Merger Objection Suits: A Threat to Primary D&O Insurers?
The number of security class action lawsuits filed in 2010 was lower than the 2009 total, yet the total number of securities-related lawsuits filed increased from 1,171 in 2009 to 1,196 in 2010. As the number of securities class action suits fell, suits filed in both state and federal courts alleging breach of fiduciary duties by corporate directors increased to fill the void. Most of these suits were so-called merger objection suits, filed by displeased shareholders of companies that had been, or were in the course of being, acquired.
The number of merger objection lawsuits filed skyrocketed in recent years, even as the number of mergers and acquisitions plummeted during the Great Recession. Most often these suits seek injunctive relief rather than monetary damages, but the plaintiff's attorney fees typically are included in settlements. Thus far these suits have not posed a significant challenge to D&O insurers, but the sheer volume of suits, plus the fact that a single M&A transaction can trigger suits in multiple jurisdictions, suggest they increasingly will have an impact on primary and first excess D&O underwriting and pricing.