AMC’s use of stock to fund settlement ruled a loss under D&O policies
- October 9, 2025
- Posted by: Web workers
- Category: Finance
A Delaware trial judge Friday disagreed with an excess directors and officers liability insurer’s contention that AMC Entertainment Holdings Inc.’s use of more than 6.8 million shares of common stock to settle a shareholder lawsuit did not constitute a coverable loss.
New Castle County Superior Court Judge Meghan A. Adams said in AMC Entertainment Holdings Inc. v. XL Specialty Insurance Co. et al. that while the insurer could be required to cover its portion of the settlement, it was unclear if AMC obtained the consent of its insurers before resolving the suit.
The popularity of AMC’s stock skyrocketed in 2021 after the movie theater chain owners faced financial difficulties from the COVID-19 pandemic. Stock prices soared, and AMC tried to take advantage of the liquidity by issuing more Class A common stock until it approached the limit authorized by its articles of incorporation, court records show.
After shareholders initially refused to increase the amount of common stock issued, the company created AMC preferred equity units, which gave buyers the same voting rights as common stock owners. The preferred equity units were to be converted to common stock once shareholders approved an increase in the authorized limits.
After selling the APEs, AMC submitted a new shareholder proposal to increase the authorized number of common shares court records show.
Shareholders sued AMC in February 2023 over the proposal. The parties resolved the case in April 2023, and a revised settlement was approved in August 2023.
AMC’s D&O insurers initially agreed to pay the defense costs of the shareholder suit but reserved the right to later deny coverage. AMC sued 17 of its insurers seeking a court order on their obligation coverage for the settlement.
Madison, Wisconsin-based American Family Mutual Insurance Co. unit Midvale’s Indemnity Co. and AMC filed competing motions for summary judgment.
Representatives for the parties did not respond to requests for comment.
