Supreme Court Haliburton ruling could reshape D&O liability insurance market
By: Judy Greenwald (Business Insurance) December 2013
An eventual ruling by the U.S. Supreme Court in a securities class action case recently accepted for review could have a dramatic effect on the directors and officers liability insurance market and possibly lead to lower rates for policyholders.
Much depends on the high court’s decision in Halliburton Co. and David Lesar v. Erica P. John Fund Inc., FKA Archdiocese of Milwaukee Supporting Fund Inc., which deals with the issue of how easily plaintiffs can obtain class action certification in cases in which they allege firms have misrepresented information to their detriment as investors.
Arguments in the case are expected to be heard by the court early next year. And legal experts warn that even if the court rules in Houston-based Halliburton’s favor, a nimble plaintiffs bar is likely to quickly adjust, thus diminishing the effect of the ruling. Furthermore, major institutional investors would likely continue to feel obligated to pursue these cases, even if not as a class action, experts say.
The focus of Halliburton is the Supreme Court’s 1988 ruling in Basic Inc. v. Max Levinson in which the court endorsed the “fraud-on-the-market presumption theory.”
The theory says plaintiffs in class actions do not have to demonstrate each of the individual class members relied on the company’s alleged misrepresentation of information. It is based on the presumption that in an efficient marketplace, a company’s share price reacts to all publicly available information about the company. Experts say the Basic ruling has made it much easier for plaintiffs to file class action lawsuits.
Defendants are seeking to overturn an April ruling by the 5th U.S. Circuit Court of Appeals in New Orleans, in a case in which plaintiffs claim Halliburton had understated its asbestos liabilities.
