Dive Brief:

• The cost of directors and officers insurance for public companies is expected to stay the same or drop slightly in 2024, making this a good time to increase coverage for next year after under-buying for the last few years, research by Woodruff Sawyer shows.
• “Companies may want to take advantage of the moment and right-size their insurance,” says Priya Huskins, senior vice president for management liability at the insurance brokerage and consulting firm.
• A change in coverage strategy might be needed, the research shows, because companies generally appear to underestimate their litigation risk going into 2024. Almost 80% of underwriters think companies are underestimating the frequency and cost of litigation they face at a time when the risk environment is poised to get worse.

Dive Insight:

Based on its survey of 40 insurance carriers, the Woodruff Sawyer research expects the number of securities class actions to rise to 190 cases by the end of the year, 13% more than in 2022. 

The insurance carriers also expect a big jump in settlement amounts. In just the first half of this year, settlements totaled $3.1 billion, well above the $2.4 billion in all of 2022.  

“Settlements … are setting records,” the report says. “Taken together, these are … signs that the current soft market for D&O insurance may be relatively short-lived.” 

Fewer duplicative cases

There are some positive trends. Among others, companies’ efforts to reduce duplicative fiduciary duty litigation by adopting state choice of forum provisions in their bylaws have been successful, the research finds. The success is due in part to the Ninth Circuit Federal Court of Appeals agreeing earlier this year it was improper for shareholders to bring claims alleging violations of federal securities law by filing derivative fiduciary duty suits in federal court. 

The key case involved Gap, the big clothing retailer, which had a choice of forum provision in its bylaws. That provision prompted dismissal of the case in the lower court, which the appellate court upheld. 

The Seventh Circuit Court came to a different conclusion in another case, but analysts following the legal issue say the Ninth Circuit got the law right and is likely to be affirmed by the Supreme Court should the case make it that far, according to the report. 

Right-sizing coverage

As part of an effort to rethink your coverage while the market remains relatively soft, make sure you start making inquiries early so you’re in the best position to negotiate, Susan Milner, senior vice president of management liability at Woodruff Sawyer, said in the report. 

“Carriers are hungry and will absolutely compete on coverage as well as price,” she said. 

Among the coverage improvements you can ask for is an extension of your coverage to Section 220 books and records demands, she said. These discovery demands tend to be precursors to litigation, so you want to get these covered if your current policy doesn’t include them.

“Ask whether your coverage is structured as full policy limit excess of the retention, or a first dollar submit,” she said. “If the latter, ask if excess layers supply additional limit on a drop-down basis.”

Bottom line, although insurers are willing to negotiate on coverage and pricing going into 2024, how long the soft market will last isn’t clear. For that reason, use the next few months to look into improving your coverage game plan by seeing which carriers are prepared to compete on terms, like coverage extensions to risks like Section 220 demands.