Delaware High Court Rules on Insurance Coverage for Stock-Based Settlements
By Andrew G. Simpson
The Delaware Supreme Court has affirmed that a settlement paid in stocks rather than cash qualifies as a covered loss that insurers must pay. This ruling clarifies the definition of “loss” in insurance policies, indicating that it is not limited to cash payments or monetary amounts.
This decision arose from a legal dispute involving AMC Entertainment Holdings, Inc., which sought coverage for losses stemming from a lawsuit settlement with its shareholders. AMC agreed to compensate the plaintiffs with 6,897,018 shares of common stock, along with covering the plaintiffs’ attorney fees. In return, the plaintiffs released all claims against AMC, allowing the company to proceed with a proposal they had previously opposed.
However, the insurers denied coverage, arguing that the method of settlement—providing shares of AMC stock—was not covered by the insurance policies. AMC contended that the insurers were obligated to cover the settlement and sought a declaratory ruling in its favor.
In the Superior Court, Midvale Indemnity Co. became the only remaining defendant. AMC maintained that the shares represented a legal obligation for the settlement, thus qualifying as a covered “loss” under its insurance policy. They pointed out that the definition of “loss” did not specify that it had to be limited to cash payments.
Midvale countered this argument by asserting that shares of stock are not equivalent to money that can be “paid.” The insurer claimed that while AMC issued stock, it did not make any cash payment that would trigger coverage under the excess policies.
Delaware case law recognizes a “close similarity” between stock and cash. The Superior Court noted that “stock is a form of currency that can be exchanged for other forms of currency or used for various corporate purposes, including paying off debts, acquiring assets, compensating employees, or acquiring other entities.” This perspective played a crucial role in the court’s decision.
On December 9, the Delaware Supreme Court upheld the lower court’s ruling and reasoning without further comment. AMC was represented by Robin Cohen, Adam Ziffer, and Michelle Migdon from Cohen Ziffer Frenchman & McKenna LLP. In a statement, the firm described the ruling as a “vital precedent for cash-strapped policyholders seeking coverage for settlements paid with non-cash compensation.”
Topics
Delaware
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By Andrew G. Simpson
The Delaware Supreme Court has affirmed that a settlement paid in stocks rather than cash qualifies as a covered loss that insurers must pay. This ruling clarifies the definition of “loss” in insurance policies, indicating that it is not limited to cash payments or monetary amounts.
This decision arose from a legal dispute involving AMC Entertainment Holdings, Inc., which sought coverage for losses stemming from a lawsuit settlement with its shareholders. AMC agreed to compensate the plaintiffs with 6,897,018 shares of common stock, along with covering the plaintiffs’ attorney fees. In return, the plaintiffs released all claims against AMC, allowing the company to proceed with a proposal they had previously opposed.
However, the insurers denied coverage, arguing that the method of settlement—providing shares of AMC stock—was not covered by the insurance policies. AMC contended that the insurers were obligated to cover the settlement and sought a declaratory ruling in its favor.
In the Superior Court, Midvale Indemnity Co. became the only remaining defendant. AMC maintained that the shares represented a legal obligation for the settlement, thus qualifying as a covered “loss” under its insurance policy. They pointed out that the definition of “loss” did not specify that it had to be limited to cash payments.
Midvale countered this argument by asserting that shares of stock are not equivalent to money that can be “paid.” The insurer claimed that while AMC issued stock, it did not make any cash payment that would trigger coverage under the excess policies.
Delaware case law recognizes a “close similarity” between stock and cash. The Superior Court noted that “stock is a form of currency that can be exchanged for other forms of currency or used for various corporate purposes, including paying off debts, acquiring assets, compensating employees, or acquiring other entities.” This perspective played a crucial role in the court’s decision.
On December 9, the Delaware Supreme Court upheld the lower court’s ruling and reasoning without further comment. AMC was represented by Robin Cohen, Adam Ziffer, and Michelle Migdon from Cohen Ziffer Frenchman & McKenna LLP. In a statement, the firm described the ruling as a “vital precedent for cash-strapped policyholders seeking coverage for settlements paid with non-cash compensation.”
Topics
Delaware
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