How Protective is D&O Insurance in Securities Class Actions? — An Update

8 Pages Posted: 5 May 2013 Last revised: 26 Jul 2013

See all articles by Michael Klausner

Michael Klausner

Stanford Law School; European Corporate Governance Institute (ECGI)

Jason Hegland

Stanford Law School

Matthew Goforth

Stanford Law School

Date Written: April 23, 2013

Abstract

Nearly all securities class actions that are not dismissed settle. Very few are tried to judgment. Who pays into settlements — the corporation, its directors and officers, or its D&O carrier? Companies buy D&O insurance in order to protect themselves and their directors and officers from liability. But D&O policies have exclusions, limits, retentions, and other terms that might result in the carrier paying less than the full amount of a settlement. So, as an empirical matter, who pays when a company settles? We provide some basic statistics on that question, which reveal that in fact D&O insurance is quite protective. Focusing on individual officers’ contributions to settlements, we find that these are quite rare, even in cases in which the SEC has imposed a serious penalty on the same individuals for the same misconduct.

Keywords: Securities litigation, Securities enforcement, Settlement, Directors and Officers Liability Insurance, Insurance

JEL Classification: G30, G34, K22

Suggested Citation

Klausner, Michael D. and Hegland, Jason and Goforth, Matthew, How Protective is D&O Insurance in Securities Class Actions? — An Update (April 23, 2013). PLUS Journal, May 2013, Stanford Law and Economics Olin Working Paper No. 446, Rock Center for Corporate Governance at Stanford University Working Paper No. 144, Available at SSRN: https://ssrn.com/abstract=2260815

Michael D. Klausner (Contact Author)

Stanford Law School ( email )

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European Corporate Governance Institute (ECGI) ( email )

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Jason Hegland

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

Matthew Goforth

Stanford Law School

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

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