The D&O insurance industry has seen a significant increase in claims involving securities class action suits in recent years, as we have written about in the past. A study published by Advisen provides insight into some of the claims trends that affected the industry for Directors & Officers insurance in 2016, as summarized below.
Trend Toward Suing Smaller Companies
In the past, large companies were more likely to be hit with a securities class action lawsuit. In fact, the bigger the company (as measured by its market capitalization), the likelier it was to face a securities lawsuit.
More recently, this trend has changed. Increasingly, smaller companies, which used to be perceived as less risky from a litigation standpoint, are facing securities suits.
One reason for the trend to target smaller firms is attributed to the entrant of new law firms, which are building their practice based on the initial pursuit of smaller entities. These smaller lawsuits can be less expensive to litigate, while helping the law firm to gain experience and build resources.
Increased Focus on IPO-Related Litigation
As in years past, the increase in IPOs has also led to a rise in IPO-related securities litigation. The Advisen study reveals that the likelihood of a suit being filed within three years of an IPO has increased significantly since 2008.
As current claims trends and litigation rates continue to grow, agents may wish to step up the information they provide to their smaller insureds and likewise, D&O insurers may wish to review their underwriting guidelines and assumptions more closely.
Securities Class Action (SCA) Cases Continue to Rise
Securities class actions filed in U.S. federal courts reached an all-time high in 2016, reflecting a 32 percent increase over 2015.
A recent Business Insurance article notes that this trend is continuing. Plaintiffs have filed a record 127 federal class action case in the first quarter of 2017.
Bill Hager Speaks on D&O Insurance Issues
Bill Hager’s Expertise as to D&O Insurers and D&O Insurance Policies and Their Agents.
Mr. Hager has extensive and substantive experience relating directly to D&O insurance policies (which are sold by property casualty insurance companies and by licensed property casualty insurance agents) including interpreting policy language and determining the insurer’s obligations under such policies.
As a regulator for eight years in five positions: ((i) Assistant Attorney General assigned to the Department of Insurance, (ii) First Deputy Commissioner of Insurance, (iii) Iowa Commissioner of Insurance, (iv) Administrative Law Judge, and (v) Executive and Member of the National Association of Insurance Commissioners); Mr. Hager, along with his staff, approved (or disapproved) of the language of D&O insurance policies used by each of the 1,000 property casualty insurance companies doing business in the state, selling among other coverages, D&O policies. This regulatory action also included the approval of most all policy application forms and policy forms themselves in use today. In addition, I regularly served as an Administrative Law Judge in matters relating directly to D&O insurance policies.
While Iowa Insurance Commissioner, Mr. Hager also served as a member of the National Association of Insurance Commissioners (“NAIC”), (including membership on its Executive Committee), the nationwide organization of all state insurance commissioners. That organization has responsibilities for establishing model insurance administrative regulations and model statutes for consideration by all of the states.
In addition, Mr. Hager has served as CEO of a major U.S. property casualty industry owned insurance entity, served as general counsel to the American Academy of Actuaries, serves as a certified reinsurance arbitrator and has extensive legislative experience both at the staff level (Counsel to the Iowa House of Representative and Chief of Staff to a U.S. Congressman in Washington D.C.) and currently as an elected Member of the Florida House of Representatives, in his 7th year, where he serves or has served on all of the insurance related committees.
Click on the link to read more about Mr. Hager’s experience as a D&O insurance expert.
Material for this article was taken from a collection of industry sources relating to the subject.
In all of the general statements here, see the state law of the controlling jurisdiction. Every case is different and circumstances vary widely depending on the governing state law, policy provisions, and related considerations.
This blog is provided for educational purposes only. It is not intended to provide legal advice or an opinion in regard to any topic discussed. The blog should not be used as a substitute for legal advice from a licensed attorney in your state.