The Delaware Supreme Court on Tuesday upheld a lower court decision that AMC Entertainment’s payment of stock to settle a shareholder lawsuit is covered by its directors and officers liability insurance.
In Midvale Indemnity Co. v. AMC Entertainment Holdings Inc., Midvale, a subsidiary of American Family Insurance, claimed that a $99.3 million settlement the movie theater chain paid with 6.8 million shares of common stock was not covered. Midvale, an excess insurer on the policy, argued that the policy only covered cash payments.
“AMC contended that Midvale must pay AMC cash for AMC’s issuance of new equity instruments to its own shareholders, even though the transaction had zero net impact on AMC’s balance sheet,” the insurer argued in its appeal.
The high court, though, agreed with a state lower court that ruled AMC was entitled to coverage.
The ruling sets a precedent for companies seeking to agree to non-cash settlements, said Michelle Migdon, a partner at Cohen Ziffer Frenchman & McKenna, who represented AMC.
“Sophisticated companies often have to enter into settlements in dire circumstances, so they often find creative ways to make settlement payments. This ruling confirms that, unless their insurance policies explicitly say otherwise, those companies can operate with all the flexibility they need while still preserving their ability to seek coverage,” she said in a statement.