SAN DIEGO — Proposed U.S. Securities and Exchange Commission disclosure rules on climate-related risks and cybersecurity could lead to more litigation and claims for the directors’ and officers’ liability market, panelists said Wednesday at the Professional Liability Underwriting Society’s 35th annual conference.
“More disclosure, more securities litigation,” said Noelle M. Reed, partner, securities litigation, at Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates.
“Anytime you have disclosure, you’re going to have plaintiffs scrambling and looking for claims to make,” Reed said.
There is a potential conflict between what companies say about climate and cybersecurity issues in less formal disclosures, such as in brochures, on earnings calls or in presentations to employees, and what they say in regulatory filings, she said.
“From a securities litigation perspective, any time you have new rules that require a company to speak — and in some cases not with a materiality requirement — it̵7;s going to be rich for plaintiffs to break,” Reed said.
Climate disclosure rules may initially lead to a flurry of new lawsuits, but they are unlikely to provide long-term business for the plaintiffs’ bar, said Doru Gavril, a partner with Freshfields, Bruckhaus, Deringer LLP.
What companies should look at is how they might get into trouble under the new rules, Gavril said.
One situation is when companies “make reckless statements or say something ambitious” and put it in a disclosure that makes it sound like fact, but they have no backing for it, he said.
Companies that think they can measure their impact on the environment, but actually don’t, are another situation, he said.
“Those are the pressure points. You’re always going to have litigation after any major traumatic event, whether it’s climate related” or something else, Gavril said.
Companies that spend hard dollars to make themselves a better organization or a less likely target for a lawsuit will differ from a coverage standpoint, said Jack Flug, head of US FINPRO at Marsh LLC.
“Clients who invest to knock down the hatches to deal with the problems that come their way are a better risk,” Flug said.
The D&O market has gotten better for buyers and from a business brokering standpoint, but not for insurers, he said. The market went up “way too fast” and went down just as quickly, he said.
“If you look at where things were two years ago, and you compare it to today, it’s a bit better if you’re a buyer – there’s no doubt about that – but the claims are still there,” he said.
As the SEC’s disclosure rules become more lax “there’s a distinct possibility” it will provide more fodder for the plaintiffs’ bar, Flug said.
The panel was moderated by Matthew McLellan, senior vice president at Marsh.