Goldman Suit Won't Change D&O Pricing, Experts Say

Already, Goldman has been hit with a follow-on securities class action filing from private plaintiffs and two shareholder derivative lawsuit filings. (See related article, http://www.property-casualty.com/News/2010/4/Pages/Wave-Of-Shareholder-Suits-Starts-Against-Goldman-Sachs.aspx ).

Responding to the same question from NU last week, David Bradford, executive vice president at Advisen, said, "I think underwriters would like an excuse to push through another round of rate increases on financial institutions, but to the extent that this is limited to the large Wall Street players, I don't think the impact is really going to be that significant.

"Most of the largest companies have relatively little D&O insurance in place at this time," he added, speculating that coverage limits have been exhausted.

Experts like Mr. Bradford, however, are predicting a reversal of recent favorable lawsuit filing trends that could impact D&O insurers from a claims perspective over the longer term.

Kevin LaCroix, a broker for OakBridge Insurance Services in Beachwood, Ohio, said he is "concerned there might be another wave" of credit crisis lawsuits emerging.

Apart from European banks ABN AMRO, IKB and other investors in ABACUS, who the SEC says collectively lost $1 billion on the deal, Mr. LaCroix said there are many other investors in collateralized debt obligations who may now ask whether their investments were tainted by the type of conflict of interest allegedly involved in the Goldman transaction.

Mr. LaCroix, an attorney and author of the "D&O Diary" blog (www.dandodiary.com/), expressed similar concerns in an April 19 entry, which links to a description of an ongoing case against Merrill Lynch with like allegations.

"Up to now, it seemed as if new filings from the credit crisis were dwindling," Mr. LaCroix said, referring to his own counts and to an analysis from Advisen reporting only one suit related to the credit crisis case in first-quarter 2010.

"One question in my mind is whether the accusations against Goldman, taken together with the recent examiner's report on the Lehman bankruptcy and revelations on Capitol Hill [during hearings over the last two weeks] will hearten prospective plaintiffs," he said. "Will they somewhat change the dynamic and counterbalance the skepticism some judges have shown for this type of litigation?"

Yesterday, a group of institutional investors updated an earlier securities fraud action against Lehman, incorporating information from the report issued in March by Anton Valukas, the court-appointed examiner in the Lehman bankruptcy.

In addition to bolstering the complaint with information on repurchase and sale transactions that were allegedly used to move temporary assets on and off of Lehman financial statements, the amended complaint adds Lehman's former auditor Ernst & Young as a defendant.

As to the impact of all this on D&O insurance prices, Mr. LaCroix said, "From where I sit today, I don't see any evidence that anything is going to change. The D&O industry in general right now is competitive and there is ample capacity, [with] numerous markets generally willing to quote basically any risk."