The Role of D&O Insurance in Securities Class Actions: From Triggering Events to Claims Resolution

The Role of D&O Insurance in Securities Class Actions: From Triggering Events to Claims Resolution
August 22, 2025 8 mins

The Role of D&O Insurance in Securities Class Actions: From Triggering Events to Claims Resolution

The Role of DO Insurance in Securities Class Actions From Triggering Events to Claims Resolution

For public companies and their executives, facing a Securities Class Action (SCA) can be an overwhelming and unprecedented time. While the stakes are high, the procedural roadmap of an SCA typically follows a consistent trajectory.

Key Takeaways
  1. Significant events like earnings restatements or fraud allegations often trigger SCAs, leading to a drop in a company's stock price.
  2. The litigation process includes crucial stages such as the plaintiffs submitting a consolidated amended complaint, followed by the defendants filing a motion to dismiss.
  3. Most SCAs typically last 2-5 years and are settled before reaching trial. Structuring a directors and officers (D&O) insurance program is vital to safeguard business leaders' personal assets and the organization's balance sheet.

Here’s a look at the typical lifecycle of a securities class action:

1. Triggering Event

SCAs are typically initiated by a significant corporate disclosure—often an earnings restatement, a fraud allegation, or a regulatory probe. Such events trigger a sharp decline in the company’s stock price, drawing the attention of investors and plaintiff law firms. These firms issue press releases and shareholder alerts, seeking potential claimants and setting the stage for litigation.

Timeline: Immediate to 1 month duration

Insurance Impact: When plaintiff law firms start issuing press releases to attract potential claimants for an SCA, it may be prudent for the insured to consider reporting these developments collectively as a "Circumstance" to their insurers. The specific language of the insured's policy will define what qualifies as a Circumstance, and consulting with an experienced broker can provide valuable guidance on whether reporting this Circumstance is a strategic move for the insured.

When faced with the decision of whether to report a Circumstance, the insured must weigh several considerations. On one hand, reporting could safeguard coverage under the current policy if a claim were to materialize in the future. On the other hand, it might lead insurers to perceive the insured as a higher-risk, potentially resulting in increased premiums upon renewal.1 To navigate these complexities and assess the pros and cons effectively, consulting with an experienced broker is advisable.

2. Filing of the Complaint

Litigation begins when an investor—purporting to represent a class of similarly affected shareholders—files a complaint, usually in federal court. Common allegations against the company include misleading statements, omissions of material facts, or improper accounting practices. To participate, plaintiffs must have owned shares during the defined class period. Defendants typically include the company and certain current or former directors and officers.

Timeline: Within 1-3 months of triggering event

Insurance Impact: Insured parties should follow the specific guidelines outlined in their D&O policy regarding the timing and method of notification in reporting any claims to their D&O insurance carriers. Timely action is crucial to maintaining coverage and facilitating a smooth claims process.

Insured parties are advised to thoroughly understand the scope of coverage provided by their D&O insurance policy, distinguishing between covered and non-covered costs. Furthermore, it may be beneficial for the insured to negotiate rates with their selected law firms or establish a fee cap arrangement with defense counsel, particularly for the forthcoming work on the initial motion to dismiss. Such proactive measures can help manage legal expenses effectively.

3. Appointment of Lead Plaintiff and Counsel

Under the Private Securities Litigation Reform Act (PSLRA), the court appoints a lead plaintiff—usually the investor with the largest financial interest and the capability to represent the class effectively. Pension funds and institutional investors often assume this role. Subsequently, the court chooses the lead counsel, which is usually the lead plaintiff’s choice of counsel.

Timeline: 2-4 months post-filing of the SCA

Insurance Impact: Once the D&O carriers are put on notice of the SCA, they will be reviewing the matter to determine coverage under the policy. It will be important for the insured to notify them of the appointment of lead counsel as well as the appointment of the insured’s defense counsel.

4. Consolidated Amended Complaint and Motion to Dismiss

Multiple filings are usually consolidated into a single action. The lead plaintiff then submits a consolidated amended complaint, expanding on and refining the allegations. The company typically responds with an answer or a motion to dismiss, arguing that the complaint fails to meet legal standards. This phase can last several months and is key in determining whether the litigation will proceed.

Timeline: 6-12 months post-filing of the SCA

5. Motion to Dismiss Decision

While a variety of outcomes could result at this stage, some of the most common are the following:

  • The motion is granted, and the case is dismissed entirely.
  • The motion is granted, but plaintiff is permitted to refile an amended complaint with more particularized allegations.
  • The motion is denied, and the case advances toward discovery/trial.
  • The motion is denied, and parties enter settlement negotiations.

Statistically, approximately half of SCAs survive the motion to dismiss in full or in part. Of those that proceed, most are resolved through settlement or alternative dispute resolution.

Timeline: 3-9 months post-filing (could be longer) of the SCA

6. Discovery

Discovery—both fact discovery and expert discovery—is typically the most demanding and resource-intensive phase. The parties exchange numerous documents, conduct depositions, and present expert testimony. This stage often uncovers pivotal evidence that informs the legal strategy or catalyzes settlement discussions.

Timeline: 1-2 years

Insurance Impact: While discovery costs vary widely, a company can generally expect to pay hundreds of thousands to several million dollars during this stage. Once the insured fulfills the retention requirements of their D&O policy, the coverage becomes available, allowing for the payment of eligible costs. It is essential for the insured to consistently and promptly submit fees and expenses to the insurer to ensure smooth reimbursement and financial management.2

7. Class Certification

If the case survives dismissal, plaintiffs seek class certification. They must demonstrate that common legal and factual issues predominate and that class action is the most efficient means of resolution. The court’s ruling on class certification substantially influences the case’s leverage and potential monetary value.

Timeline: 6-12 months post-dismissal ruling

Insurance Impact: The insured has the option to retain experts to perform an “event study” to oppose plaintiffs’ class certification motion, which potentially would be covered by the D&O policy. Additionally, as noted above, it is important to submit the defense costs of defense counsel and experts that are opposing class certification.

8. Summary Judgment

Following discovery, either party (or both) may move for summary judgment, contending that the undisputed facts warrant resolution without a trial. If the court denies the motion, the case proceeds to trial preparation.

Timeline: Immediately post-discovery

9. Settlement and Resolution

SCAs are resolved through settlement before reaching trial. All settlements must receive preliminary and final court approval to ensure they are fair and adequate for class members.

Timeline: Can occur at any stage; most often after class certification or during/after discovery

Insurance Impact: While the impact varies widely, the median settlement amount for SCAs in 2024 was $14M.3 The payout from a D&O insurance policy, after subtracting the retention, is determined by both the settlement amount and the policy’s coverage terms.

10. Trial (Uncommon)

While rare, some cases do proceed to trial. These high-stakes proceedings may result in verdicts for either side and are often followed by motions and appeals, potentially extending the litigation timeline. Certainly, one concern is whether the trial or verdict raises any admission, final adjudication or finding of fact that could be used against the insured when determining coverage.

Timeline: 2-4 weeks (if verdict reached), often years after filing of the initial complaint

11. Claims Administration and Settlement Distribution

Once a settlement or judgment is finalized, a court-appointed claims administrator oversees notification to class members, reviews submitted claims and distributes funds in accordance with the approved plan of allocation.

Timeline: 6-12 months post-settlement approval or verdict

Total SCA duration

2-5 years, on average

Total SCA insurance impact

The amount paid by the D&O insurance policy varies widely based upon the policy language and the specifics of the case.

Related Claims

SCAs often occur alongside several related types of claims, especially when the underlying issue involves corporate misconduct or financial misstatements. Common parallel or companion claims include:

Aon’s technical experience in manuscript D&O policy language and strong analytics-driven insights enhance clients' risk management strategies and support their risk capital strategies.

By collaborating with clients and insurers throughout the claims process, Aon helps develop and deliver strategies to reduce claim exposure and maximize risk transfer value.

If you have any questions about coverage or are interested in coverage, please contact your Aon broker.

Aon’s Thought Leaders
  • Adam Furmansky
    Deputy D&O Product Leader, Financial Services Group, U.S.
  • Alexandra Collins
    Senior D&O Broker, Financial Services Group, U.S.

1 Notice of Circumstance: An Important Part of the Risk Management Toolkit | Aon
2 Discovery Management: Further Analysis of the Civil Justice Reform Act Evaluation Data | RAND
3 Cornerstone Research - Securities Class Action Settlements 2024 Review and Analysis

General Disclaimer

This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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