Woodruff Sawyer’s Mid-Year Databox Report: Security Class Action Lawsuits Steady, Settlements Way UP

Mid-To-Large Cap Companies Bear the Brunt of the Plaintiffs’ Bar

San Francisco, CA – July 25 – Woodruff Sawyer’s 2023 Mid-Year Databox Report, tracking Securities Class Action (SCA) lawsuits, highlights an intriguing trend. Current economic conditions have dramatically slowed the pace of IPOs, SPAC IPOs, and de-SPAC activity—popular sources of litigation for the plaintiffs’ bar. However, SCA filings have increased slightly in the first half of the year and settlements, clocking in at $2.1B (excluding Wells Fargo’s recent $1B settlement) are the highest they have been in a decade.

Excluding the $1 billion settlement by Wells Fargo & Company, the remaining top nine settlements comprised 67% of total settlement dollars ($1.4 billion). The average time to settlement for those cases was 4.1 years.

Why are settlements so large? Priya Huskins, Senior VP, Management Liability, explains, “Some of these settlements represent years of litigation, and it is usually the case that the longer a case takes to settle, the higher the settlement amount. We’re also seeing settlements surpassing dismissals. With over 450 cases yet to be resolved, we anticipate that this be another expensive year for settlements. Unsurprisingly, insurance underwriters are watching closely.”

As far as the impact on the cost of D&O insurance, which typically pays settlement costs, younger public companies are enjoying reduced D&O premiums compared to the very high rates they were paying in 2020 and 2021. Mid-to large-cap companies are not seeing the same rate of rate reductions, but then again, they also experienced much less severe increases during the D&O hard market.

Huskins cautions, “Insurance risk management is an inherently cyclical business—the uncertainty in the frequency and severity of losses creates hard and soft market cycles. Don’t forget that the systemic unpredictability due to macro socio-political factors can further impact those cycles. However, today, if you’re not seeing savings in the cost of your D&O insurance, you should contact your broker to explore possible options.”