Insurance Covers Settlement Paid by Stocks Instead of Money: Delaware High Court

By Andrew G. Simpson

A settlement paid by stocks rather than money is a covered loss that must be paid by an insurer, the Delaware Supreme Court has affirmed.

The state’s high court agreed with a lower court’s ruling that the definition of “loss” does not restrict coverage to cash payments or monetary amounts.

The rulings came in a dispute that arose when AMC Entertainment Holdings, Inc. sought coverage for losses incurred in a settlement of a lawsuit brought by AMC shareholders. AMC agreed to pay 6,897,018 shares of common stock and the plaintiffs’ attorney’s fees. In exchange, the plaintiffs agreed to release all claims, enabling AMC to move forward with a proposal they had opposed.

The insurers denied coverage, contending that the settlement payment method–shares of AMC stock provided by AMC to the plaintiffs in the underlying actions–was not covered by the policies.

AMC argued the insurers were obligated and went to court seeking a declaratory ruling in its favor.

Midvale Indemnity Co. ended up being the only remaining defendant in the case in Superior Court. AMC asserted the shares constitute an amount AMC was legally obligated to pay for a settlement, making the expended shares a covered “loss” under its insurance. AMC noted that the “loss” definition contains no language limiting its application to cash payments.

Midvale countered that because shares of stock are not money which can be “paid,” the policies do not cover the settlement. The insurer insisted that AMC issued stock but did not pay any amount which reaches the excess policies.

Delaware case law recognizes the “close similarity” between stock and cash money. “Stock is a form of currency that can be exchanged for other forms of currency or used for a variety of corporate purposes, including paying off debts, acquiring assets, compensating employees, or acquiring other entities,” the Superior Court noted.

The Delaware Supreme Court upheld the lower court’s ruling and reasoning without further comment on December 9.

AMC was represented by Robin Cohen, Adam Ziffer, and Michelle Migdon of Cohen Ziffer Frenchman & McKenna LLP. In a statement, the firm called the ruling a “vital precedent for cash-strapped policyholders seeking coverage for settlements paid with non-cash compensation.”

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Delaware