The Role of Directors’ and Officers’ Insurance in Securities Fraud Class Action Settlements

Authors

Dain C. DonelsonFollow
Justin J. HopkinsFollow
Christopher G. YustFollow

Start Page

747

Abstract

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.

Recommended Citation

Donelson, Dain C.; Hopkins, Justin J.; and Yust, Christopher G. (2015) "The Role of Directors’ and Officers’ Insurance in Securities Fraud Class Action Settlements," Journal of Law and Economics: Vol. 58: No. 4, Article 1.
Available at: https://chicagounbound.uchicago.edu/jle/vol58/iss4/1