The Delaware Superior Court ruled on August 5, 2026, in favor of National Union Fire Insurance Company of Pittsburgh, PA, and other insurers in a dispute with Zayo Group Holdings, Inc. The court's decision denied Zayo's claim for coverage related to a $27.125 million settlement stemming from a lawsuit against Zayo's former CEO, Dan Caruso. This ruling is significant as it clarifies the application of insurance policy exclusions regarding settlements that involve increased consideration in acquisitions.
Zayo Group, a communications infrastructure provider, sought coverage from its insurers after settling a lawsuit brought by former shareholders who alleged that they received inadequate consideration during the company's acquisition by Digital Colony Partners. The court's ruling impacts not only Zayo but also sets a precedent for how similar insurance claims may be handled in the future.
Background
Zayo Group Holdings, Inc. is a Delaware corporation based in Colorado that provides communications infrastructure, including fiber networks and data centers. The dispute arose after Digital Colony Partners acquired Zayo in a reverse triangular merger in May 2019, during which shareholders received $35 per share.
Following the acquisition, former shareholders filed a lawsuit against Dan Caruso, Zayo's CEO, claiming he breached his fiduciary duties by failing to disclose critical information that could have led to a higher sale price. Although the Delaware Court of Chancery dismissed most of the claims, it allowed one to proceed, leading to a settlement of $27.125 million. Zayo sought reimbursement for this settlement from its insurers, including National Union Fire Insurance, ACE American Insurance, and Arch Insurance, but the insurers denied coverage based on a specific exclusion in the policy.
The Ruling
The court ruled in favor of the insurers, granting their motion for summary judgment while denying Zayo's motion for partial summary judgment. The ruling hinged on the interpretation of a "bump-up exclusion" in Zayo's insurance policy, which excludes coverage for settlements that effectively increase the consideration paid in an acquisition.
The court stated, "the settlement represented an effective increase in consideration, and the bump-up exclusion precludes coverage."
Judge Paul R. Wallace emphasized that the underlying lawsuit sought damages for inadequate consideration, and the settlement amount directly compensated the shareholders based on their ownership stakes. The court determined that the insurers were justified in denying coverage based on the policy's terms.
Impact
This ruling has significant implications for Zayo and other companies in similar situations. It underscores the importance of understanding the specific terms and exclusions in insurance policies, particularly regarding settlements related to mergers and acquisitions. The decision may also influence how future claims are evaluated, especially in cases involving allegations of inadequate consideration in acquisitions.
Moreover, the court's interpretation of the bump-up exclusion could set a precedent for how courts handle similar disputes in the future, potentially impacting the insurance industry and corporate governance practices.
What's Next
Details were not available in the court filing regarding whether Zayo plans to appeal the decision. However, given the nature of the ruling, it is possible that Zayo may seek further legal recourse or explore other avenues related to its insurance claims.