Shareholder class-action suits are trending upward while settlement amounts appear to be declining, but insurers should keep an eye on where the trends are headed, a broker with Aon advised.
The observations came during a Web seminar titled “The D&O Marketplace: Poised for Change?” sponsored by Chicago-based insurance brokerage Aon.
Steve Shappell, managing director, National Financial Services Group legal and claims with Aon, pointed to a series of statistics that indicate directions in shareholder legal actions that affect directors and officers coverage. He said this area of coverage is “something carriers can’t control and is difficult to predict.”
Historically, the number of shareholder suits has hovered around 200, and in the last couple of years the figure has fallen to less than 100. This year, however, Mr. Shappell said, the trend appears to be returning to historic norms, with 78 suits so far this year, and estimates putting the total for 2008 at somewhere between 200 and 220.
It is “a pretty significant development,” said Mr. Shappell. He credited past years of declines to healthy stock returns and pending legal issues that prevented development of suits. Those broad legal issues, he noted, have since been resolved.
Chief executive officers and chief financial officers remain the primary targets of these suits, with CEOs accounting for more than 90 percent of the litigation, he related. Recently, Aon has found more suits targeting board chairmen, while audit committees still fall far below 10 percent of suits.
After peaking in 2005, severity is showing some downward trends; however, big figure claims still pop up now and then, said Mr. Shappell.
The median settlement figure has risen from $3.7 million in 2006 to around $8.8 million so far this year, but the number of settlements of more than $100 million has decreased since 2005, something he said is “very good news” and that the industry will continue to watch.
One phenomenon that is occurring with more frequency, he said, is that increasing numbers of institutional investors are opting out of class-action settlements and instituting litigation on their own “to pursue a better resolution.”
Timothy W. Burns, an attorney and managing partner with the law firm Heller Ehrman LLP in
He said this has led to an increase in the number of shareholder suits dismissed by the courts. He also noted that the failure by the insured to inform insurers in a prompt manner of shareholder suits has resulted in courts upholding denial of coverage.
Jennifer Fahey, managing director, National Financial Services Group, D&O product leader with Aon, discussed coverage issues during the seminar.