The Role of Directors’ and Officers’ Insurance in Securities Fraud Class Action Settlements
Because of previous data unavailability, it is unclear how important directors’ and officers’ (D&O) insurance is in securities fraud class action settlements. Using a unique data set of US D&O policies, we find that D&O insurance coverage is a less significant determinant of settlement amounts than estimated damages and proxies for the merits of cases. Limits on D&O insurance are related to settlements in only the weakest cases (those without allegations of accounting violations or institutional lead plaintiffs) where proxies for cases’ merits play a minimal role. Our findings suggest that most securities fraud class action settlements are meritorious and that accounting-related cases are a reasonable proxy for fraud.
Donelson, Dain C.; Hopkins, Justin J.; and Yust, Christopher G.
"The Role of Directors’ and Officers’ Insurance in Securities Fraud Class Action Settlements,"
Journal of Law and Economics: Vol. 58:
4, Article 1.
Available at: https://chicagounbound.uchicago.edu/jle/vol58/iss4/1