Merger objections and securities class action litigation increased during the first half of 2017, partially driven by “emerging” law firms taking on a bigger role, according to Advisen data presented during a quarterly D&O claims trends webinar on July 26.
An expert panel discussed the impact of these trends on the underwriting and placement of D&O insurance.
“These claims [by emerging law firms] are typically less in regards to quality but definitely more in regards to quantity and are still costly to defend,” said Richard Edsall, senior vice president, Argo Group International Holdings, Ltd. “You might have a higher dismissal rate from some of these emerging firms but they’re still claims that can be costly, and defense costs are rising at probably a four to five percent rate every year.”
Kevin LaCroix of RT ProExec, a regular panelist and author of the D&O Diary, agreed with Edsall’s assessment.
“There are changes in the plaintiffs’ bar, changes in the way these cases are being brought, and also changes in the companies that are being sued,” said LaCroix. “I think these emerging law firms target smaller companies and I think knowing about the increased risk of securities litigation is important [for underwriters].”
LaCroix continued: “But that isn’t enough for underwriters, or even for brokers advising their clients because the risk isn’t distributed uniformly,” he said. “There are clearly riskier segments than others. I think for underwriters thinking about what this increase in securities litigation represents they really have to think about what sorts of companies these emerging law firms are targeting and what the implications are from a frequency and severity standpoint.”