How Protective is D&O Insurance in Securities Class Actions? — An Update
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
8 Pages Posted: 5 May 2013 Last revised: 26 Jul 2013
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: Suggested Citation