Seven insurers that shared the risk for directors and officers policies sold to Towers Watson may have to pay up to $80 million for settlements with shareholders who cried foul after learning that the brokerage’s merger with Willis included a $165 payout to its chief executive.

A federal judge in Alexandria, Va., ruled Tuesday that a so-called “bump-up” exclusion in the policies does not bar coverage. He ordered partial summary judgment in favor of Towers Watson on that point.

The Cohen Ziffer law firm, which represented Towers Watson, called the decision “a major victory for policyholders” in a press release but declined further comment.

A bump-up provision, which is routinely included in D&O policies, excludes coverage for any payment that can be characterized as an increase in the purchase price of a company. U.S. District Judge Anthony J. Trenga ruled that the exclusion did not apply to settlement of the shareholder lawsuits because Towers Watson merged with Willis; it did not acquire the company.

Trenga, with the Eastern District of Virginia, noted in his order that Towers Watson canceled its common stock and issued new shares to Willis when it merged into a Willis subsidiary and disappeared.

“Under these circumstances, the merger was hardly comparable to the straightforward takeover of one company by another suggested by the bump-up exclusion and therefore is reasonably viewed as something other than ‘the acquisition’ referenced in the bump-up exclusion,” the order says.

Trenga ordered the parties to advise the court of whatever issues remain in the dispute within 14 days.

Towers Watson filed a D&O claim after two sets of shareholders filed separate lawsuits in Delaware and Virginia claiming that they were shortchanged by the 2015 merger of the company with Willis.

A class of plaintiffs led by regents for the University of California alleged in the 2018 lawsuit that Towers Watson violated Securities and Exchange Commission rules by, among other things, failing to disclose to shareholders or the board of directors that Willis had privately negotiated a compensation package with Towers Watson CEO John Haley that would pay him $165 million over three years.

The complaint says Haley sold 55 percent of his stockholdings in Towers Watson for about $14 million on March 2, 2015, before announcing the proposed merger. When the deal was announced on June 30, 2015, Towers Watson shares dropped 8.8 percent.

“Following the issuance of the proxy, investor and analyst backlash continued, as the market reiterated the view that Towers shareholders were not getting fair value for their shares,” the suit says.

The lawsuit filed in Delaware alleges similar facts and accuses Haley and others involved in the deal of “fleecing” stockholders.

Attorneys for Towers Watson, which now exists as a subsidiary of Willis, agreed to settle with the Virginia plaintiffs for $75 million and with the Delaware plaintiffs for $15 million. It filed a D&O claim with the primary carrier, National Union Fire Insurance Co., seeking the $80 million coverage limit of its insurance tower.

The insurers argued that the settlement agreement effectively increased the purchase price, so coverage was excluded by the bump-up provision. Judge Trenga disagreed.

The judge’s order says the merger of the two companies does not meet the dictionary definition of an acquisition. He also found no merit in the defendants’ argument that the transaction was structured as an acquisition even though the two companies called it a merger.

He said Towers Watson shareholders received shares that equal to 49.9 percent of the newly constituted Willis. Trenga also pointed out that Delaware law recognizes a merger as a distinct type of business combination.