Advisen hosted a webinar and wrote a white paper that examines all sources of securities-related suits that impact the underwriting and placement of management liability insurance other than ERISA liability suits. In addition to securities class action suits, this 9-page report encompasses a much broader set of suits, including securities fraud, breach of fiduciary duties, derivative actions, collective actions and Ponzi scheme cases.
In the aggregate, new securities and business litigation filings and enforcement actions were down for the second straight year but remained elevated as compared to the years immediately prior to the financial crisis. The decline was largely a consequence of credit crisis litigation continuing to fade combined with few of the types of economic or sociopolitical events that drive new fillings.
The decrease in new events was evident in most major categories of suits and enforcement actions, including securities individual actions, capital regulatory actions, derivative shareholder actions, breach of fiduciary duties and merger objection suits. Although the always-important category, securities class actions, did not experience a decline in the annual total of new filings, it increased only nominally and = remained well below its ten year historical average. Not only was there a decline in the total number of new events, the number of settlements also fell for the second consecutive year. Fewer settlements, however, did not correlate to smaller settlements. In fact, the contrary was true, as the average settlement value in most categories tended to be significantly greater thanks to a higher than usual frequency of abnormally large settlements. The average settlement value for all types of suits was the most in five years and nearly four times higher than 2012.
But will this downward trend in new securities business litigation and enforcement actions continue for a third consecutive year? D&O litigation is currently experiencing a shift in priorities and a reallocation of resources as it moves past the financial crisis. It appears that there may be more drivers for filings in 2014, but plenty of doubt still exists.
Of the various types of lawsuits and enforcement actions tracked by Advisen that could trigger coverage under a D&O policy, for second consecutive year almost all saw a decrease in new activity. In the aggregate, new events fell 20 percent, from 1,677 in 2012 to 1,344 in 2013. Although the number of new events has continued to decline from the peak of 2,041 in 2011, the aggregate still exceeds the totals from prior to 2009 as well as the ten year average of 1,285 events.