The directors’ and officers’ liability environment is always changing, but 2021 was a particularly eventful year, with important consequences for the D&O insurance marketplace. The past year’s many developments also have significant implications for what may lie ahead in 2022 – and possibly for years to come. I have set out below the Top Ten D&O Stories of 2021, with a focus on the future implications. Please note that on Thursday, January 13, 2022 at 11:00 AM EST, my colleague Marissa Streckfus and I will be conducting a free, hour-long webinar in which we will discuss The Top Ten D&O Stories of 2021. Registration for the webinar can be found here. I hope you will please join us for the webinar.
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What to Watch Now in the World of D&O
Every year after Labor Day, I take a step back and survey the most important current trends and developments in the world of Directors’ and Officers’ liability and insurance. This year’s review is set out below. As the following discussion shows, this is a particularly eventful time in the world of D&O.
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Sexual Discrimination and Harassment Allegations Lead to Securities Suit
Over the last few years, I have posted numerous items citing examples were sexual misconduct allegations or a hostile workplace environment have led to D&O claims. Many of these kinds of suits followed in the wake of the #MeToo movement. The fact that these kinds of allegations can lead to D&O claims is well understood in the D&O insurance industry. However, I know from recent conversations that some in the industry believe that the risk of these kinds of D&O claims has diminished as the #MeToo movement has evolved. However, recent events at the gaming company Activision Blizzard shows that unfortunately the kinds of underlying allegations that have led to claims are not a thing of the past; as discussed below, Activision Blizzard has now been hit with a securities suit based on underlying sexual misconduct and discrimination allegations.
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L Brands Establishes $90 Million Fund in Sexual Misconduct Derivative Suit Settlement
Among the companies with D&O litigation in recent years arising from sexual misconduct allegations was the clothing and consumer products company L Brands. The parties to the various legal proceedings arising out of the allegations have reached a settlement in which L Brands has agreed to adopt a number of management and governance measures; in order to fund these initiatives, the company has committed to funding of $90 million over the course of five years. As discussed below, the settlement has several interesting features. The parties’ July 30, 2021 stipulation of settlement can be found here.
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Alphabet Establishes $310 Million Fund in Google Sexual Misconduct Lawsuit Settlement
In a derivative lawsuit settlement with one of the highest nominal dollar values ever – and in what is one of the largest #MeToo-related D&O lawsuit settlement ever – Google parent Alphabet has agreed to establish a $310 million diversity, equity, and inclusion fund as part of the settlement of the consolidated derivative litigation relating to the company’s alleged mishandling of sexual harassment allegations against senior executives and the company’s alleged overall culture of sexual discrimination and harassment. The company also agreed to adopt extensive reforms to its employment policies and to implement a number of governance reform measures as part of the settlement. The settlement is subject to court approval.
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Thinking About McDonald’s Lawsuit Against its Former CEO
The news that McDonald’s had filed a lawsuit against its former CEO, Stephen Easterbrook, to recoup severance compensation the company had paid Easterbrook, made the front page of the Wall Street Journal. The company contends that Easterbrook had only been terminated last November “without cause” – entitling him to a full severance package – because he had lied to investigators about the nature and extent of his relationship with company employees. The lawsuit contends — based on evidence of three additional sexual relationships Easterbrook had with company employees that only came to light this summer — that Easterbrook should have been terminated for cause. As discussed below, the lawsuit raises a number of interesting issues. A copy of the company’s August 10, 2020 filing on Form 8-K about the lawsuit can be found here, and a copy of the complaint, which was attached to the 8-K, can be found here.
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Dismissal Motion Granted in Wynn Resorts #MeToo-Related Securities Suit
On May 27, 2020, in the latest #MeToo-related securities class action lawsuit to fail to survive initial pleading hurdles, Judge Gloria M. Navarro granted the defendants’ motion to dismiss the securities suit filed against Wynn Resorts based on allegations that the company had failed to disclose sexual misconduct of its former CEO, Stephen Wynn. The ruling joins several other recent dismissal rulings in #MeToo-related securities suits – although, as noted below, there have also been several noteworthy settlements in #MeToo suits as well. A copy of Judge Navarro’s opinion can be found here.
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Signet Jewelers Settles #MeToo-Related Securities Suit for $240 Million
In yet another significant #MeToo-related development, the parties to the Signet Jewelers securities class action lawsuit have agreed to settle the case for $240 million. There are a number of interesting features to the settlement, as discussed below; among other things, over $200 million of the settlement amount is to be funded by insurance. The settlement is subject to court approval. The plaintiff’s March 26, 2020 letter to the court regarding the settlement can be found here. The parties’ stipulation of settlement can be found here.
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Papa John’s #MeToo-Related Securities Suit Dismissed, For Now
Among the numerous companies hit with #MeToo-related management liability lawsuits in the late 2017 to early 2019 time frame was the national pizza restaurant company Papa John’s International Inc. The plaintiffs in the securities class action lawsuit alleged that company founder and former CEO John Schnatter and other executives sexually harassed company employees and cultivated a hostile workplace culture while the company misleadingly touted the Company’s culture and failed to divulge the true conditions to investors. The defendants’ moved to dismiss. In a March 16, 2020 order, Southern District of New York Judge Kimba Wood granted motion to dismiss, with leave to amend. Judge Wood’s order can be found here.
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Guest Post: Potential D&O Risks Arising from Corporate Social Responsibility
The long-standing and traditional view is that corporations’ objectives should be to maximize shareholder value. More recently, a variety of commentators and observers have argued that corporations have larger social responsibilities. However, as discussed in the following guest post from Eric C. Scheiner and Jennifer Quinn Broda, efforts by companies to fulfil corporate social responsibilities may involve their own risks and even result in D&O claims. By the same token, failing to take action could result in claims as well. These trends have important implications for insurers and for policyholders alike. Eric is a Partner and Jennifer is Of Counsel in the Chicago office of Kennedys. I would like to thank Eric and Jennifer for allowing me 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 blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Eric’s and Jennifer’s article.
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