And the need to adjust D&O insurance coverage accordingly

Authors: Jennifer Senior Jennifer Sharkey Dr. Phil Norton


In recent years, the risk of derivative action lawsuits has significantly increased, prompting companies to prioritize comprehensive Directors and Officers (D&O) insurance programs. Previously, many derivative lawsuits were considered nuisance suits and often accompanied securities class actions, resulting in nominal settlements or non-monetary resolutions. However, a study tracking derivative settlements from 2005 to 2023 reveals a substantial rise in settlement costs in recent years. This trend highlights the need for companies to adjust their D&O insurance coverage accordingly.

Companies are advised to work with their broker teams and legal counsel to assess potential risks and ensure appropriate coverage at each stage of a derivative claim. D&O policies should be reviewed to determine if they provide coverage for defense costs and settlement payments related to derivative demands and lawsuits. It's important to consider whether the policy includes coverage for the entity as a nominal defendant and to understand the applicable retentions and sublimits. Standalone Side A coverage is crucial in protecting individual defendants from personal liability in the event of a settlement or judgment in a derivative lawsuit.

Gallagher, with its network of specialists, offers industry-specific expertise and tailored insurance solutions to mitigate potential losses in the D&O insurance market.

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