A federal appeals court on Tuesday overturned a lower court ruling in Towers Watson & Co.’s favor in a directors and officers liability insurance dispute with American International Group Inc. and other insurers in connection with its 2015 merger with Willis Group Holdings PLC, which created Willis Towers Watson PLC.

The ruling by the 4th U.S. Circuit Court of Appeals in Richmond, Virginia, in Towers Watson & Co. v. National Union Fire Insurance Co. of Pittsburgh, PA, et al., however, said it was overturning the case on narrow grounds, and there are other issues the lower court may still consider on remand.

The focus of the litigation was the “bump up provision” in Towers Watson’s D&O coverage, in which AIG unit National Union was the primary insurer. 

A bump-up exclusion generally bars coverage for losses stemming from judgments or settlements in connection with claims against the insured that seek an increase or “bump up” in the consideration paid for it.

Towers Watson shareholders filed several lawsuits against former Willis Towers Watson CEO John Haley, and others alleging that the investors received below-market consideration for their shares in the merger, the ruling states.

They ultimately settled for $90 million, $75 million in Virginia and $15 million in a consolidated Delaware litigation, according to the ruling.

When Towers Watson sought indemnity coverage from its insurers they refused, citing the bump-up exclusion. 

Towers Watson filed suit in U.S. District Court in Alexandria, Virginia, which ruled in 2021 that the bump-up exclusion “does not unambiguously” preclude indemnity coverage for the underlying settlements.

“In doing so, however, the court adopted an unduly narrow reading of the exclusion, finding ambiguity where none exits and ascribing specialized meanings to policy forms that the parties did not reasonably intend,” a three-judge appellate panel said, in vacating the district court’s judgment and remanding the case for further proceedings.

The ruling says two remaining claims that Towers Watson may choose to raise on appeal are that the bump-up exclusion was inapplicable because it refers to “an entity,” which should not encompass Towers Watson, and that the settlements did not effectively increase the deal’s price as required by the exclusion.

Attorneys in the case did not respond to requests for comment.