Law360 (February 2, 2021, 10:59 PM EST) — A Delaware judge on Tuesday bolstered Northrop Grumman Innovation Systems Inc.’s bid to tap into directors and officers insurance to cover its costs in a proposed class action accusing its predecessor of misleading investors about its financial health, rejecting insurers’ efforts to invoke a pair of policy exclusions.
Bump-Up Exclusion
Holding for the policyholder, the Delaware Superior court in a major ruling held that AIG’s 22 year old standard bump-up exclusion did not have the breadth argued by the carrier. Among the court’s rulings were that the bump-up provision found in the definition of Loss was to be treated as an exclusion even though it was not found in the exclusion section of the policy, AIG’s particular exclusion only applies to acquisitions and not to mergers (even if the merger transaction corporately “involved” acquisitions) and that the exclusion did not apply to the particular case as a “bump-down” claim (as opposed to a “bump-up” claim), a phrase first discussed by policyholder Ty Sagalow in his expert report.
Mr. Sagalow also argued that the underwriting intent and particular language of the AIG provision did not apply to merger transactions in contrast with other bump-up exclusions in the market, including those he wrote for other carriers, and generally he believed that the exclusion, which he wrote for AIG 22 yrs earlier, should be “retired” by AIG as being now hopelessly vague and ambiguous.
Mr. Sagalow was also the policyholder expert witness in the Tower Watson case in which the court also held in favor of the policyholder in respect to the same AIG bump-up provision. That case is discussed here.
Prior Acts Exclusion
The Court also found against the carriers on the prior acts exclusion saying that, for the prior acts exclusion to apply, the alleged wrongful acts predating the policy period must have been taken by either Orbital ATK or its management. The Section 14(a) claim, however, concerned purported wrongdoing by “Alliant and Orbital Sciences personnel in their capacities as directors and executives of those firms,” he said.
Furthermore, the judge found, the prior acts exclusion does not apply in this situation because Delaware law requires that a claim falling within the D&O policy period be “fundamentally identical” to the related claim predating the policy period. But here, he said, while the Section 10(b) and Section 14(a) claims against Orbital ATK overlap somewhat, they are not sufficiently similar to meet this standard.
Mr. Sagalow, the policyholder’s expert, had argued these points in his expert report and his deposition from a point of view of insurance industry custom and practice.
