vote their shares in support of a merger agreement which

secured inadequate consideration for Joy Global’s shares.”83 The United States District

80
See Towers I, 2024 WL 993871, at *4 (finding the first step satisfied by both Section 14(a) and
fiduciary claims); see also Joy Global, 555 F. Supp. 3d at 594–95 (finding the first step satisfied
by claims alleging that a proxy report was false or misleading).
81
Towers I, 2024 WL 993871, at *5; see also Komatsu Mining Corp., 58 F.4th at 308
(recognizing that a Section 14(a) claim alleges inadequate consideration when “the loss from any
legal wrong depend[s] on a conclusion that the price offered in the merger was too low[,]” even
though “[t]he federal claim [is] assert[ing] inadequate disclosure[]”).
82
Towers I, 2024 WL 993871, at *5.
83
Joy Global, 555 F. Supp. 3d at 592.

22
Court for the Eastern District of Wisconsin, applying Wisconsin law, determined that the

suits alleged inadequate consideration because “each complaint alleged that the price

proposed to be paid for an acquisition transaction was inadequate” and “each cause of

action within the suits relied on the allegations of inadequate consideration[.]” 84 The

court held that “the settlements [were] therefore excluded from the definition of loss and

[were] not covered by the insurance policies.”85 The United States Court of Appeals for

the Seventh Circuit affirmed, stating that the claims alleged inadequate consideration

because “the loss from any legal wrong depended on a conclusion that the price offered in

the merger was too low.”86

Here, the Section 14(a) claims also relied on allegations of inadequate

consideration. “[T]o prevail in a private cause of action asserting a violation of Section

14(a) and Rule 14a-9, ‘a plaintiff must show that (1) the proxy statement contained a

material misrepresentation or omission (2) that caused the plaintiff injury and that (3) the

proxy solicitation was an essential link in the accomplishment of the transaction.’”87 The

Operative Complaint alleged that “[t]he false and/or misleading Proxy used to obtain

shareholder approval of the Acquisition” deprived the Investor Class of their right to “the

full and fair value for [their] Harman shares.”88 The Operative Complaint also asserted

84
Id. at 594.
85
Id.
86
Komatsu Mining Corp., 58 F.4th at 309.
87
Towers I, 2024 WL 993871, at *5 (quoting Karp v. First Conn. Bancorp, Inc., 69 F.4th 223,
231 (4th Cir. 2003) (per curiam)).
88
A609 (Operative Compl. at 48).

23
that the “actual economic losses” were comprised of “the difference between the price

Harman shareholders received and Harman’s true value at the time of the Acquisition.”89

Much like the case in Towers Watson, allegations of inadequate consideration here

were “intrinsic to the theory of the Section 14(a) claim[.]”90 Therefore, we disagree with

the Superior Court’s conclusion that the first step of the Bump-Up Provision was not

met.91 However, the Bump-Up Provision applies only if both steps are satisfied, and as

we explain below, the second step was not.

2. The Settlement Amount Does Not Represent an Effective Increase in Price or
Consideration for the Transaction

We next determine whether the Settlement Amount, or any portion of the

Settlement Amount, is the excluded type of Loss. The Bump-Up Provision excludes Loss,

with respect to a Claim alleging inadequate consideration, “representing the amount by

which such price or consideration is effectively increased.”92 The provision does not

define “represent” or “effectively,” but as we previously stated, “[t]his Court often looks

89
Id.
90
Towers I, 2024 WL 993871, at *5.
91
We note that in Northrop Grumman, the Delaware Superior Court found that a 14(a) Claim did
not allege inadequate consideration where the claim alleged that “a materially false and
misleading Joint Proxy Statement[]” “not only coerced the Orbital Sciences stockholders to
‘accept inadequate consideration’ but also ‘induc[ed] them to vote their shares’ when they
otherwise wouldn’t have.” Northrop Grumman, 2021 WL 347015, at *20 (noting that
“‘inadequate consideration’ alone would not sustain a 14(a) suit”). The court determined that the
requirement would be met only if the relevant claim exclusively alleged inadequate consideration
even though “only” is not included in the language of the policy. See id. at *19–20; see also Joy
Global, 555 F. Supp. 3d at 595 (stating that the Delaware Superior Court “read the relevant
exclusion as limited to a claim alleging ‘only’ that inadequate consideration was paid for an
acquisition, despite the word ‘only’ not appearing in the provision”). Leaving aside the Superior
Court’s holding in Northrop Grumman, we do not find that any language in this Bump-Up
Provision requires inadequate consideration to be the exclusive allegation.
92
A909 (AIG Policy § 13, at 22).

24
to dictionaries to ascertain a term’s plain meaning.”93 “Represent” is defined as “to

constitute or amount to,”94 or “to serve as a sign or symbol of.”95 “Effectively” is defined

as “in effect: virtually[,]”96 “in a way that is successful and achieves what you want[,]”

and “used when you describe what the real result of a situation is[.]”97 Accordingly, the

second step will be satisfied only if Insurers can show that the “real result” of the

Settlement is that the Settlement Amount, or any portion of the Settlement Amount,

increased the amount of deal consideration the shareholders received in the Transaction.

In Northrop Grumman, Alliant and Orbital Sciences “proposed a reverse triangular

stock-for-stock merger out of which OATK would be born” and “[t]heir stockholders

received proxy forms and other disclosures and ultimately approved” the transaction.98

After the transaction closed, a class of OATK stockholders who formerly owned Orbital

Sciences stock, asserted a Section 14(a) claim that “alleged wrongdoing pertaining to pre-

merger proxy solicitation misstatements about Alliant and Orbital Sciences’ synergies that

were calculated to coerce stockholder approval of a transaction saddled with low-return

93
In re Solera, 240 A.3d at 1132.
94
Represent, Black’s Law Dictionary (12th ed. 2024).
Represent, Merriam-Webster’s Dictionary (last accessed Jan. 7, 2026) https://www.merriam-
95

webster.com/dictionary/represent.
Effectively, Merriam-Webster’s Dictionary (last accessed Jan. 7, 2026) https://www.merriam-
96

webster.com/dictionary/effectively.
97
Effectively, Cambridge dictionary (last accessed Jan. 7, 2026)
https://dictionary.cambridge.org/us/dictionary/english/effectively.
98
Northrop Grumman, 2021 WL 347015, at *4.
25
prospects.”99 The parties eventually settled the 14(a) claim for $45.6 million and “[n]o

defendant admitted wrongdoing.”100

The Delaware Superior Court found that the settlement did not satisfy the second

requirement of the bump-up provision because “the Alliant Insurers can’t show that the

Knurr settlement ‘represent[s]’ an ‘effective increase’ of whatever ‘inadequate

consideration’ the Orbital Sciences stockholders bemoaned.”101 The trial court

determined that the underlying claim was not “solely about an unfair equity exchange”

because the “stockholders didn’t seek an appraisal to ‘effectively increase[]’ their stake or

its value.”102 Instead, the stockholders “sought unelaborated ‘compensatory damages’ for

the ‘overvalued’ Alliant-turned-OATK stock extracted through falsified proxy forms to

effectively decrease what they ‘paid.’”103 The court noted that “if the Knurr settlement—

which admitted no wrongdoing—‘represent[s]’ anything at all, then it represents a ‘bump

down’—not a ‘bump up.’”104 Accordingly, the Delaware Superior Court determined that

99
Id. at *11. We note, regarding the reverse triangular stock-for-stock merger at issue, that the
Orbital Sciences stockholders alleged that they were coerced into voting based on an
overvaluation of the consideration to be received in the relevant transaction (i.e., value of the
Alliant stock) while the Investor Class here alleged that it was coerced into voting based on an
undervaluation of the entity being sold. In each case, the misrepresentations were alleged to
impact the valuation of an entity involved in the relevant transaction. The Orbital Sciences
stockholders argued that a correction of the relevant misrepresentation would require a
downward adjustment of the overvalued stock while the Investor Class argued that a correction
of the relevant misrepresentation would require an upward adjustment of the purchase price.
100
Northrop Grumman, 2021 WL 347015, at *5.
101
Id. at *22.
102
Id.
103
Id.
104
Id.
26
the bump-up provision did not apply “as a matter of law[]” and that the settlement

amount was not excluded.105

However, in Towers II, the United States Court of Appeals for the Fourth Circuit

determined that a settlement amount represented an increase in deal consideration even

where one of the underlying claims alleged harm based on inadequate disclosures.106 The

actions “asserted federal securities law claims and Delaware state law claims” which

“stemmed from allegations that [CEO John] Haley negotiated [a] Merger Agreement

under an undisclosed conflict of interest: he would receive a compensation package

worth up to $165 million if the deal closed.”107 “And because of this alleged conflict,

Haley purportedly agreed to a below-market valuation of Towers Watson shares to ensure

the merger’s success.”108 The shareholders presented an expert report which was

designed to calculate their loss i.e., “the ‘true’ value of their shares, minus the actual

consideration they received.”109 The underlying actions “ultimately settled for a total of

$90 million[,]” and in Towers II, the Fourth Circuit held that the district court had not

105
Id. As previously discussed, the Northrop Grumman court also found that the first
requirement was not met because the claims did not exclusively allege inadequate consideration.
However, the court analyzed the second requirement even after it found that the first requirement
was not met.
106
Towers II, 138 F.4th at 790, 796 (The relevant actions “asserted federal securities law claims
and Delaware state law claims[.]”); see also Towers I, 2024 WL 993871, at *1 (The federal
action was “an action alleging a violation of the proxy solicitation rules under Sections 14(a) and
20(a) of the Securities Exchange Act of 1934[.]”)
107
Towers II, 138 F.4th at 790.
108
Id.
109
Id. at 795.

27
erred in holding that the bump-up provision excluded that entire amount from

coverage.110

The Fourth Circuit agreed with the district court that the second step of the

analysis centered on “whether, at the end of the day, the former Towers Watson

shareholders were paid additional monies because the amount they received in the merger

was inadequate.”111 The Fourth Circuit broadly considered “the shareholders’ allegations,

the purpose of the expert report, and most importantly, the practical effect of the

damages: to compensate shareholders for the purportedly inadequate consideration they

received for the acquisition of their shares.”112 The Fourth Circuit stated that it “ha[d]

little trouble concluding that the bump-up exclusion’s second condition [was] satisfied”

because “the ‘real result’ of the settlements [was] that the shareholders receive[d]

additional consideration for their relinquished shares[.]”113

110
Id. at 790, 796.
111
Id. at 791 (quoting Towers I, 2024 WL 993871, at *8). Our dissenting colleagues state that
they would follow the Fourth Circuit’s reasoning in Towers II. They conclude that the second
requirement is similarly met here because the Settlement Amount was paid to settle the Operative
Complaint which sought damages representing “the difference between the price Harman
shareholders received and Harman’s true value at the time of the Acquisition [] in an amount to
be determined at trial.” A609 (Operative Compl. at 48). However, as the Fourth Circuit made
clear, courts cannot collapse the two steps of analysis by “looking only at the allegations and not
what the settlement itself represented.” Towers II, 138 F.4th at 794. Rather, these are “distinct
issues.” Id.
112
Id. at 795.
113
Id. at 793–94. Insurers assert that “Joy Global reached the same conclusion.” Opening Br.
34. However, as we previously noted, the bump-up provision in Joy Global applied broadly to
“any amount of any judgment or settlement of any” claim alleging inadequate consideration
rather than just the amount representing an increase in inadequate consideration. Joy Global,
555 F. Supp. 3d at 593. In affirming the district court, the Seventh Circuit observed that “the
language of the exclusion in Northrop Grumman differs from the definition of ‘inadequate
consideration’ in Joy Global’s policies.” Komatsu Mining Corp., 58 F.4th at 309. It added that,
28
The Insurers here argue that this Settlement Amount similarly represented an

increase in deal consideration. However, we agree with the Superior Court’s

determination, made after considering the evidentiary record, that Insurers have not met

their burden to show that any portion of this Settlement Amount satisfies the second

requirement of this Bump-Up Provision.

First, the composition of the settlement class was not limited to shareholders who

received consideration in connection with the Transaction. It appears to us, based on the

briefing in Towers II, that the class definition for the settlements resolving the inadequate

disclosures claims in Towers Watson limited the class to shareholders who received

consideration in connection with the acquisition of their shares.114 Although the Towers

II court did not explicitly base its holding on the definition of the class, it noted that “the

practical effect of the damages [was] to compensate shareholders for the purportedly

inadequate consideration they received for the acquisition of their shares.” 115 This

“practical effect” seems to assume that every shareholder who received a pro rata portion

“Komatsu Mining wants us to proceed as if all D&O policies contain the same language, but
they don’t, so we shouldn’t.” Id. Because the bump-up provision in Joy Global did not require a
second step of analysis, Joy Global is irrelevant in determining what this Settlement represents.
114
See, e.g., Appellants’ Opening Brief at 18, Towers II, 138 F.4th (No. 21-2396). The settlement
resolving the inadequate disclosures claim required all class members to have held their shares
“starting October 1, 2015 (the record date when shareholders could vote on the merger) through
January 4, 2016 (when the transaction closed).” Id. The settlement resolving the state law
claims included all shareholders who held “shares at any time between June 29, 2015 (the date of
the Agreement and Plan of Merger) and January 4, 2016 (when the transaction closed).” Id.
115
Towers II, 138 F.4th at 795.

29
of the settlement amount also received consideration in connection with the underlying

transaction.116

Here, the settlement class definition included all Harman shareholders who held

stock “at any time during the period from” the date of the shareholder vote approving the

Transaction to the Transaction’s closing date.117 This definition did not require class

members to hold stock through the Transaction’s closing date. Thus, it included

shareholders who may have sold their shares before the Transaction closed. That is an

important distinction from the settlement in Towers II. In Towers II, the Fourth Circuit,

applying dictionary definitions of “represent” and “effectively,” explained that “if the

‘real result’ of the settlements is that the shareholders receive[d] additional consideration

for their relinquished shares, this condition is satisfied.”118 In our case, the record does

not indicate that all settlement class members relinquished shares in the Transaction and

received Transaction consideration which could be increased.

Second, the Towers II record contained an expert report which was designed to

calculate the shareholders’ loss i.e., “the ‘true’ value of their shares, minus the actual

116
See also Ceradyne, Inc. v. RLI Ins. Co., 2022 WL 16735360, at *11 (C.D. Cal. Oct. 31, 2022)
(finding that “the undisputed evidence indicates that the entire settlement was intended to, and in
actuality did, increase the consideration paid to shareholders in relation to Ceradyne’s
acquisition” where “the Stipulation of Settlement defined the ‘Class’ as those ‘who rec[e]ived
consideration for their shares in the sale . . . at the price of $35.00 per share[]’”), appeal
dismissed per stipulation, 2023 WL 2340646 (9th Cir. Feb. 7, 2023).
117
A710 (Stipulation of Settlement at 6) (emphasis added); A731 (Stipulation of Settlement at
27). The Notice to Shareholders states that the Settlement Class was designed to “align[] the
recovery with those who have legal standing to bring the claims currently asserted in the
Litigation[]” (i.e., those who were “holders of record entitled to vote on the Merger”). A761
(Notice to S’holders at 9). However, we note that this does not align with the class definition
included in the Settlement.
118
Towers II, 138 F.4th at 793.

30
consideration they received.”119 The Fourth Circuit relied on the purpose of that expert

report when it held that the $90 million settlement amount represented an increase in

inadequate deal consideration.120

It is true that the Operative Complaint sought to quantify the damages by

calculating “the difference between the price Harman shareholders received and

Harman’s true value at the time of the Acquisition [] in an amount to be determined at

trial.”121 But as the Superior Court noted, “[a]t the time of the settlement, the Baum

Action was still in the early stages of litigation with only minimal discovery

completed.”122 The record before us indicates that the parties settled before either party

presented any evidence, such as an expert report, relating to the true value of the shares.

And the Insurers did not present any evidence that the Settlement Amount was in any

way arrived at or calculated based on how much the recovering class members should or

could have received in the Transaction.

As the Superior Court observed, “if the parties intended for the settlement to

represent compensation for an inadequate deal price, then one would expect that the

settlement amount would have been in some way commensurate with the difference

119
Id. at 795.
120
Id. In fact, the Fourth Circuit cited to an exhibit reflecting an “analysis from the Virginia
plaintiffs’ damages expert ‘estimat[ing] damages as the minimum incremental amount that
Towers [Watson] shareholders should have expected to obtain or retain based on a full disclosure
of the information that Lead Plaintiff argues should have been disclosed[.]’” Id. at 794.
121
A609 (Operative Compl. at 48).
122
Harman II, 2025 WL 84702, at *11.

31
between the shares’ acquisition price of $112 and their true value.”123 It concluded that

the Settlement Amount was not. It also noted that there has “been no evidence presented

on the true value of the shares[]” and stated that “the Court shouldn’t be left to speculate

thereon[.]”124

Rather, it seems more likely, as the Superior Court concluded, that the Settlement

Amount was based upon the cost of continuing the litigation. Harman claimed that the

estimated defense costs for continuing the litigation would have been about $25 to $30

million.125 The Superior Court found that there is “ample [] evidence that the full

settlement amount [$28 million] truly represents the actual cost of litigation had the case

proceeded.”126 For example, the Settlement itself states that the parties’ decision to settle

“was based solely on the conclusion that further conduct of the Litigation would be

protracted and expensive” and “that it would be beneficial to avoid [the] costs,

123
Id.
124
Id. The Superior Court observed that “the settlement amount seems grossly inadequate as
compensation for an inadequate deal price.” Id.; A606 (Operative Complaint ¶ 110). “There
were 69,883,605 shares of Harman common stock.” Harman II, 2025 WL 84702, at *11; A566–
67, 590, 596 (Operative Complaint ¶¶ 13, 16, 70, 83). The Operative Complaint seems to “allege
that the true value was $116 per share.” Harman II, 2025 WL 84702, at *11; see also Opening
Br. 8. Therefore, the total damages amount based on the difference in the actual value versus the
deal value ($116 compared to $112) would amount to $279,534,420.
125
A5572 (Taigman Dep. at 31).
Q: What did the [$]25 to $30 million represent?

A: It was the estimate of the cost were we to have to move forward with the case
through trial, discovery—which had really not started—and a potential appeal,
although really focusing on discovery and trial.
Id.
126
Harman II, 2025 WL 84702, at *11.

32
uncertainty, and risks inherent to any litigation, especially in complex cases like this

Litigation.”127 Additionally, the Superior Court found that “[a]voiding the cost of further

litigation is a valid reason to settle and the Court has no reason to believe this reasoning

was pretextual.”128

Based on the Superior Court’s consideration of the record evidence, we hold that

the court did not err in determining that the Insurers did not meet their burden to show

that the Settlement Amount represented an increase in deal consideration. Accordingly,

the second requirement was not met, and the Bump-Up Provision does not exclude

coverage.

Because we hold that the Bump-Up Provision does not apply, we do not need to

reach Harman’s argument regarding attorneys’ fees.

V. CONCLUSION

For the reasons discussed above, we AFFIRM the ruling of the Superior Court.

127
A708–09 (Stipulation of Settlement at 4–5). We acknowledge that reliance upon settlement
language alone may be ill-advised because “the settlement process can leave insurers on the
outside and potentially be collusive.” In re CVS Opioid Ins. Litig., 2025 WL 2383644, at *13
(Del. Aug. 18, 2025) (noting that “settlement agreement language is not a reliable coverage
indicator because” relying on settlement agreement language alone “would encourage litigants to
manipulate settlement language to secure [] insurance coverage where it would otherwise not
exist.”).
128
Harman II, 2025 WL 84702, at *11.

33
SEITZ, Chief Justice; and TRAYNOR, Justice, Dissenting.

We agree with the Majority’s thorough analysis and conclusion that the Insurers met

their burden to show that the Claim underlying the Settlement is a Claim alleging

inadequate consideration. The Operative Complaint alleged a Claim for inadequate deal

price. We differ, however, with the Majority’s conclusion that the Settlement Amount did

not represent an effective increase in price or consideration for the Transaction.

When a complaint alleges a Claim for inadequate consideration, the Policy with

its Bump-Up Provision does not cover a Loss “representing the amount by which such

price or consideration is effectively increased.”1 Here, the Operative Complaint sought

damages representing “the difference between the price Harman shareholders received

and Harman’s true value at the time of the Acquisition [] in an amount to be determined

at trial.”2 The Majority looked to dictionary definitions to interpret the words

“representing” and “effectively.” We see no reason to do so. The plain meaning of those

words is evident when read in the context of the Bump-Up Provision. Without those

words, the Bump-Up Provision covers the easy cases, such as an increase in the deal price

to settle appraisal litigation. The two modifiers were added, however, to avoid an overly

narrow interpretation of the Provision that elevates form over substance. With those

words, the Bump-Up Provision makes clear that the court should look to the practical

effect of the Settlement Payment and not to its form.

1
A909 (AIG Policy § 13, at 22).
2
A609 (Operative Compl. at 48).
34
We would follow the Fourth Circuit’s reasoning in Towers Watson & Co. v.

National Union Fire Insurance Company of Pittsburgh, PA (“Towers II”).3 Towers II

involved a comparable bump-up provision that denied coverage when the settlement

amount in the underlying litigation represents the amount by which the price or

consideration paid for the merger was effectively increased.4 The court in Towers II had

“little trouble” concluding that the increase in consideration condition was satisfied when

Towers Watson paid $90 million to settle stockholder suits alleging that negotiator

conflicts caused the board to sell the company for less than it was worth.5

According to the court, when “represent” and “effectively increased” are “read

together,” the court looks to the “real result of [the] situation” – “not the theoretical one.”6

If the “‘real result’ of the settlement is that the shareholders receive additional

consideration for their relinquished shares, this condition is satisfied.”7 The court found

that to be the case. We would find that to be the case here.

The Majority attempts to distinguish Towers II on two grounds: first, in Towers

II, the settlement class consisted of stockholders who held their stock through the

Transaction’s closing date whereas “the composition of the settlement class [in this case]

was not limited to shareholders who received consideration in connection with the

Transaction;” and second, unlike this case, “the Towers II record contained an expert

3
138 F.4th 786, 793 (4th Cir. 2025).
4
Id. at 792.
5
Id. at 793-95.
6
Id. at 793.
7
Id. at 794.
35
report which was designed to calculate the shareholders’ loss,” which used “the ‘true’

value of their shares, minus the consideration they received.”8

For the first issue, we agree with the Majority that the record is unclear about how

many shareholders in the class might have sold their shares prior to closing. But the

Bump-Up Provision does not restrict to whom the additional consideration is paid. We

are confident that at least some of the class held their shares through closing and received

their pro rata portion of the Settlement Consideration – effectively increasing the

consideration they received for the Transaction.

The second issue exposes the difficulties a court faces when required to discern

the subjective intent of the parties instead of deciding the “real result” of the transaction.

Litigants settle cases for any number of reasons. As the Majority recognizes, settlement

agreements can be collusive between the Insured and plaintiffs.9 In our view, it would be

far simpler and more efficient if the court limited its review to the “real effect” of the

settlement rather than plumb the depths after an evidentiary proceeding in search of the

true motivations of the settling parties. We respectfully dissent.10

8
Majority Op. at 29-30.
9
Id. at 33 n.127 (quoting In re CVS Opioid Ins. Litig., 2025 WL 2383644, at *13 (Del. Aug. 18,
2025).
10
We also agree with Towers II that attorney’s fees paid as part of the settlement were subject to
the Bump-Up Provision. As the Fourth Circuit held, it did not matter how the consideration was
distributed once paid out because “it nevertheless constitute[d] in toto an increase in consideration
paid for the merger.” Towers II, 138 F.4th at 796-97.
36