High Court Ruling Seen Helping D&O Insurers

High Court Ruling Seen Helping D&O Insurers

By Steve Tuckey

NU Online News Service, April 21, 7:56 p.m. EDT?A U.S. Supreme Court decision handed down Tuesday dealing with securities class action suits represents a victory for directors and officers insurers, according to a class action defense attorney.[@@]

In Dura Pharmaceuticals v. Broudo, the court held that an accusation that a company's misrepresentations caused an inflated share price was insufficient as a basis for a lawsuit.

Michael Young, partner at the law firm of Wilkie, Farr and Gallagher, said that as a result of the ruling, courts will dismiss some cases outright. In addition, settlement values will decline as the ruling puts defendants and their insurers in a stronger bargaining position with plaintiffs. The New York- based firm represents companies in securities class action suits.

"The Supreme Court has bent over backward to give everyone a Dr. Seuss primer on loss causation," Mr. Young said.

Plaintiffs will have to prove that not only was the stock price artificially inflated, but that it also went down due to fraud, Mr. Young said.

The attorney's comments were quoted in a note to investors from Lehman Brothers property-casualty analyst Jay Gelb.

Mr. Gelb said that New York-based American International Group and Warren, N.J.-based Chubb Corp. would benefit the most as they are two of the largest D&O insurers in the country.

"We do not expect the ruling to have an immediate effect on D&O loss-cost trends," Mr. Gelb wrote. "However, over time we believe it could lower the sharp loss-cost inflation in claims from securities class action lawsuits."

According to industry estimates, there are about 800 securities class action cases in the court system at this time. Prior to the ruling, the estimated aggregate settlement value was $32-to-$70 billion through 2010, Mr. Gelb wrote.