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

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 )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-723-6433 (Phone)
650-725-0253 (Fax)

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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