CHICAGO—Whether a D&O insurance policy provides coverage for plaintiffs’ attorney fees as part of a settlement in a shareholders’ derivative suit continues to be an issue.
A panel here at Advisen’s Management Liability Insights Conference indicated insurers and policyholders are still at odds over these fees in derivative litigation, which are “absolutely” on the rise due to M&A deals, said Lynn Ambrose, client services executive at Hylant. She said 90 percent of deals involving more than $100 million see a lawsuit.
John Burkhart, head of public company management liability at QBE, said there is “no rhyme or reason” to plaintiffs’ attorney fees, but the squabbling between insurers and the settling company is harmful.
“Insurers need to step up or risk alienating the broker and client,” he said.
Moderator Wayne Borgeest, partner at law firm Kaufman, Borgeest & Ryan, said the fees are less of an issue with cases settled using a common class fund, in which a pool of money is used to compensate class members as well as pay attorney fees. But settlements without this type of fund typically “end up with a fight over the fees.”
David Kistenbroker, partner at Dechert, flatly said he wished “all markets and brokers would figure this out.”
“I can’t think of any single issue than this that puts insurers more at odds with clients,” he added. Resolution around this issue would create “a lot happier public-company clients.”
Borgeest said the policy used to respond and pay these fees, but within the last few years “fees have changed so dramatically” that it has become a coverage issue—which has consequently become a real roadblock for companies looking to put derivative suits behind them and settle.
Burkhart agreed and added that insurers should modify the policy to make clear what is covered or modify “to get the insured to contribute.”
“The ambiguity doesn’t do anyone any good,” he said. Disputes over attorney fees “segregates the insurer” from the process, removing it from the mediation and negotiation processes, he added.
Chad Hemenway is Managing Editor of Advisen News. He has more than 15 years of journalist experience at a variety of online, daily, and weekly publications. He has covered P&C insurance news since 2007, and he has experience writing about all P&C lines as well as regulation and litigation. Chad won a Jesse H. Neal Award for Best Single Article in 2014 for his coverage of the insurance implications of traumatic brain injuries and Best News Coverage in 2013 for coverage of Superstorm Sandy. Contact Chad at 212.897.4824 or [email protected].
