AMC Entertainment Holdings, Inc. v. XL Specialty Insurance Company, No. N23C-05-045 MAA CCLD, 2025 Del. Super. LEXIS 84 (Del. Super. Ct. Feb. 28, 2025).
In a significant ruling concerning corporate insurance policies, the Delaware Superior Court decided that AMC Entertainment Holdings, Inc.'s stock-based settlement qualifies as a covered "Loss" under its Directors & Officers ("D&O") liability insurance policy. This decision highlights the challenges businesses face when dealing with D&O insurance, shareholder disputes, and insurance claims.
Background
AMC, the well-known movie theater chain, faced financial challenges during the pandemic but saw a surge in its stock price as a "meme" stock. To capitalize on this, AMC attempted to issue more common stock, but shareholder approval was blocked. In response, AMC created AMC Preferred Equity Units ("APEs"), which carried voting rights similar to common stock and could be converted to common shares.
This move led to a legal battle with shareholders, who sued to prevent AMC from converting APEs into common stock. The lawsuits were consolidated in Delaware's Court of Chancery, and AMC sought coverage from its D&O insurance, which is designed to protect company leaders from personal financial liability tied to decisions made on behalf of the business.
The Dispute
AMC ultimately settled the litigation by issuing 6,897,018 shares of common stock to the plaintiffs and covering their attorneys' fees. One of AMC's insurers denied coverage, arguing that stock issuance does not constitute a covered "Loss" under the policy.
The insurer contended, in part, that the settlement did not involve direct financial payment.
Court's Ruling
The Delaware Superior Court rejected the insurer's arguments, ruling that AMC's stock-based settlement does qualify as a covered Loss under its D&O policy. The court emphasized that the policy's language broadly defines "Loss" to include settlements, regardless of whether they involve cash or stock.
This ruling reinforces the idea that non-cash settlements can be covered under D&O insurance.
Implications for Businesses
For LLCs and corporations, this case highlights the importance of:
- Carefully reviewing D&O insurance policies to ensure coverage for non-cash settlements.
- Understanding shareholder litigation risks, especially when issuing new securities.
- Negotiating insurance terms that explicitly cover various business decisions, such as stock-based settlements.
As businesses continue to navigate complex financial and legal landscapes, this ruling provides clarity on how courts may interpret insurance coverage in shareholder disputes.
Originally published 21 April 2025
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