With the increase in mergers and acquisitions activity in the market over the last year or so, companies and practitioners have also seen an inevitable increase in related litigation. Such litigation often includes lawsuits filed by shareholders of an acquired entity seeking damages for alleged breaches of duty by board members and in some cases claiming that the acquisition consideration was inadequate.
Many directors and officers (D&O) insurance policies contain what is known as a bump-up exclusion, which is generally intended to preclude coverage for loss that represents the amount by which the acquisition price or consideration is increased as a result of these claims. Although referred to and treated as an exclusion, the relevant bump-up terms most often appear, not as an independent exclusion, but as a carve-out to the definition of loss in the D&O policy.
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