A type of claim frequently made against the directors and officers of companies
involved in merger activity. Such claims are also commonly referred to as
"merger objection claims." Litigation often results from these
situations because the directors and officers of both the acquiring and the
acquired company face a number of conflicts and related obstacles in the event
of a merger or similar business transaction. For example, the directors and
officers of the company being acquired will be inclined to reject all buyout
offers, no matter how favorable they may be for their company's
stockholders. This is because such individuals are likely to lose their jobs as
a result of the buyout. Similarly, the directors and officers of the acquiring
company are confronted with the possibility that its own shareholders could
allege that they paid too much for the company they have acquired. Given these
(and other) exposures accompanying corporate merger activity, nearly every
decision reached by directors and officers under these circumstances may be
subject to attack as an alleged violation of their fiduciary duties.
Accordingly, by 2010, 87.3 percent of all corporate consolidations were met
with a merger objection claim, based on research by Matthew D. Cain and Steven
Davidoff Solomon in
Takeover Litigation in 2014, February 20, 2015. In
response, underwriters of directors and officers liability insurance policies
began adding special, higher retentions to their forms, which applied only to
claims involving mergers and acquisitions. For example, if a policy contained a
$100,000 self-insured retention (SIR), an insurer might impose a $500,000 SIR
for merger objection claims.