Cyber and cryptocurrency issues are front and center in the directors and officers liability insurance market, while the heavy focus on SPVs of a year ago has waned significantly.
Cyber ”brings with it the potential for huge exposures for officials if they get the cyber process wrong,” said William G. Passannante, a shareholder at Anderson Kill PC in New York.
However, David M. Kroeger, a partner with Jenner & Block LLP in Chicago, noted that “there have been some fairly prominent dismissals” of D&O litigation in this area, such as a Delaware court dismissing claims of cybersecurity-related regulatory violations. v. SolarWinds Corp. after a hack from 2020.
Cryptocurrency can be another source of claims.
In December, the SEC advised public companies to examine whether they need to disclose to investors any impact from the turmoil in the cryptocurrency industry.
Cryptocurrency “presents a huge opportunity for carriers that are willing to step up and better understand the risk and what has gone wrong in the past,”; said Larry Fine, New York-based head of liability coverage for Willis Towers Watson PLC.
Meanwhile, SPACs, which attracted a lot of attention in the D&O space, have moved out of the spotlight.
Investors lost interest in the SPAC market last year due to a combination of rising inflation, interest rate hikes and a proposed US Securities and Exchange rule issued in March that would require additional disclosures and remove SPACs’ liability immunity with respect to forward-looking statements.
This left hundreds of SPACs without public corporate partners to merge with, but observers say this should not be a problem for the D&O market.
“By and large,” the SPAC and deSPAC markets were “highly concentrated,” so their decline won’t affect everyone, said Peter Taffae, a D&O liability insurance expert at Los Angeles-based wholesale brokerage Executive Perils Inc.
SPAC investors who haven’t found merger partners are likely to accept only a return on their investments, some experts say.
“I don’t think there would be a ton of claims coming out of it,” unless out of desperation there was a merger “that didn’t make economic sense,” said Andrew Doherty, New York-based national executive and professional risk solutions practice leader for USI Insurance Services LLC .
But Mr. Passannante said those who did not get the significant returns on their investments they expected could file lawsuits.
A positive development for the D&O sector overall has been relatively flat securities group targets. There were 110 new securities class actions filed in federal and state courts in the first half of 2022, which compared to the 107 filed in the second half of 2021, according to a report released by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse.
“It feels like a period of stability,” and there is currently no reason to expect the number of cases to increase or decrease, Doherty said.
Carolyn H. Rosenberg, a partner with Reed & Smith LLP, said: “I think you will continue to see a steady stream of securities-related litigation.”