Harman International Industries, Incorporated v. Illinois National Insurance Company, N22C-05-098 PRW CCLD

Background

Harman International Industries, Inc. (“Harman”) was acquired by Samsung Electronics America, Inc. in 2017 via a reverse triangular merger, making Harman a wholly owned subsidiary.
Harman held Directors and Officers (D&O) insurance policies with Illinois National Insurance Company (AIG), Federal Insurance Company (Chubb), and Berkley Insurance Company, providing $40 million in coverage.
In July 2017, a class action (the "Baum Action") was filed alleging that Harman issued a misleading proxy statement to secure approval for the allegedly undervalued acquisition by Samsung, seeking damages under Sections 14(a) and 20(a) of the Securities Exchange Act of 1934.
The Baum Action was settled for $28 million, and Harman sought coverage for this settlement under its D&O policy.
The insurers denied coverage, invoking a “Bump-Up Exclusion” in the policy, arguing the settlement represented an increase in consideration for the acquisition and was therefore excluded.
Harman sued for breach of contract and declaratory relief; both sides moved for summary judgment; the issue before the court was the applicability of the Bump-Up Exclusion to the Baum settlement.

Issues

Issue	Plaintiff's Argument (Harman)	Defendant's Argument (Insurers)	Held
Was the Samsung-Harman deal an “acquisition” triggering the Bump-Up exclusion?	Transaction was a "merger," not an "acquisition" as the policy describes; exclusion inapplicable.	Regardless of label, reverse triangular merger gave Samsung all Harman ownership; qualifies as acquisition under policy.	Court held it was an "acquisition" under the plain language and policy context.
Did the settlement represent an effective increase in acquisition consideration?	Settlement did not represent additional acquisition consideration; settlement aimed to avoid litigation costs.	Settlement represented compensation for inadequate deal price (“bump-up”); thus excluded under the policy.	No evidence settlement was paid to increase consideration; rather reflected anticipated litigation costs.
Was the claim for inadequate deal consideration a viable remedy under the Baum Action?	Section 14(a) & 20(a) claims don’t provide inadequate consideration as a remedy; the remedy sought was not available.	Relief sought in Baum was the difference between deal price and true value, so exclusion applies.	Section 14(a) & 20(a) violations don’t allow bump-up remedies; exclusion not triggered.
Can Harman argue waiver/estoppel due to insurers’ delay in raising the exclusion?	Insurers waited years to assert exclusion, creating reliance/prejudice; should be barred from asserting now.	Delay not prejudicial, doctrines cannot create coverage where none exists.	Waiver and estoppel unavailable under Delaware law for insurance coverage disputes.

Key Cases Cited

Hallowell v. State Farm Mut. Auto. Ins. Co., 443 A.2d 925 (Del. 1982) (insurance exclusions are construed narrowly and in favor of insured)
Axis Reinsurance Co. v. HLTH Corp., 993 A.2d 1057 (Del. 2010) (equitable estoppel cannot create insurance coverage where excluded by policy terms)
Eagle Force Hldgs., LLC v. Campbell, 187 A.3d 1209 (Del. 2018) (interpretation of contract material terms is a question of law)
Gallup, Inc. v. Greenwich Ins. Co., 150 A.3d 1039 (Del. 2016) (insurer bears burden of proving expansion of exclusionary clause)