In a win for Wiley’s shopper, a California trial courtroom has decided {that a} pharmaceutical firm’s D&O insurance policies didn’t cowl its settlement of shareholder litigation alleging that the worth one other firm paid to amass the policyholder was insufficient. Onyx Pharmas. Inc. v. Old Republic Ins. Co., No. CIV 538248 (Cal. Super. Ct. Dec. 30, 2022).
The insured pharmaceutical firm obtained a D&O coverage offering that, with respect to “a Declare alleging that the worth or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or considerably all the possession curiosity in or belongings of an entity is insufficient,” coated “Loss” shall not embrace “any quantity of any judgment or settlement representing the quantity by which such worth or consideration is successfully elevated.”
One other firm acquired the policyholder in an all-cash takeover transaction by which it bought the excellent shares of the pharmaceutical firm for $125 per share. After the acquisition, the pharmaceutical firm’s shareholders sued its administrators, alleging that they breached their fiduciary duties by “failing to take efforts to maximise the tender provide worth for Onyx shareholders.” The pharmaceutical firm settled the shareholder claims for $26 million and sought protection beneath the D&O coverage and a number of other extra insurance policies.
Following a bench trial, the courtroom decided that the above provision, which it referred to as the “Loss Exclusion,” unambiguously bars protection for the settlement. Rejecting the policyholder’s argument, the courtroom concluded that the Loss Exclusion applies no matter whether or not the insured is the acquiror or the acquiree within the challenged transaction. The courtroom additionally rejected the policyholder’s argument that the shareholders’ allegations regarding misrepresentations by board members introduced the settlement exterior the ambit of the Loss Exclusion. The courtroom reasoned that this principle was “inextricably tied” to the declare for breach of the obligation to maximise the tender provide worth to the shareholders and that the damages, if any, are an identical.
Giving the phrases of the Loss Exclusion their plain that means, the courtroom discovered that the underlying shareholder litigation alleged that the worth paid to amass the policyholder was insufficient and was not coated beneath the D&O insurance policies. The courtroom famous that “[i]t is cheap that the insurance coverage carriers didn’t need to have insurance coverage proceeds be a way of funding the acquisition of belongings by a company – which, as a realistic matter, can be the end result if insurance coverage funds had been paid to [the policyholder], which is now wholly-owned by its acquirer.”
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