To help prevent the directors’ and officers’ liability insurance marketplace from eroding, an insurance executive urged his industry to work together against a pattern of egregious class action securities lawsuits.
Speaking before members of the Professional Liability Underwriting Society, John Degnan, vice chairman of The Chubb Corporation, called on the insurance industry to establish an Institute for Securities Class Action Defense. The institute would help “confront and reverse a very troubling pattern of abusive, outrageously aggressive and, in some cases, downright dishonest conduct on the part of the plaintiffs’ bar in class action securities litigation,” Degnan said.
“It troubles me, frankly, to watch the plaintiffs’ bar cloak itself in the robes of protectors of the public’s interest in good corporate governance, while it almost methodically settles case after case for the limits of available insurance in a well documented process that advances the financial interests of the advocates to a far greater degree than it does of the shareholders,” he added.
While such litigation has caused D&O loss costs to rise, leading to higher D&O insurance rates, narrower coverage terms and conditions, and larger deductibles, Degnan warned that such short-term marketplace benefits for insurers may be outweighed by serious long-term consequences.
“For those of us who want to be in this business for the long haul, there needs to be a focus on bringing costs down and ensuring that rates are reasonable so that the coverages we provide continue to represent a rational buying decision,” he said. “We should not replicate the circumstances of the mid-1980s when casualty markets withdrew capacity and spawned the Bermuda insurance industry. Make no mistake: Our insured companies and their directors and officers will find over time an efficient mechanism for transferring risk.”
By establishing a defense institute, Degnan suggested the insurance industry could fight back against a small number of law firms that have been able to “drive strategy and public relations in a concerted manner” against the more diverse interests of insurers, their customers and defense lawyers. To support his proposal, he pointed to the success the industry has had when it has collectively resisted “truly unjust – even specious – theories of coverage or of liability” involving tobacco, repetitive stress and electromagnetic fields and when it created an initiative addressing environmental liability concerns.
To be funded initially by insurers, agents and brokers with an interest in the D&O business, the Institute for Class Action Defense would be “devoted exclusively toward advancing the successful defense of all securities class action litigation,” Degnan said. Its activities would include:
*Facilitating the archiving and dissemination of information about litigation theories, settlement approaches, Rule 11 findings and unreported decisions;
*Creating a proprietary databank of pleadings and briefs, expert reports, deposition transcripts, published research, publicly available discovery, plaintiffs damage theories and Daubert motions pertaining to such theories. (The databank may have valuable loss control benefits for directors and officers.);
*Submitting amicus briefs on issues that may impact securities litigation;
*Acting as a public information source that provides the defense perspective on securities class actions;
*Creating a repository of cost containment devices, a listing of defense firms, defense experts and litigation management firms; and
*Considering reinsurance or capital markets solutions to reduce the risk taken by an insurer and insured customer that have a resolve to avoid capitulation.
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