Just listened to Kevin LaCroix speak about the state of D&O insurance on a webcast put on by RT Specialty. Kevin is considered an utmost authority on the topic. The highpoints covered are as follows:
*The number of US Securities Class Action lawsuits has jumped up from 271 in 2016 to 412 in 2017 and 403 in 2018 – suggesting that the higher level of activity can be considered the new norm.
A new robust class of plaintiff attorneys are now going after smaller companies where they see opportunities.
Aside from a slight increase in the number of claims for misrepresentation, the largest increase in claims is coming from merger objections in which value discrepancies are prompting shareholder suits.
*As a result of the Cyan case, new IPO companies can now be sued in both state and federal courts for securities litigation – creating massively expensive and time-consuming multi-front wars for such executives and boards to deal with. Note too that suits can be filed in multiple states!
The states seeing the most aggressive activity in this area – CA, NY, TX, CO, MA and TN
As a result, D&O carriers concerned about multi-front lawsuits, could try to increase premiums for IPO companies.
*New types of D&O claims, notably “Event Driven Litigation” is now suggesting threats of a nature and concern for both public and private companies.
CA utility companies facing suits after the wildfires – shareholders suing for misrepresentation of ramifications in the event of a fire.
Boeing – shareholders suing for misrepresentation of ramifications if a plane went down
Marriott – damage to investors brought about by a cyber breach
All tend to claim mismanagement on the part of the Board to adequately plan for and communicate the potential ramifications of potential threats/events that could impact the business and ultimately shareholder value.
Data Breach Securities Suits – alleging liability of officers in regards to data breaches (suggesting they did not take appropriate measures to avoid a data breach.
Privacy Related Securities Suits – alleging liability of officers with regards to “how” data is used.
Think Facebook and the negative public opinion and share value backlash they faced as a result of their providing data to Cambridge Analytica and the election…
#MeToo – alleging Directors turned a blind eye to inappropriate behavior by executives rather than taking efforts to curb the behavior.
Nike – derivative lawsuit alleging the Board allowed the “boys club” atmosphere including gender pay/promotion disparit and even,
Social Media – claims arising out of the use of social media. Think about the tweet Elon Musk sent out about taking the company private which sent the stock price plunging! It was viewed as a misrepresentation effecting shareholder value…
These new claims are attempting to hold Ds & Os much more accountable for operations – targeting executives for mismanagement and misrepresentations that ultimately lead to significant business disruption and erosion of shareholder value.
Important to note is the fact that many of these claims are follow on claims – that is, most of the claims follow prior regulatory investigations/suits and or Employment Practices Liability or General Liability related claims/suits. A wrongful act can trigger multiple types of claims and suits.
D&O Insurance carriers are dealing with a massive claims pipeline and facing new challenges as to how to underwrite for these new types of claims. The typical answer has been to simply increase premiums. The good news for insureds however is the abundant competition in the marketplace which will most likely hold premiums steady. Having said that, premiums for those in the high risk groups, CA based businesses, IPOs and life sciences, will most likely reflect an attempt by carriers to increase rates.