The Role of D&O Insurance in Securities Fraud Class Action Settlements

Posted: 2 Jun 2015 Last revised: 30 Jun 2016

Dain C. Donelson

University of Texas at Austin - Red McCombs School of Business

Justin Hopkins

University of Virginia – Darden Graduate School of Business Administration

Christopher G. Yust

Texas A&M University

Date Written: June 1, 2015

Abstract

Due to previous data unavailability, it is unclear how important directors’ and officers’ (D&O) insurance is in securities fraud class action settlements. Using a unique dataset of U.S. D&O policies, we find that D&O coverage is a less significant determinant of settlement amounts than estimated damages and proxies for case merits. D&O limits are related to settlements in only the weakest cases (those without accounting allegations or institutional lead plaintiffs) where proxies for case merits play a minimal role. Our findings suggest that most securities fraud class action settlements are meritorious and accounting-related cases are a reasonable proxy for fraud.

Keywords: Securities Litigation, Directors’ and Officers’ (D&O) Insurance, Settlements, Fraud

JEL Classification: K22, M41

Suggested Citation

Donelson, Dain C. and Hopkins, Justin and Yust, Christopher G., The Role of D&O Insurance in Securities Fraud Class Action Settlements (June 1, 2015). Journal of Law and Economics, Vol 58 (4), pp 747-778, November 2015. Available at SSRN: https://ssrn.com/abstract=2613214

Dain C. Donelson (Contact Author)

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States
512-232-3733 (Phone)

Justin Hopkins

University of Virginia – Darden Graduate School of Business Administration ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Christopher G. Yust

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States
979.845.3439 (Phone)

HOME PAGE: http://www.christopheryust.com

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