A report on securities litigation cases filed in 2009 contains good news for directors and officers liability insurance purchasers, observers say.

The number of securities fraud lawsuits filed in 2009 fell 24% from 2008, Cornerstone Research and the Stanford University Law School Securities Class Action Clearinghouse said last week in the annual review of filings. Claimants filed 169 federal class action suits last year vs. 223 in 2008.

Securities litigation filed in 2009 also was 14% lower than the average of 197 cases between 1997 and 2008, the report states. The decrease reflects a drop in stock market volatility and winding down of the subprime and credit crises, leaving plaintiffs fewer financial entities to sue, the researchers said.

Many directors and officers liability insurance observers have been looking for a market turn to set off an increase in insurance pricing, said Kevin LaCroix, a Beachwood, Ohio-based partner with executive liability intermediary OakBridge Insurance Services L.L.C.

However, “there is certainly nothing in the 2009 filing numbers that would trigger the turn,” Mr. Lacroix said.

“This is great news for consumers of D&O insurance,” said Steve Shappell, managing director in Denver for Aon Financial Services Group. “There is not enough (evidence) here for the market to harden. If anything, it's for the market to continue to be soft.”

Not only did the number of filings tracked by the report fall, but several filings that Stanford and Cornerstone researchers counted are not actually against directors and officers, Mr. Shappell said.

The report, for example, includes several auction rate securities lawsuits.

Although such suits are securities class actions, they are against the sellers of auction rate securities and not directors and officers, Mr. Shappell said.

The losses alleged, measured in disclosure dollar losses, also fell dramatically in 2009, dropping 62% from the prior year to $83 billion, Mr. Shappell said.

Disclosure dollar loss is the dollar value change in the defendant firm's market capitalization between the trading day immediately before the end of the class period and the trading day immediately after the end of the class period.

The overall decline in D&O legal action will help insurers price aggressively in a bid for greater market share, Mr. Shappell said. “The numbers support that behavior,” he said.

For now, there are no foreseeable trends that would cause a reversal in the falloff of filed securities cases, said Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse.

But spikes in securities litigation typically are unpredictable.

“There tend to be shocks that are unpredictable” Mr. Grundfest said. “If I knew what the next shock was going to be, I would be a much richer man than I am now. That is why there is insurance.”

Credit crisis-related litigation fell 47% in 2009, according to the report, Securities Class Action Filings 2009: A Year in Review.

There were 53 credit-related cases in 2009 and only 17 during the second half of the year. In contrast, plaintiffs filed 100 credit crisis-related filings in 2008.

While credit crisis-related filings fell off during the second half of 2009, there was a simultaneous increase in the number of lawsuits filed long after the alleged wrongdoing.

The median filing lag during the second half of 2009 reached 100 days, which is more than three times the historical average, the report states.

That suggests that plaintiff law firms are attempting to fill the litigation pipeline with older, lower-quality lawsuits that weren't attractive enough to file when they were busy suing financial firms, researchers said.

Historically, the more time between an event and the class action filing, the higher the rate of dismissal.

The report specifically mentioned the law firm of Coughlin Stoia Geller Rudman & Robbins L.L.P. for its prominence in filing delayed class actions.

The report is available online at: http://securities.stanford.edu/clearinghouse_research/2009_YIR/Cornerstone_Research_Filings_2009_YIR.pdf.