SEC Changes for Public Cos. Shake Up D&O Coverage Risks

Attorney Thomas Bentz, who co-chairs Holland & Knight's Insurance Industry Team, spoke with Law360 about regulatory changes from the U.S. Securities and Exchange Commission (SEC) and their implications for directors and officers (D&O) liability insurance coverage. The SEC announced last month it would not change its approval process for registration statements if a company required investors to arbitrate federal securities claims; given that the registration statement is a key filing for initial public offerings (IPOs), organizations had expressed concerns about delays in getting approved for a high-stakes transactions and thus often opted not to include mandatory arbitration clauses in agreements. Because D&O policies include claims for monetary relief, adding these provisions will not directly affect coverage, professionals interviewed by Law360 explained. Mr. Bentz noted, however, that arbitration costs can quickly pile up, especially in cybersecurity-related disputes, where "the plaintiffs bar has started using mandatory arbitration as a sword instead of a shield." Nevertheless, he added, arbitration also imposes a higher burden on plaintiffs, and companies will benefit from the reduced size of claims.

"There's a lot more scrutiny, a lot more effort to be made when you do this on an individual basis than if you do it on a class basis," he said. "For better or worse, you get finality with a class action resolution, but you pay a lot more for it."

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