The Delaware Superior Court ruled that AMC is entitled to recover a stock transfer settlement payment from its insurers after the settlement was deemed a "loss". The case is AMC Ent. Holdings, Inc. v. XL Specialty Ins. Co., 2025 Del. Super. LEXIS 84 (Super. Ct. 2025).
Background
In 2021, AMC faced severe financial challenges due to the pandemic. However, their luck changed as they became a popular "meme" stock and attracted a lot of retail investors, raising their stock price. AMC capitalized on the rising share price to increase liquidity by issuing Class A common stock.
When AMC hit the limit of authorized common stock it could issue, it created a workaround by creating a new security, the AMC Preferred Equity Units (APEs). APEs carried the same voting rights as common stock and were designed to eventually be converted into common stock with shareholder approval. AMC subsequently sought shareholder approval to increase authorized common stock limits and execute a 1-for-10 reverse stock split, allowing for the conversion of APEs into common stock.
Shareholders pushed back since their shares would be diluted. Seeking to block the proposal, they filed a lawsuit in the Delaware Court of Chancery. AMC eventually agreed to a settlement with the shareholders, agreeing to pay 6,897,018 shares of Common Stock in exchange for dismissing the action.
AMC recorded the settlement as a $99.3 million expense on its books and turned to its Directors & Officers (D&O) insurers, including excess insurer Midvale Indemnity Company, to cover the loss. The insurers denied the claim, and AMC filed a declaratory judgment action with a Delaware Superior Court.
The Insurance Contract and "Loss"
The insurers denied the claim because they argued that "loss", as defined in the policy, did not include stock transfers and only meant cash payments. AMC countered that the shares represented a tangible amount that it was legally obligated to pay to settle the lawsuit. They also argued that nowhere in the policy did it restrict "loss" to only mean cash payments.
The policy stated that the insurer will "pay [loss] on behalf of [AMC]." Loss was defined as "damages, judgments, settlements, pre-judgment and post-judgment interest or other amounts (including punitive, exemplary or multiplied damages, where insurable by law) that any Insured is legally obligated to pay and Defense Expenses, including that portion of any settlement which represents the claimant's attorneys' fees."
Delaware Superior Court
The court found that the D&O policy's definition of "loss" was broad and did not contain any language limiting its application to only cash payments or monetary amounts. Under Delaware law, insurance policies are interpreted to favor broad coverage and align with the insured's reasonable expectations, so the court will not restrict the definition unfairly.
The court also noted that Delaware case law recognizes a close similarity between stock and cash. Stock is recognized as a form of currency that can be paid to satisfy debts, acquire assets, compensate employees, or acquire other entities.
The court also found that the idea that stock can be paid was supported in another part of the policy. The policy contained a Bump-Up exclusion that stated that "loss" does not include "any amount which represents or is substantially equivalent to an increase in the consideration paid, or proposed to be paid, by the Company in connection with its purchase of any securities or assets of any person, group of persons, or entity."
While the exclusion is not relevant to the case itself, the court found that the phrasing recognized stock as a valid form of payment. As the court states: "words used in different parts of the same agreement are presumed to bear the same meaning throughout."
Finally, the insurers argued that since only AMC could make a stock payment to its shareholders, the loss should not be covered. Since the policy requires the insurers to make payments on AMC's behalf, stock transfers cannot be a covered "loss."
The court agreed that only AMC could issue new stock, but still dismissed the argument. The court ruled that the insurers must indemnify AMC for a covered loss, but do not necessarily need to pay the loss directly. The insurers' inability to issue stock to the shareholders does not negate their obligation to indemnify AMC for the value of the settlement.
Editor's Note
AMC's motion for summary judgment was granted. The court found that the policy's definition of loss did not limit payment to only cash payments, and that the stock settlement was a payment since it went down in AMC's accounting books as a $99 million expense. Further, another part of the policy supported the idea that stock could be used as payment, and terms used throughout the policy are presumed to have the same meaning.