In AMC Entertainment Holdings, Inc. v. XL Specialty Insurance Company, No. N23C-05-045 MAA CCLD, 2025 Del. Super. LEXIS 84 (Del. Super. Ct. Feb. 28, 2025), the Delaware Superior Court ruled that AMC’s stock-based settlement counts as a covered “Loss” under its Directors & Officers (“D&O”) liability insurance policy.
This case shows how complex insurance coverage can be for both corporations and LLCs when it comes to business decisions—whether involving leadership actions, shareholder or member disputes, or strategic moves like issuing equity.
Background
AMC, the popular movie theater chain, struggled financially during the pandemic. However, its stock price unexpectedly surged when it became a “meme” stock (a “meme” stock is a company whose stock price goes up mostly because of social media buzz, not business performance).
Looking to take advantage of this momentum, AMC proposed issuing more common stock. But when shareholders blocked the plan, the company pivoted. It created AMC Preferred Equity Units (“APEs”), which had voting rights similar to common stock and could later be converted into common shares.
This creative workaround sparked a legal battle. Shareholders sued to stop AMC from converting the APEs, and the lawsuits were eventually consolidated in Delaware’s Court of Chancery. AMC then asked its D&O insurance to cover the case. D&O insurance protects company leaders from personal financial risk when they make decisions for the business.
The Dispute
AMC settled the case by giving the plaintiffs 6,897,018 shares of common stock and paying their lawyers’ fees. But one of AMC’s insurers refused to pay, saying that giving stock isn’t a covered “Loss” under the policy.
The insurer argued that the settlement didn’t involve actual money.
Court’s Ruling
The Delaware Superior Court disagreed. It said AMC’s stock-based settlement does count as a covered Loss under the D&O policy. The court pointed out that the policy defines “Loss” broadly—it includes settlements, whether they involve cash or stock.
This ruling confirms that non-cash settlements can still be covered by D&O insurance.
What This Means for Your Business
If you run an LLC or corporation, this case is a good reminder to:
- Review your D&O insurance to make sure it covers non-cash settlements.
- Understand the risks of shareholder and member lawsuits, especially when issuing new stock or membership interest.
- Negotiate insurance terms that clearly cover key business decisions, like financial reporting or employment actions.
As businesses face more legal and financial challenges, this case shows how important it is to make sure your insurance protects the decisions your company makes.
To learn more about How Movie Theaters and Meme Stocks Can Help You Think About Business Insurance, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100.