Although securities class-action filings fell 38 percent in2006, the costs of settling such actions soared to new heights,according to a recent report.

The total value of settled cases in 2006–excluding settlementstotaling $7.1 billion relating to the Enron collapse–grew to $10.6billion, more than 300 percent above the 2005 level of $3.5billion, according to Washington-based Cornerstone Research.

Back in January, Cornerstone reported that securities fraudclass-action filings dipped to 110 last year–down from 178 filingsin 2005–and nearly 43 percent lower than the 10-year historicalaverage of 193.

Stanford Law School Professor Joseph Grundfest predicts thatsettlements are poised to tumble, too.

“With the largest part of WorldCom and Enron settlements nowwrapped up, and fewer huge pieces of litigation in thepipeline…aggregate settlement amounts have only one way to move–andthat's down,” he said in a statement.

Putting aggregate figures aside, however, Steve Shappell,managing director of Aon Financial Service Group's claim practicein Denver, is less optimistic about individual situations.

“If you're one of the unlucky companies to draw the attention ofthe plaintiffs' bar and regulators, it's very painful,” he said,predicting they will face shareholder class actions, derivativeactions, opt-out suits from big institutional investors, and 401(k)litigation by their own employees.

Noting that one goal of the Private Securities Litigation ReformAct of 1995 was to put institutional investors in lead-plaintiffroles, he said this has had two important consequences fordefendants.

First, big settlements are now huge.

o In 1995, the average for the top 15 settlements was $70million.

o In 2006, it was $208 million.

o Six of the 10 largest settlements ever came in 2006, and allthose were led by institutional investors.

“And when it rains, it pours,” he said, noting that althoughTime Warner paid $2.4 billion to settle a securities class action,100 institutions opted out of the settlement. Ohio Attorney GeneralMarc Dann announced a $144 million opt-out settlement with fiveOhio pension funds in early March.

In spite of severe claims, D&O insurance prices arefalling.

o Although Aon's price index ticked up slightly in the fourthquarter of 2006, prices dropped almost 9 percent for the year–and40 percent below a historic high in 2003.

o New York-based Advisen said overall premiums dropped 5.5percent in fourth-quarter 2006, or nearly 30 percent sincefourth-quarter 2003.

Coverage is broadening, as well. “We're already seeingtraditional D&O policies now with nonrescindability features,”said Joseph Monteleone, a partner for Tressler, Soderstrom, Maloney& Priess in New York. He noted that policyholders are lobbyingfor such features to mimic coverage expansions they've seen onSide-A policies that have become popular.