Directors and officers (D&O) liability insurance has always been an important tool to protect public companies and their management against claims by shareholders for violations of the securities laws, including claims for inadequate disclosures in public filings and allegations of securities fraud. D&O insurance, however, is becoming increasingly challenging to purchase and maintain. Premiums and deductibles have been increasing, sometimes dramatically, and some insurers are cutting back on the number of companies they insure, causing the supply of insurance to lag behind demand. This alert looks at this current “hardening” D&O insurance market and suggests key steps that clients can take to mitigate its negative consequences.

What is Causing the Hardening Market?

Insurers are reporting that they have seen record numbers of securities claims over the last several years [1] and a related record number of payouts under their policies. Insurers point to factors such as a significant number of IPOs in recent years that have attracted securities litigation, including in state court. (The ability of shareholders to sue in state court on offering prospectus claims has come as a result of a 2018 Supreme Court case, Cyan). Other factors cited by insurers include increased settlement values, [2] litigation caused by adverse events such as cyber-attacks, weather or product liability claims (referred to as “event-driven” litigation) and a growing number of plaintiff shareholder law firms eager to bring claims.

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