Groundbreaking Trial Victory on the “Bump-Up Exclusion”

The firm achieved a landmark victory in San Mateo Superior Court when, on December 30, 2022, Judge Marie Weiner issued a Final Statement of Decision following a 2018 bench trial, finding in favor of our client, Allied World Assurance Company (U.S.) Inc. (“Allied World”), on a matter of first impression and of critical importance to the D&O industry: the definition of Loss and whether it covers indemnified settlements paid to resolve a shareholder dispute over the price per share paid for Amgen’s purchase of Onyx Pharmaceuticals (“Onyx”). 

Following Amgen’s 2013 acquisition of Onyx, a class of Onyx stockholders filed suit against Onyx and members of Onyx’s Board of Directors and its President and CEO, for breach of fiduciary duty, based on Amgen’s acquisition of Onyx in an all cash transaction whereby the Onyx shareholders received $125 per share.  The class action complaint alleged that Onyx and its Board failed in their duty to seek the highest price for Onyx’s shareholders in the sale process.  The case eventually settled, with Onyx agreeing to pay the class $26 million. The primary carrier insurer paid its full $10 million policy limit, but the excess carriers, including Allied World, denied coverage, invoking a “bump-up” exclusion in their respective policies for claims “alleging that the price or consideration paid or proposed to be paid for the acquisition . . . of an entity is inadequate.”

In April 2016, Onyx had filed suit against excess insurers Old Republic Insurance Co., RLI Insurance, and Allied World in San Mateo Superior Court, asserting a declaratory judgment claim to determine the insurers’ obligations under the applicable insurance policies.  Onyx also asserted claims for breach of contract and tortious breach of the implied covenant of good faith and fair dealing.  A week-long bench trial was held in August 2018 on the parties’ declaratory judgment claims involving interpretation of the subject insurance policies.  On December 30, 2022, the Court finally published its Final Statement of Decision in favor of the defendant insurers, finding that the Loss Exclusions in the subject insurance policies excluded coverage of Onyx’s out-of-pocket settlement payment.  The Court’s findings and conclusions that no coverage exists for the underlying settlement also resolve, in favor if the insurers, Onyx’s causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing.  The decision not only represents a significant win for Allied World, but also for the D&O insurance industry generally.