The Delaware Supreme Court recently issued a decision that has the potential to significantly limit the availability of directors and officers (D&O) coverage for actions brought under Section 262 of Delaware General Corporation Law. Section 262 actions allow minority shareholders who opposed a merger — but were outvoted by a majority of other shareholders — to invoke a statutory appraisal process if they believe the merger price undervalued the company. By doing so, such minority shareholders can obtain a judicial ruling establishing the “fair value” of their shares as of the date of the merger.
Appraisal petitioners often also receive an interest award to provide restitution to the dissenting shareholders for the time value of their shares’ fair value. Section 262 appraisal actions have frequently followed merger transactions involving Delaware corporations. Unsurprisingly, policyholders have responded by seeking D&O coverage for these claims.
