A recurring question – one that I am getting now on just about a daily basis – arises from concerns about the Trump administration’s possible impact on the world of directors’ and officers’ liability. Implicit in the question is the assumption that the new administration’s policies and actions will indeed affect D&O claims. While I agree with this assumption – that the new administration’s actions will have an impact–at this point it is still far too early to tell what that impact might be. For now, I think all we can do is watch some key indicators. In this blog post, I review what I think are the key indicators, and what the indicators may tell us about what lies ahead for D&O claims. Continue Reading How Will the Trump Administration Affect D&O Claims?
The Liability Exposures of Directors and Officers of Pre-IPO Companies
When private companies are on track toward a planned IPO, much of the focus and attention is on readying the company for the burdens and responsibilities it will face as a public company. Among other things, this also means a focus on the potential liability exposures for the company and its directors and offices once the company goes public. Until the company actually completes its planned offering, however, it is still a private company — albeit one with a heightened set of risk exposures because of the company’s pre-IPO activities. If the planned IPO never happens, the company and its senior officials sometimes face liability claims arising from pre-IPO activities. A recent complaint filed in the Northern District of California against the former directors and officers of a pre-IPO company that ultimately went bankrupt illustrates the kind of claims pre-IPO companies and their executives can face. Pre-IPO companies’ liability exposures have important implications for the companies’ D&O insurance programs, as discussed below. Continue Reading The Liability Exposures of Directors and Officers of Pre-IPO Companies
Fifth Circuit Rejects Hospital’s Argument that Defense Expense Does Not Erode the Limits of Liability
Most management liability insurance policies are written on a defense-costs-inside-the-limits basis, meaning that covered defense costs erode the limits of liability as the expenses are incurred. Though this is a well-established arrangement within the industry for this type of insurance, the erosion of limits by defense expenses sometimes comes as an unwelcome surprise to a policyholder, usually in the middle of a serious claim. A recent federal appellate case involved an effort by a community hospital system in Mississippi to try to argue that its expenses incurred in defending an underlying claim did not erode the limits of its management liability insurance policy.
In a March 1, 2017 opinion (here), the Fifth Circuit, applying Mississippi law, rejected the hospital system’s arguments and held that under the terms of the policy, the system’s expenses defending the underlying claim did erode the applicable policy limits. While the Fifth Circuit’s conclusion in that regard arguably is unremarkable, it does provide an opportunity to step back and consider the limits erosion feature of these kinds of policies. Continue Reading Fifth Circuit Rejects Hospital’s Argument that Defense Expense Does Not Erode the Limits of Liability
Book Review: Directors & Officers Liability Insurance Deskbook
Those of us involved in the world of D&O liability insurance are well aware that the coverage issues often are technical and the relevant legal principles can change quickly as a result of evolving case law. It would be valuable for practitioners in this area to have access to a reliable resource where the key principles are described and where the key case law authority can quickly be located. Fortunately, there is such a resource. It is the “Directors & Officers Liability Deskbook” (about which refer here), an American Bar Association publication written and edited by attorneys from the Sedgwick law firm. The book’s recently published Fourth Edition is a timely update. Every D&O liability insurance practitioner and indeed anyone looking for a quick and ready resource on D&O liability insurance coverage issuers will welcome this updated edition. Continue Reading Book Review: Directors & Officers Liability Insurance Deskbook
Guest Post: President Trump, Let’s Strengthen the SEC
Among the many concerns in the early days of the new Presidency is the question of what we can expect from the SEC in the new administration. In the following guest post, Blair Nicholas and David Kaplan of the Bernstein Litowitz Berger & Grossman law firm advocate that the SEC take an aggressive approach to securities enforcement, and they have a specific proposal to advance that approach. A version of this article previously appeared in the National Law Journal. I would like to thank Blair and David for their willingness to publish their article on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Blair and David’s guest post. Continue Reading Guest Post: President Trump, Let’s Strengthen the SEC
Guest Post: Post-Morrison Application of U.S. Securities Laws to Foreign Issuers
In its June 2010 decision in Morrison v. National Australia Bank, the U.S. Supreme Court held that the U.S. securities laws do not apply extraterritorially. Since then, the lower U.S. federal district courts have struggled with applying Morrison in securities lawsuits involving foreign issuers. A host of recent U.S. lawsuits involving high-profile foreign companies has highlighted the important questions that can arise under Morrison. In the following guest post, David Topol and Margaret Thomas of the Wiley Rein law firm survey the post-Morrison case law, particularly as relates to lawsuits filed in U.S. courts under U.S. securities laws against companies domiciled outside the U.S. I would like to thank David and Maggie for their willingness to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is David and Maggie’s guest post. Continue Reading Guest Post: Post-Morrison Application of U.S. Securities Laws to Foreign Issuers
D&O Insurance: Over Two-Year Notice Delay Does Not Bar Coverage Where Delay Did not Cause Prejudice
As anyone involved in the liability insurance claims knows, late notice of claim is a recurring problem. When policyholders’ notice of claim is late, liability insurers will often contend that the late notice precludes coverage. However, many jurisdictions have a so-called “notice prejudice” rule, specifying that insurers can deny coverage for late notice only if the late provision of the notice prejudiced the insurer. One of the states imposing the notice prejudice rule is Maryland, where the rule is statutory. Even where the notice prejudice rule applies, there is still the question of what must be shown in order for the rule to apply.
A January 27, 2017 decision by the Maryland Court of Appeals (the state’s highest court), held that a non-profit organization D&O insurer was not prejudiced by, and therefore could not deny coverage for, the policyholder’s two-and-a-half year delay in providing notice of claim, where the underlying lawsuit had been stayed almost the entire time and where the insurer could not have done anything to avoid the adverse factual determinations in a related but separate proceeding. The court’s ruling underscores the importance of the notice prejudice rule in protecting policyholder’s rights under liability insurance policies. The Maryland Court of Appeals’ opinion in the case can be found here. A February 6, 2017 post about the court’s ruling on the Hunton & Williams law firm’s Insurance Recovery Blog can be found here. Continue Reading D&O Insurance: Over Two-Year Notice Delay Does Not Bar Coverage Where Delay Did not Cause Prejudice
A Weekend in Wellington
The final stop on The D&O Diary’s Asia Pacific tour was in Wellington, New Zealand, for a weekend visit and a quick day of Monday meetings, before heading home. Wellington is New Zealand’s capital city, located at the Southwestern tip of the country’s North Island. At 41 degrees southern latitude, the country is roughly about as far south as New York is north. Interestingly, Wellington is the southernmost capital city in the world. The city’s beautiful harbor is ringed by mountains; Mount Victoria rises above the city’s central business district. Continue Reading A Weekend in Wellington
A “Tidal Wave of Change” in Merger Objection Litigation
In response to concerns that virtually every merger transaction was attracting at least one lawsuit, Delaware’s legislature and judiciary acted to try to cut down on the merger objection litigation in the state’s courts. In 2015, Delaware’s legislature adopted a provision expressly allowing corporations organized under the state’s law to adopt bylaw provisions designating Delaware’s courts as the exclusive forum for shareholder disputes. Delaware’s courts, in a series of decisions culminating in Chancellor Bouchard’s January 2016 decision in Trulia, made it clear that in most cases the courts will no longer support the kind of disclosure-only settlements by which these cases frequently were resolved.
But what has the impact of these changes been? That is the subject of a February 23, 2017 paper entitled “The Shifting Tides of Merger Litigation” (here) written by Matthew Cain of the SEC; U. Penn. Law Professor Jill Fisch; U.Cal. Berkeley Law Professor Steven Davidoff Solomon; and Vanderbilt Law Professor Randall Thomas. The authors conclude that there has been “a tidal wave of change in the merger objection litigation industry.” Continue Reading A “Tidal Wave of Change” in Merger Objection Litigation
Brazilian Corruption Scandal Leads to Liability Exposures in Other Latin American Countries
The massive Petrobras bribery scandal has long since spread beyond just the Brazilian petroleum company itself to encompass a number of different other companies. As I have previously noted on this blog, many of the Brazilian companies caught up in these investigations have been hit with securities class action lawsuits in the U.S. Among the companies caught up in the growing anti-corruption scandal is the Brazilian-based multinational construction company, Odebrecht. Investigations based on the Odebrecht scandal having now spread to companies in other Latin American countries, including, among others, Peru. As discussed below, plaintiffs’ lawyers have now filed a U.S. securities class action lawsuit against one of the Peruvian companies caught up in the Odebrecht scandal, showing that the potential fallout from the corruption investigation that began in Brazil now represents a significant liability risk exposure for companies and their executives throughout Latin America. Continue Reading Brazilian Corruption Scandal Leads to Liability Exposures in Other Latin American Countries