How Protective is D&O Insurance in Securities Class Actions? - Part I
February 01, 2010
Bibliography: Michael Klausner and Jason Hegland, How Protective is D&O Insurance in Securities Class Actions? - Part I, 23 Professional Liability Underwriting Society Journal (February 2010). Also posted to SSRN as Stanford Law School, Law & Economics Research Paper Series, v. 14, no. 3.
How much protection does D&O insurance
provide in securities class actions? When a
securities class action settles, how much of
the settlement is typically paid by the
insurer, how much by the company, and
how much by officers and directors? What
factors influence relative contributions?
With respect to officers and directors, does
evidence of culpability influence liability
exposure? Is there any correspondence
between sanctions imposed on officers and
directors in SEC actions and out-of-pocket
officer and director payments in settlements
of parallel class actions?
Until now, these questions could be
answered anecdotally at best. On the basis
of an extensive set of data that we have
recently collected, we explore these questions
quantitatively below. We find that on the
whole D&O insurance pays substantial
portions of settlements in a large majority
of cases, and that both corporate and
individual defendants are highly protected.
This is the first of two articles reporting
findings from this new database. The
second, which will be published in the next
issue of the PLUS Journal, will analyze the
timing of settlements and dismissals.