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A record 268 securities class actions were filed in 2019, a 20% increase from 2018, and policyholders can expect high directors and officers liability insurance premium costs to continue, said Woodruff Sawyer & Co. in a report issued Wednesday.
The 268 suits were filed against 240 companies, with 25 of these firms sued twice, and two that were sued three times in both state and federal courts, according to the San Francisco-based broker’s D&O DataBox report.
The report says the increase in parallel filings is the result of the U.S. Supreme Court’s March 2018 ruling in Cyan Inc. et al. v. Beaver County Retirement Fund et. al., which held securities offerings litigation can be heard in state court in addition to federal court.
“The data confirm the concerns that the insurance industry has had about plaintiffs being able to access the wider arena now available to them in state courts while also continuing to be able to avail themselves of the federal courts,” says the report. “The elevated costs of a company having to defend suits in several courts is now the new ‘normal.’”
The report says technology and biotechnology industries continue to lead by industry, accounting for 51% of all cases filed in 2019. As in previous years, most cases are filed against mature, public companies rather than against firms that have issued initial public offerings, according to the report.
The report says, “Unless there is some relief in the courts and/or legislatures to blunt the impact of the Cyan decision, and the entrance into the D&O insurance market of more capacity, we expect to see a continuation of the high D&O premium costs for public company issues suffered I 32019,” said the report.
“Given the limited underwriting capacity in the D&O market today…there is a very low probability that companies will see any relief in their premium costs in the near future, and certainly not in 2020,” said the report.
Bolstered by five “mega” settlements, total dollars in securities class action settlements increased to $5.06 billion in 2018 compared with $1.5 billion in 2017, says Cornerstone Research Inc., in a report issued Tuesday.