AIG D&O Endorsement Responds to Change from Supreme Court ‘Fraud on the Market’ Decision
June 26 2014 - 1:00PM
Business Wire
American International Group, Inc. (AIG) insurers have
introduced a new policy endorsement that ensures primary D&O
policy funds are immediately available to clients named as
defendants in securities lawsuits for the preparation of “event
studies.”
The endorsement was developed in anticipation of the U.S.
Supreme Court’s June 23, 2014 decision in Halliburton Co. v Erica
P. John Fund, Inc., which places added importance on costly event
studies early in the litigation process as a way to determine
whether securities actions can be certified as a class.
AIG, one of the largest D&O carriers in the world, is first
to market with this new D&O policy endorsement. The endorsement
has no retention requirement. Additional premiums are not
required.
In Halliburton, the Supreme Court addressed a significant
challenge to the long-standing “fraud on the market” theory in
class action litigation. The theory asserts that the price of
shares traded in an “efficient market” reflects all available
information, including alleged misrepresentations by defendants, so
that investors are presumed to have relied on those alleged
misrepresentations when making their investment. This presumption
effectively allowed plaintiffs to bring securities suits as class
actions.
In the ruling, the Court declined to reject the fraud on the
market theory entirely. It held, however, that defendants were
entitled to rebut plaintiff’s presumption of reliance on the theory
with evidence that alleged misstatements had no ”price impact” on
share value. Presenting this evidence, in the form of event studies
prepared by expert economists, may lead to significant costs for
plaintiffs and defendants early in the litigation process.
“During the Halliburton oral argument, we noted several Justices
mention the event study as a form of expert evidence to assess
price impact. We felt if the Court left fraud on the market
standing, it would probably permit the parties to produce event
studies in defense of the class certification process,” said Chris
Sparro, President, Financial Lines for AIG’s Americas Region. “We
created our endorsement to provide funds to our clients, free of
retention requirements, so they could obtain the event studies
early in the litigation process, potentially to head off class
certification.”
AIG’s D&O underwriters and claims professionals will
continue to monitor interpretation of the Halliburton decision to
determine whether additional policy endorsements or changes are
necessary.
AIG offers market-leading primary and excess coverage to
directors and officers of domestic and multinational public and
private companies, non-profit entities, and financial institutions
to protect against board level risks.
American International Group, Inc. (AIG) is a leading
international insurance organization serving customers in more than
130 countries and jurisdictions. AIG companies serve commercial,
institutional, and individual customers through one of the most
extensive worldwide property-casualty networks of any insurer. In
addition, AIG companies are leading providers of life insurance and
retirement services in the United States. AIG common stock is
listed on the New York Stock Exchange and the Tokyo Stock
Exchange.
Additional information about AIG can be found at www.aig.com |
YouTube: www.youtube.com/aig |Twitter: @AIGInsurance | LinkedIn:
http://www.linkedin.com/company/aig |
AIG is the marketing name for the worldwide property-casualty,
life and retirement, and general insurance operations of American
International Group, Inc. For additional information, please visit
our website at www.aig.com. All products and services are written
or provided by subsidiaries or affiliates of American International
Group, Inc. Products or services may not be available in all
countries, and coverage is subject to actual policy language.
Non-insurance products and services may be provided by independent
third parties. Certain property-casualty coverages may be provided
by a surplus lines insurer. Surplus lines insurers do not generally
participate in state guaranty funds, and insureds are therefore not
protected by such funds.
American International Group, Inc.Matt Gallagher (Media):
212-458-3247;matthew.gallagher2@aig.com
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