Aon Financial Services Group (FSG) is pleased to present its twelfth annual Year in Review publication. In 2015, FSG tracked executive liability exposures, which included developments at the SEC, the United States Supreme Court decision in Omnicare, mergers & acquisitions related activity and the continued trend surrounding data breach and other “cyber” related exposures.
In September 2015, the United States Department of Justice issued what is now referred to as the “Yates Memorandum,” in which Deputy Attorney General Sally Yates addressed the Department’s policy and commitment to targeting individuals. The Department specified that for a company to receive cooperation credit in an investigation, it must provide information regarding individuals who may have been involved in the alleged misconduct. This has raised concerns about the availability of indemnification for those individuals, and consequently, makes the structure of a Side A D&O insurance program all the more critical.
The State of Delaware saw new developments, both in court and at the legislature. In the area of mergers and acquisitions, the chancellors of the Delaware Chancery Court spoke out against the approval of certain “disclosure-only” settlements. Vice Chancellor Laster noted that merger objection litigation was a “systemic” problem, and, in at least one instance (Aruba Networks), rejected the settlement and dismissed the case. The Delaware legislature, reacting to calls for a “loser pays” rule, passed legislation that prohibits a Delaware stock corporation from adopting bylaws that shift the fees to the “loser” in shareholder litigation.
The Supreme Court issued its opinion in the much anticipated Omnicare case that addressed the question of federal securities liability for statements of opinion set forth in offering documents. It held that an issuer may be liable for a statement of opinion in a registration statement if it does not genuinely hold the opinion, or, if a fact that supports the opinion is itself materially false or misleading. Because a registration statement is implicated in IPO-related litigation, this may be an important consideration for plaintiffs’ attorneys going forward.
Because of the increased number of IPOs, there are now more IPO-related securities lawsuits. Also too, the number of cases brought against foreign defendants continues to increase. The total number of fillings is at its 15 year average (having been lower in the several preceding years), totaling 189 for 2015, according to the Cornerstone 2015 year-end study. The settlement averages are declining, however, in part, due to the size of the companies that are being sued. As more litigation involves smaller companies, the settlement values also decline.
In terms of litigation, the courts continue to be active in coverage litigation, addressing questions of notice and interrelatedness. The courts have begun to interpret “cyber” policies, as well as weigh in on coverage for privacy or data breach incidents on other types of policies. The courts are also analyzing coverage for “social engineering” events and losses under commercial crime policies and financial institution bonds.
Finally, no summary of 2015 would be complete without mentioning the continued focus on cyber-related litigation and exposures. While there have been few D&O cases arising from or related to a breach, there continue to be lawsuits from affected consumers, financial institutions, and regulators.
There have been mixed results with respect to an individuals’ standing to sue, based on the threat of actual harm, and an important case is now before the Supreme Court, Spokeo, Inc. v. Robins, which could affect standing in numerous data breach and other cases where the prospect of future harm is a basis for standing.
We hope you enjoy the 2015 Year in Review. As always, we look forward to advising on the events and trends in 2016. Thank you for your interest and support.
Robbyn Reichman, Esq.
Jacqueline Waters Urban, Esq.