2010 PLUS International Conference

HOW D&O INSURANCE TRANSFORMS SHAREHOLDER LITIGATION

2010 PLUS International Conference

The Round-Up…

MODERATOR:• Timothy W. Burns, Esq., Partner, Perkins Coie LLP

PANELISTS:• Tom Baker Ph.D., William Maul Measey Professor of Law and

Health Sciences, University of Pennsylvania and the Wharton School• Sean M. Fitzpatrick, Esq., Lecturer, University of Connecticut

School of Law • Stuart M. Grant, Esq., Managing Partner, Grant & Eisenhofer P.A.• Kim D. Hogrefe, Esq., Senior Vice President, Senior Specialty

Claims Officer, Chubb & Son• Anne R. Myers, Esq., Partner, Kaufman Dolowich Voluck &

Gonzo LLP

2010 PLUS International Conference

Median Ratio of Settlement to Investor Losses

0%

1%

2%

3%

4%

5%

6%

7%

8%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Settlement Year

January 1, 1996–June 30, 2010

It’s really just pocket shifting!

And such small

Portions!

2010 PLUS International Conference

Insurance Undermines Deterrence

Premium differences are too small to change behavior.

Underwriters don’t (can’t?) prevent bad acts.

Thanks, but gotta go … NetJet is waiting

2010 PLUS International Conference

INSURINGCORPORATE MISCONDUCT

2010 PLUS International Conference

Now the Good News!

• D&O insurance is priced to risk• The merits matter• We have a deterrence fix

Uh, oh!

2010 PLUS International Conference

Our Reform Proposal

• DISCLOSURE: D&O program details and who pays what in settlement

MAGNIFY the pricing signal

IDENTIFY the insurance effect on settlement

• COINSURANCE: Sides B &C Keep the corporation’s skin in the game Control costs and reduce collusion

2010 PLUS International Conference

How D&O Insurance Transforms Shareholder Litigation

Typical Shareholder Litigation

How it works:• Derivative Litigation

• Securities Litigation

2010 PLUS International Conference

How D&O Insurance Transforms Shareholder Litigation

The Purpose of Shareholder Litigation

• Victim Compensation?

• Deterrence?

2010 PLUS International Conference

How D&O Insurance Transforms Shareholder Litigation

Does D&O Insurance Impact Deterrence?

2010 PLUS International Conference

How D&O Insurance Transforms Shareholder Litigation

Do D&O Insurers Deter Wrongful Conduct?

2010 PLUS International Conference

How D&O Insurance Transforms Shareholder Litigation

Reform

• SEC Mandated Disclosure of D&O Insurance Details

• Mitigating Moral Hazard by Reducing Corporate Coverage

• Making Merits Matter Through Settlement Disclosures

2010 PLUS International Conference

Questions&

Answers

2010 PLUS International Conference

Many Thanks To…

• Tim Burns• Sean Fitzpatrick• Stuart Grant• Tom Baker• Kim Hogrefe• Anne Myers