A 14-year low in the number of securities-class-action settlements last year has not dampened plaintiff attorneys' enthusiasm regarding the probability of future directors and officers litigation to keep them employed.
"Everyone feels there is a lull, but Wall Street never fails to surprise me," says Lawrence Sucharow, attorney for the law firm Labaton Sucharow LLP. "Unless greed is gone, I know where my next meal is coming from."
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The lull Sucharow referred to was outlined in a report from Cornerstone Research that says there were 53-court approved settlements in 2012, an 18 percent decline compared to 2011, and a decline of more than 45 percent from the 10-year average from 2002 through 2011.
The report, Securities Class Action Settlements—2012 Review and Analysis, notes that the decline in settlements does not correlate to a decline in settlement amounts. Indeed, the settlement amounts increased by more than 100 percent in 2012 with the number of mega-settlements in excess of $100 million making up close to 75 percent of settlement dollars in the year. The average reported settlement climbed from $21.6 million in 2011 to $54.7 million in 2012.
Speaking during the 10th annual Anderson Kill & Olick D&O Conference last week in New York, Sucharow said there are a number of reasons for the increase in the settlement dollars. The law firms have expanded their securities-litigation expertise to include accountants and other experts charged with the responsibility of unearthing evidence of malfeasance.
Additionally, he said the Private Securities Litigation Reform Act has changed the nature of lawsuits filed against institutions. The 1995 law effectively banned litigants from bringing frivolous lawsuits for purposes of discovery.
"It doesn't pay to bring a bad case; it gets thrown out," said Sucharow.
Another important factor is the plaintiffs themselves—large institutional investors. Sucharow said these investor groups are comprised of very sophisticated, highly educated and motivated people who "hire us to get more" in the settlement.
In contrast to Sucharow's adversarial view, Leigh R. Lasky, an attorney with Lasky & Rifkind Ltd., said the two sides should be taking a step back and toning down the rhetoric and work to resolve their differences without going to trial.
"When the parities begin talking, good things happen and the case gets settled," said Lasky.
Giving the D&O insurer notice about settlement talks as early as possible and keeping them informed is vital, said Joshua Gold, attorney with Anderson Kill & Olick. He said including the insurer in the discussions is a "huge issue" that could be the difference between success and failure to making a settlement. While giving notice is not a guarantee the insurer will agree to pay, not sending notice and settlement decisions in writing could violate clauses in the policy, leading to denial of coverage.
As far as the D&O insurance market is concerned, Alliant Insurance Services Inc. Executive Vice President Fred T. Podolsky,, speaking during the insurance brokers' conference segment, said pricing trends are beginning to harden after 10 years of soft-market decreases. Primary-coverage rates could be up as high as 15 percent. On the excess side, prices are highly dependent on losses, but are generally decreasing.
Andrew J. Doherty, senior vice president for FINEX North America, Willis Americas, said much of the rate increases on primary coverage can be traced to the number of carriers offering coverage, which he put at around 10. Whereas, on the excess layers, competition is pulling rates down, with 25 to 35 carriers playing in this line.
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