How Protective is D&O Insurance in Securities Class Actions? – Part I


Publish Date:
February 1, 2010
Publication Title:
Professional Liability Underwriting Society Journal
Journal Article
  • Michael Klausner & Jason Hegland, How Protective is D&O Insurance in Securities Class Actions? - Part I, 23 Professional Liability Underwriting Society Journal (February 2010) (also posted to SSRN as Stanford Law School, Law & Economics Research Paper Series, v. 14, no. 3).


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 by officers and directors? What factors influence relative contributions? With respect to officers and directors, does evidence of culpability influence liability exposure? 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?

Until now, these questions could be answered anecdotally at best. On the basis of an extensive set of data that we have recently collected, we explore these questions quantitatively below. 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. This is the first of two articles reporting findings from this new database. The second, which will be published in the next issue of the PLUS Journal, will analyze the timing of settlements and dismissals.