The U.S. Supreme Court is expected to rule that the U.S. Securities and Exchange Commission is limited to a five-year period to recover funds that were deemed illegally obtained, based on last week’s oral arguments, experts say.

They say such a ruling by the high court in Charles Kokesh v. Securities and Exchange Commission will provide more certainty to directors and officers liability insurers, and their policyholders in turn, in setting rates, as well as help limit investigation costs.

“If the Supreme Court applies the statute of limitations, that would definitely put it in the category of good news,” said Joseph Monteleone, an insurer attorney with Rivkin & Radler L.L.P. In Hackensack, New Jersey.

But despite the line of questioning from both the liberal and conservative wings of the court that suggests they will rule in Mr. Kokesh’s favor, these experts also warn the high court has been known to surprise observers. A decision is expected around June.

The SEC had charged Mr. Kokesh with misappropriating funds from four business development companies in violation of federal securities laws from 1995 through 2006.

Following a jury trial, in 2014 the U.S. District Court in Las Cruces, New Mexico, ordered the disgorgement of $34.9 million plus prejudgment interest of $18.1 million and imposed a $2.4 million civil penalty.

In August 2016, the 10th U. S. Circuit Court of Appeals in Denver held the SEC was not subject to a five-year statute of limitations, and Mr. Kokesh appealed.

However, in May 2016 a three-judge panel of the 11th U.S. Circuit Court of Appeals in Atlanta had issued a contradictory opinion in Securities and Exchange Commission v. Barry J. Graham, in a case involving the sale of condominiums, which set up an appellate conflict that led to the U.S. Supreme Court agreeing to hear the Kokesh case.

“There were several justices of the court who seemed concerned about whether there’s even a statutory authority for the SEC’s request for disgorgement in the first place,” said Michael J. Dell, a partner with Kramer Levin Naftalis & Frankel L.L.P. in New York.  “They specifically asked for statutory authority, and the government lawyer was unable to point to that.”

A large number of the justices “seemed to suggest that there’s a potential for abuse where there’s a remedy that Congress hasn’t authorized and at the same time isn’t subject to any limitation period, which most claims under the securities law are subject to,” said Daniel W. McCaughey, a partner with law firm Ropes & Gray L.L.P. in Boston.

In addition, justices “seemed very interested in the fact the government has taken different positions on how to treat disgorgement claims in different contexts,” Mr. McCaughey said.

A ruling in Mr. Kokesh’s favor will benefit both D&O insurers and policyholders, these experts say.  “To the extent it removes an area for potential claims from the SEC, it’s going to reduce the exposure both of directors and officers and for insurance companies,” said Mr. Dell.

It will give insurers “a greater understanding of what their potential exposures are with regard to the insureds” and enables them to better evaluate the risk of claims, “particularly where large sums of money are raised” or an employee is being subject to some kind of finding, said Kenneth Yeadon, a partner with Hinshaw & Culbertson L.L.P. in Chicago.

A favorable ruling puts “a more defined time limit on the scope of an investigation and burden on an individual or company in responding to an investigation, and related expenses,” said Mr. McCaughey.  It will also impact insurers, because investigation costs are often insurable, he said.

“Insurers like to close their books on loss years as quickly as possible, and knowing there could be securities-related litigation and a large disgorgement-type remedy hanging out there for an indefinite period of time doesn’t give the insurance actuaries very much comfort,” said Mr. Monteleone.

Similarly, company directors and officers “like to know they have these issues behind them after a passage of time, “he said.

Mr. Monteleone also said that while disgorgement may be excluded in D&O policies, in many cases these exclusions do not apply until there is a final adjudication, so if a case ends in settlement they may not apply.

“If you can’t rely on your disgorgement exclusion then you could be on the hook for a dispute that invokes conduct going back many years,” but that would not be the case if there were a statute of limitations, he said.

However, Peter M. Gillon, a partner with Pillsbury Winthrop Shaw Pittman L.L.P. in Washington, said he does not believe a Supreme Court ruling in this case will have a major impact on D&O insurance. Insurers will “still argue that disgorgement remedies are not insurable,” regardless of the statute of limitations, he said.