Individuals may not sue lawyers, accountants and investment advisers under securities laws for alleged false or misleading statements made by others, the Supreme Court ruled last week.

The 5-4 decision was lauded by business groups and companies that are subject to such suits—and should come as welcome news to D&O insurers.

The case is Janus Capital Group Inc. v. First Derivative Traders, No. 09-525.

The case was first filed in 2003; the ruling reverses a 2009 decision by the 4th U.S. Circuit Court of Appeals.

The suit dealt with Janus's disclosures to mutual-fund shareholders regarding efforts Janus made to address market-timing trading activity in the funds.

The policy was uncovered by former New York Attorney General Eliot Spitzer, and involved mutual funds allowing favorite investors to buy shares of mutual funds at the day's closing price, but after the market closed.

Justice Clarence Thomas wrote the decision, holding that Janus Capital Group, which managed a family of mutual funds,  could not be sued for allegations that it misled investors in the prospectuses of its mutual funds because it and a unit that advised the funds, Janus Capital Management, were separate legal entities from the mutual funds themselves.

“It was a good day for mutual funds and similarly structured businesses, and a bad day for class plaintiffs,” says Sarah Gold, a partner and co-head of the Securities Litigation & Enforcement Group at New York-based law firm Proskauer.

She says the Supreme Court majority “opted for a bright-line rule,” and in doing so the decision “diverges from the court's prior pattern of flexible standards for fraud and appears to insulate fund advisors and managers from section 10b-5 liability.”

David Hirschmann, president and CEO of the Center for Capital Markets Competitiveness, a unit of the U.S. Chamber of Commerce, says the decision “will prevent yet another roadblock to our global competitiveness.”

He adds, “Expanding liability would have opened up the floodgates to even more costly and frivolous class-action suits for businesses and gives additional reasons for companies to raise capital outside the U.S.”

“This decision is a significant step in bringing greater certainty for these important market participants,” he added.

Robin Conrad, executive vice president of the National Chamber Litigation Center, the public-policy law firm of the U.S. Chamber, adds that in the decision, “The Supreme Court correctly concluded, as the Chamber urged, that private liability under the securities laws must be construed quite narrowly.”

Conrad says the “plaintiffs' legal theory in this case was very aggressive, and would have exposed a whole new class of companies to frivolous securities lawsuits, from accountants to investment advisers to law firms.”

NFIP Update

The Government Accountability Office (GAO) has issued a scathing report on the National Flood Insurance Program (NFIP), stating clearly that under the present glidepath the program will never be solvent.

The report also criticized the Federal Emergency Management Agency's management of the program, saying that unless FEMA cleans up its act, it will be limited in its ability to manage NFIP's operations or better ensure program effectiveness. 

The NFIP has been on the top of the GAO's radar screen for several years as one of the 30 federal government programs most in need of major overhaul.

The report comes as the industry looks forward to House floor action on legislation that would reauthorize the program until Sept. 30, 2016.

The Independence Day recess is rapidly approaching, and Congress usually takes all of August off.

Given that Congress has so far failed to act on the critical increase in the debt limit—and the absolute deadline for dealing with that is Aug. 6—Congress already has boxed itself in if it hopes to pass a budget for the upcoming fiscal year by the end of the current fiscal year.

Furthermore, the Senate Banking Committee appears to have done little so far to deal with even staff work on such legislation so far this year.