Exclusion bars coverage of $90M Towers Watson D&O settlements

A federal judge in Virginia Wednesday said directors and officers liability insurers for Towers Watson & Co. are not obligated to cover $90 million in settlements for two shareholder suits, finding a “bump-up” exclusion is applicable.

The dispute stems from the 2016 merger of Towers Watson with Willis Group Holdings PLC, which created Willis Towers Watson PLC.

The judge said in Towers Watson & Co. v. National Union Fire Insurance Co. of Pittsburgh, Pa. et al. that the shareholder settlements constituted an increase in the amount paid to former Towers Watson shareholders resulting from the merger and were barred by the bump-up exclusion. The ruling follows an appeals court decision on the issue.

A bump-up exclusion generally bars coverage for losses stemming from judgments or settlements in connection with claims against the insured that seek an increase or “bump up” in the consideration paid for it.

Towers Watson also fell within the exclusion’s definition of an entity, the judge said. In addition, the exclusion applied because the shareholders who filed suits in Delaware and Virginia alleged inadequate consideration.

The shareholders had alleged that Towers Watson Chairman and CEO John Haley failed to disclose an alleged conflict of interest when negotiating the merger deal.

Towers Watson settled the suits for a combined $90 million and sought coverage from American International Group Inc. unit National Union, Chubb Ltd. unit Federal Insurance Co., Travelers Co. Inc., Ironshore Indemnity Co. and others. The insurers agreed to defend Towers Watson, finding that the suits constituted a claim under their policies, court records show.

Towers Watson sued the insurers in July 2020, seeking coverage for the settlements. The parties each moved for summary judgment and the judge found that the bump-up exclusion did not bar coverage of the settlements. The insurers appealed and the Fourth Circuit reversed the ruling, finding that Towers Watson was an entity under the exclusion.

After the case was remanded, the parties again moved for summary judgment regarding the applicability of the bump-up exclusion.

Representatives for the parties did not respond to requests for comment.