How Protective Is D&O Insurance in Securities Class Actions?

by Michael Klausner, Jason Hegland and Matthew Goforth

As part of its educational mission, the PLUS Foundation supports research important to professional liability at top insurance universities across the country. This article is a product of that funding. How much protection does D&O insurance provide in securities class actions? When a securities class action settles, how much of the settlement is typically paid by the insurer, how much by the company, and how much outof-pocket by officers and directors? What factors influence relative contributions? Is there any correspondence between sanctions imposed on officers and directors in SEC actions and out-of-pocket officer and director payments in settlements of parallel class actions? Two years ago, we published an article in the PLUS Journal that provided answers to these questions based on a dataset that we had begun collecting and which now covers the past 12 years of securities class actions and SEC enforcement actions. This article updates our earlier report. We find that on the whole, D&O insurance pays substantial portions of settlements in a large majority of cases, and that both corporate and individual defendants are highly protected.

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